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Why would a central bank need to pay interest on itsliabilities?
This is a key point to understand inflation. According to mainstream
economists, inflation is a process that pops once the potential output
gap of a currency zone is eliminated. Inflation is the consequence of
reaching full employment of resources, they say, and place the
situation within the context of hydraulics. In the figure below, I
illustrate this context, showing two glasses: One is not full, and
therefore, there should not be inflationary pressures.
Please, do not laugh at the figure. It also contains a citation from a
speech given by Feds Governor Jeremy C. Stein a few months ago,
that uses this same metaphor to illustrate how the Fed thinks about
their policies. If it wasnt so sad, it would be comic. And it is sad
because there is absolutely no historical evidence of a nation
sustainably living under inflation that would have reached full
employment. In fact, it is quite the opposite: Inflation breeds
unemployment, which breeds shortages and further inflation. This is
why this whole situation is so sad. Millions of lives have been and will
continue to be ruined because of this error.
The truth is however that inflation and financial repression are
inseparable. They are different faces of the same coin, and as
inflation develops, financial repression morphs into plain
confiscation. As at December 2012, we have only had increasing
financial repression, mostly in the form of price manipulation. Some of
this manipulation is open, as with interest rates, and some of it is
covered, as with gold, the consumer price index or the unemploymentrate. But as the US fiscal deficits grows, the manipulation will be
increasingly open and the fear of confiscation will be very tangible.
Yes, the manipulation will be so open that even the GATA (Gold
Anti-Trust Action Committee) will completely lose its raison
dtre. It will be worthless to expose what will be public.
With regards to the fear of confiscation, there is a good example in the
drop in deposits from the banks in the periphery of the Euro zone. Any
rational investor could see that his bank was being coerced into
purchasing the worthless debt of its sovereign and that the likelihood
of being caught in a bank run was exponentially rising. Policy makers in
the Euro zone chose not to confiscate. It was too early to do so, in
the presence of other alternatives. But deposits dropped nevertheless,
and to restore them, the European Central Bank will have to pay higher
interest rates on its sterilized purchases, when it finally engages in
Open Monetary Transactions (i.e. purchase of sovereign debt with
maturity under three years). I explained this in September: Since thebackstop of the ECB removes jump-to-default risk from the front end
(i.e. 1 to 3 years, in sovereign debt), selling the sovereign debt to the
central bank for cash will be a losing proposition for banks. The Euro
zone banks will demand that the purchases be sterilized, to receive
central bank debt in exchange and at an acceptable interest rate. This
rate will have to be higher than it currently is. This is why, in my
opinion, we are seeing a st ronger Euro and weaker Treasuries.
http://sibileau.com/martin/2012/09/10/why-draghi-opened-the-door-to-hyperinflation-and-denied-the-fed-an-exit-strategy/http://www.gata.org/http://www.federalreserve.gov/newsevents/speech/stein20121011a.htmhttp://sibileau.com/martin/wp-content/uploads/2012/12/Dec-16-2012-2.jpghttp://sibileau.com/martin/wp-content/uploads/2012/12/Dec-16-2012-1.jpg7/27/2019 Guest Post_ What Causes Hyperinflations and Why We Have Not Seen One Yet _ Zero Hedge
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Why would a government want to maintain a certain levelof deposits?
Governments need bank deposits to fund the bonds they force their
banks to buy. The regulations, the pressure on the bankers, the open
threats are all part of the same means to coerce bankers to fund their
debts with your savings. Is this what was behind the failed moves in
2012 to destroy the US money market funds?
Essentially, hyperinflation is the ultimate and most expensive
bailout of a broken banking system, which every holder of the
currency is forced to pay for in a losing proposition, for it
inevitably ends in its final destruction. Hyperinflation is the vomit of
economic systems: Just like any other vomit, its a very good thing,
because we can all finally feel better. We have puked the rotten stuff
out of the system.
Why would depositors not want to renew deposits?
Whenever the weight of deficits passes a certain milestone, people
begin to flee en masse from the system. They not only take their
savings from the system, but they generate income outside it too. This
has happened since times immemorial. Below is a picture of buried
coins, found in Hertfordshire. They are presumed to have been hoarded
in 4th century during the final years of Roman rule.
Then and now, the tax pressure ended breaking capital markets and
trade. In the early stages, everyone seeks to stop investing and
collect by any means whatever capital that can be recovered. Nobodyshould be surprised if, with these low interest rates, the wave of share
buybacks and dividend payments increases. The shrinkage of the
system exacerbates the fall in tax revenue and the intervention of
central banks, leading to the self fulfilling outcome of quasi-fiscal
deficits. Production falls and the shortage of goods, together with the
increase in the circulation of money, triggers high inflation. Price
controls follow.
If this is correct, Jim Rogers is wrong and you should not buy
farmland. Farming will not be profitable. The increase in food
prices would not be a signal to encourage farming, but the
reflection of the fact that farming is not profitable because it is
easy to tax. Hence, the food shortages. The same applies to real
estate in general, as the rule of the mob spreads and the rights
of debtors and tenants are favoured over those of creditors and
landlords. Hyperinflation therefore is not just a run from a
currency, but from the economic system entirely. Thousands of
years of Diaspora are screaming to us in the face that theadvantage of gold as an easy-to-transport and store asset is not
to be underestimated.
Why have we not seen a quasi-fiscal deficit yet and howclose are we too see one?
I think that at this point one can easily see how high nominal interest
rates (to attract deposits) and hyperinflation go together. The loss of
confidence in the system pushes nominal rates higher, which causes
even more pain to produce, unleashing shortages of goods and higher
prices. Von Mises, for instance, remembered that in the case of the
German hyperinflation, With a (my note: nominal) 900 per cent
interest rate in September 1923 the Reichsbank was practically giving
money away (Chapter 7, in Money, Method, and the Market
Process).
Frankly, I do not have a definitive answer to the question of why we
have not seen a quasi-fiscal deficit yet. But I can intuit that we are
still far from seeing one. There are many factors at play. The existence
of coercive pension plans (i.e. monies coercively taken from salaries to
fund collective distributions) could be playing an important role. These
funds are other peoples monies to their managers and they will not
risk their careers to protect them from governments that force them to
assign a zero risk weight to US Treasury holdings. It is conceivable
that as funds are burdened with losses, the contributors wake up to
http://library.mises.org/books/Ludwig%20von%20Mises/Money,%20Method,%20and%20the%20Market%20Process.pdfhttp://youtu.be/0ngA_TM4em0http://sibileau.com/martin/wp-content/uploads/2012/12/Dec-16-2012-3.jpghttp://sibileau.com/martin/2012/08/197/27/2019 Guest Post_ What Causes Hyperinflations and Why We Have Not Seen One Yet _ Zero Hedge
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Wed, 12/19/2012 -
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Wed, 12/19/2012 -
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Wed, 12/19/2012
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them and decide that at a certain point, one is better off working
outside the system than in it, to avoid this hidden tax. Just like
Romans left the city, millions of workers in the developed world may
decide to become self-employed and leave the system. This is a
typical characteristic of under-developed economies.
So far, the Federal Reserve does not even need to sterilize what it
prints. The European Central Bank did have to sterilize but the market
does not demand an interest rate on its liabilities, higher than that of
the sovereign debt it purchases. Not yetPerhaps because the market
somehow still believes that institutional structure of the European
Monetary Union is fixable. Further downgrades in the risk rating of core
Europe, the concurrent rise in the yields ofGermanys sovereign debt
and corporate defaults in USD denominated bonds will eventually wipe
this belief. For now, the European Central Bank has been successful in
not even having to pay interest on deposits.
If I have to think of a main and most likely trigger of quasi-fiscal
deficits, I have to name the future bailout of the next wave in
corporate defaults, particularly from the Euro zone.
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Racer
Banking system = fractal
destruct ion cycle
formadesika3
Long before we reach
hyperinflation, your savings have been wiped out.
formadesika3
Forgot sumpn.
... unless you save in gold & silver.
THX 1178
What about debts?
bigmikeO
I'm guessing that our "dear
leaders" are thinking that we can muddle our way through
for 20 more years like Japan.
The thing I'm concerned about is that everything moves a whole lot
faster than yester-year. Facebook, Groupon, Pinterest - the
Internet can accelerate at breakneck speed, so the 15 minutes
after "The View" does a story on "should you spend all of your
money asap?" hyperinflation kicks off and then ends within 6
months. (With lots of death and destruction).
BraveSirRobin
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It seems the current
bubble is in guns and
ammunition. Of all the bubbles to worry about, perhaps
this is the one.
sessinpo
Or it might be a
bubble multi decade bubble in liberalism and
ignorance. In which the ones that need to worry are
the liberals - they just be about ready to pop in a bad way.
spinone
Interest rates will never
have to go up in the USA, as long as the dollar is WRC the
Fed can monetize as much as it wants.
Al Huxley
Yep, lucky no other
country out there is angling to take over the role of
WRC provider. Infinite prosperity for everybody. I'm
just looking forward to the day when all taxes are abolished and
everything is just outright monetized without consequence.
Assetman
... this assumes that
the Fed is the marginal price setter for pricing what is
considered "risk-free" Treasury assets across the
curve. Today, that is certainly the case.
Tomorrow? Who knows?
Flakmeister
We'll be fine along as the
House of Saud stays in power and there is more net exports
of oil on the market than there are net US imports...
Upper limit 20 years.... tops...
Edit: For perspective, check this out...
http://i289.photobucket.com/albums/ll225/Fmagyar/Oilreserves-
1_zps45f0ebc3.jpg
Body of Lies
You are right about Saudi
Arabia ... and if you are looking for trigger event it will be
th fall of Saud.
1) Saud falls
2) Crisis prevails worldwide in oil pricing (If Obama is in office
we're screwed, if a Bushie is there we have a chance by taking
over Saudi Arabia)
3) Islamists come to power rapidly IN SA
4) They refuse US dollars for oil payment (demand gold only)
since they are ideology driven, the money is not so important.
5) Energy rationing in US, colossal depression results
6) Dollar collapses as everyone t ries to 'redeem' them for
tangible assets
7) Reset ... whatever that means
ball-and-chain
I asked my mother what
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causes hyper-inflation.
She says its velocity.
Picture this.
Bernanke's man-tits are squirting milk to the hungry (his banker
friends.)
But there is so much hunger in banking land that his milk isn't
distributed t o the regular folk.
Hence, no big spikes in inflation. Why? No velocity.
But what does she know?
http://www.angrysinner.blogspot.kr/2012/12/yesterday-dragon-lady-served-beef-and.html
becky quick and...
jim rogers (and me)
advocate buying farmland so that you will not starve to
death while the 'smart people' with underground food
bunkers try to figure out how to 'save us.'
buying farmland is investing in 'staying alive, live, live, live,
livvvvvvvvvvvve.'
Flakmeister
Just make sure that you
have water....
Which eliminates a lot of places...
Bohm Squad
...and water rights.
kaiserhoff
Farm land is a great
place to keep your gold, guns, etc . I've never quite
understood what any of the prepping supplies are worth unless
you are part of several counties of folk who think and act like
you.
Getting more interested in specialty crops. I hate tobacco, but
I've noticed those who are so inclined will pay almost anything
to get it. Gray market, Bitches?
JohnG
Prepping "supplies" are a method to get going. Gardening is
a steep learning curve, as is animal husbandry, meat
preservation, etc . Water is essential of course.
One will need tools, and the skills to use them. I would like
to be warm when the lights go out, and I will be. Preserving
vegetables, while not hard, takes supplies and know how.
Moral: Get some seeds and learn how to grow them. It will
be at least two years before you have a meaningful
harvest. Prepare now or starve. Learn to hunt, clean and
preserve animals. Learn to raise them. Learn to find water.
There is much to learn, do it now, or die.
Diogenes
Everybody laughs
at the hillbillies
but they will go
under last, if at all.
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Flakmeister
Sure, that was
never in
dispute...
The question is do you want to live like that now....
ultimate warrior
The way I look atfarmland is (1) you don't need or want a lot of it
(confiscation/theft could result if you have to much land) (2)
Store what you can but sell extra produce at inflated price to
pay off debt at fixed interest rates i.e. mortgage. (This was
done in Weimar Republic). Farmland could possibly be a
lifesaver.
vast-dom
you miss the point: it is
about t axes on farm product ion and just as importantly
and unmentioned in above article, the gov jacking up RE
taxes, which will occur 100% and thus extract from you wealth,whether saved in fiat or buried on said RE in form of PMs.
BraveSirRobin
Also, land can not be
moved or hidden. Time and again, governments have
taken land from their owners and given it to its
preferred constituencies.
vast-dom
hence the
leverage of
renters and non-
land owners as per above article.
ultimate warrior
The government can
only jack up taxes so far especially in a hyper-
inflationary environment. Eventually the public will say get
fucked while stroking their AR15. The black market will
be flourishing and the government will be limited in their
actions.
Body of Lies
There will no black
market ... with
everyone armed and
the level of morality in the American psyche we become
a Mad Max world with the strongest strong man in the
area trumping all others. Take a look at criminality in the
US ... Gangs can and will rule in the black market just as
they rule the black market in drugs. One season of
produce will mean a dead farmer. We become Somalia.
You worry about Gov taking your produce ... at least
they leave you alive
Rusty Diggins
The point that is missed
in the "buy farmland" meme is that you do not need very
much for you and yours.... 10 ac res will do quite well for
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a dozen paople.
Body of Lies
I had a plum tree ...
watched it every day until one day all the plums were
gone ... warefare over farmland will result if it gets
that bad
haskelslocal
Why is this story so full of
shit?
drbill
What an insightful
comment...
I am a Man I am...
It also helps if you are asmaller country that no one likes or that a bunch of other
countries are aligned against. Europe against Argentina,
world against Weimar Germany, Zimbabwe because it is easy.
garypaul
Good observation
notadouche
Well I don't know about notseeing hyper inflation. OK maybe not hyper in the technical
sense but when you compare the real cost of fuel, food,
college tuition, healthcare, prescription meds, insurance, housing
we are seeing plenty. It would perhaps be useful to measure
inflation by the same definition as they did in say 1950 and
compare. These govt stats are so watered down and manipulated
now who knows what to believe. The planners have a number they
want to publish and then work their way back to make the math
work. Also measure the amount of food, any packaged food today
vs what you were paying for 5 years ago and tell me there is no
inflation. Same bag, a little bit more in price and a lot less in
product . Smells like inflation to me.
balz
Food is easy to tax ?
Go and try to tax that carrot out there in my garden that i
will eat tonight.
Body of Lies
Food on tax, and I'll get
the carrot f rom your garden LAST Night
blunderdog
It's really just not likely we'llsee hyperinflation in the USA until a meaningful alternative
medium for exchange exists.
akak
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What has any alternative
currency got to do with
chronic governmental overspending, rising debt and its
concurrent monetization? Your argument, heard so often, is in
fact so lame and intellectually insulting it is laughable.
Just for one example, the Romans' lack of any "alternative
medium of exchange" did not prevent the utter debasement
(hyperinflation under the specie system) of the denarius in the
third century AD from happening nevertheless, leading to the
effective (and permanent) death of the money-oriented
economy in the (Western) Roman Empire.
blunderdog
What has any
alternative currency got to do with chronic
governmental overspending, rising debt and its
concurrent monetization?
Nothing at all, but those things are not hyperinflation.
Hyperinflation is loss of faith in the currency to the extent
that it can no longer be used as medium of exchange.
In the USA, in order for the "dollar" to go out of use,
something else will have to be available. Too much of our
entire SOCIETY is dependent on exchanging colored paper
for it to *end*--it has to be subsumed by something else.
Once we have other options, like easily located barter-
exchanges, or alternative means of transacting business, it'll
be easy to dump the dollar.
Payne
There is a run on the Banks
today it is called default. $178 Billion in defaults today on
mortgages. That is a hefty run on the bank.
AUD
Hyperinflation in $ terms is a
run on the bank that issues the $.
ramacers
fed can't eat that balance
sheet any more than bonds will move at any rate when
the jig is up. sh-- will hit the fan and blood will flow.
Bicycle Repairman
Money shot:
"...the tax pressure ended breaking capital markets and
trade. [...] If this is correct, Jim Rogers is wrong and you shouldnot buy farmland. Farming will not be profitable. The increase in
food prices would not be a signal to encourage farming, but the
reflection of the fact that farming is not profitable because it is
easy to tax. Hence, the food shortages. The same applies to real
estate in general, as the rule of the mob spreads and the rights of
debtors and tenants are favoured over those of creditors and
landlords. Hyperinflation therefore is not just a run from a currency,
but from the economic system entirely."
Head for the hills. Your guns get used only if they c orner you.
JR
The way to crush the
bourgeoisie is to grind them between the millstone oftaxation and inflation.
Thats Vladimir I.Lenin. And whats more thats the two-party tag
team of Washington, DC, Obama and the GOP arm-in-arm with Ben
Bernanke -- stealing, cheating, compromising and enjoying their
positions.
The American Thinker writes: We have seen this before. Lenin
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triggered inflation to eliminate the Tsarist monetary system,
which he planned to replace with centrally-managed
rationing. He increased the money supply twenty-five fold."
Obama cares no more about Americas children or her elderly than
did Clintons Jewish Secretary of State, Madeleine Albright, who
said the price of 500,000 dead Iraqi children for U.S. sanctions
on Iraq was worth it.
Case in point: The New York Times is reporting Obama will cut
social security, but spare the Pentagon, by drastically reducing the
spending power of Americas elderly using CPI gimmickry. It comes
as no surprise, in that Obama made a promise to international
banker Bob Rubin in 2006 that he would do just that.
And while the cost of seniors non-discretionary spending soars,
Security benefit payments will rise by only 1.7 percent in 2013.
Obamas spending cut proposal cuts $122 billion by "adopting
a new measure of inflation that slows the growth of
government benefits, especially Social Security," even
though, as Don Smith writes on OpED News, Social Sec urity hasn't
contributed a penny to the deficit.
In fact, according to Paul Craig Roberts in a recent article: For
the past quarter of a century the Social Security portion of the
payroll tax has built up a surplus of over $2 trillion.
Obamas stealth redistribution strategy is merely robbing the old
to finance SSD and Medicaid for his constituents, including the
bankers. A fellow I know (Ive ac tually had to help him out), has
been addicted to drugs for years, has no job and every month the
government puts a sizable cash deposit into his checking account.
And then he was angry because I dont care for the poor. Why? I
didnt vote for Obama.
BraveSirRobin
Social Security was
already looted long ago. Nothing in the lockbox except
IOU's to ourselves.
JR
Exactly. The
Congress has been busy looting Social Security andother untouchable monies to use as general
revenue for their favorite vote-getting programs. Then they
simply add what they steal to the Federal debt figure but
not to the yearly deficit and leave a worthless IOW in the
Trust.
As to why the sum of the yearly deficit and the
accumulated federal debt doesnt add up to a new total for
federal debt, the answer they give is that these disparities
dont show up because we owe it to ourselves.
In Human Action, Austrian economist, Ludwig von Mises,
wrote regarding this economic accounting abyss and "owing
it to ourselves":
The most popular of these doctrines is crystallized in the
phrase: A public debt is no burden because we owe it to
ourselves. If this were true, then the wholesale obliterationof the public debt would be an innocuous operation, a mere
act of bookkeeping and acc ountancy. The fact is that the
public debt embodies claims of people who have in the
past entrusted funds to the government against all
those who are daily producing new wealth. It burdens
the producing strata for the benefit of another part of
the people.
Congress is responsible for this grave injustice to the
American people. And now you know why the bankers such
as Rubin want to do away with SS: it ain't there.
Bicycle Repairman
The SS fund
hasn't been
looted. That's
bullshit. Cut the defense budget and all the money is
there.
Run the numbers. Take defense spending and pay SS.
The IOUs are still there. Do you know what IOU
means? The empire was fun for some folks. Show's
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over now.
Body of Lies
It works the same in my
house ... I sock away money in the Boodle Bag and
match it with an equal increase balance on my credit
card and say 'I'm saving', but in reality, I'm going farther
behind for each dollar I 'save' because I get no interest on
it, but have to pay interest on the money I borrow.
Unfortunately for us the Gov keeps a huge increasing credit
card balance and robs the Boodle Bag at the same time
DavosSherman
I'm not a huge rogers fan,
but he's right, barring a population adjustment.
AGuy
Hyperinflation happens when
Investors, consumers and business lose faith in it. Currently
our trading partners still accept US Dollars for transactions,
and have been holding on to surplus dollars caused by tradeimbalances. Some trading partners have smartened up, like China,
by converting their US Dollars into tangible assets (PMs, Land,
rights to natural resouces). The dollar will tank when other join into
China's diversification program, as there will be excessive number of
countries willing to chase a small pool of tangible assests, and
those with tangible assets are less than egar to trade assets for
dollars.
Consumer Credit, and Domestic Consumption are meanless for
causing hyper-inflation. Consider hyper-inflation in Argentina, and
the Former Soviet Union. During the period when currencies
collapse, domestic unemployment, consumption and credit was
deflationary. This is because the citizens had no money to spend
and no access to credit. Domestically, they were in a state of
deflation, but globally their currencies were distrusted. The lost of
external confidence crushed the Ruble and the Argentina dollar.
When Hyperinflation does arrive, It will be very devistat ing forAmericans, since few are Americans are self- reliant, and America is
very very depend on imports (energy, raw and manufacturered
goods). I sudden collapse of imports would bring the American
economy to a complete standstill.
Counterfiat
Fail sorry. Back to the
chalkboard you go.
Why post half baked articles like this?
DavosSherman
Another fucking ilene
sailer boy special. Sad days.
jomama
was it: "Frankly, I do not
have a definitive answer to the question of why we
have not seen a quasi-fiscal deficit yet."that c linched
it for you?
Counterfiat
Seriously, I t hink the
article was written by a kid taking over from a ZH
editor that is now gone on holidays. He must have
discovered a new word and just had to add it to his
vocabulary and let it flap in the wind. I hope ZH in the
future will send homework back from whence it came, after
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allowing the dog to chew on it, with a note attached saying
'we'll all pretend that this didn't happen, now lose it in the
bird cage'.
DollarDive
The fiscal cliff discussions
are just the beginning of the problems. Remember, we've
been kicking the proverbial can down the road for several
years now. We haven't experienced ANY of the hardships of fiscal
restraint. The sledding will be gett ing tougher. Fed is applying
more pressure to politicians to cut deficits. Fed is running low on
bullets. As more an more people fall out of soc iety, due to lack of
jobs, income, ability to survive - there will be repercussions. The
government will need to confiscate more from those that are still in
society to make up for the ever increasing deficits - as well as
those that have fallen off the map. The gig is up. It's coming
soon. I can't wait to hear those teachers and firefighters
complaining about their cuts in income and pension benefits - It will
be loud and will scare the markets. It will be like nothing the
current equity generation has ever experienced. There will be fear.
Fear will cause volat ility and this will create more fear. Prices will
drop. Rates will spike and we'll be in the same situat ion as Greece,
Ireland, Portugal etc. We'll be begging from the IMF and the new
socialist world government leaders. We're really just a sad excuse
for another third world country.
topspinslicer
You will know we are on the
verge of hyper-inflation when Benny at the Fed starts
laughing uncontrollably in front of CON-gress questioning
him -- what gives benny boy??
Louie the Dog
I got a headache just
reading this article. I don't understand any of this shit.
Someone just give me a heads-up before it happens.
Assetman
Well... for starters, it's
a poorly written article.
Body of Lies
You are right ... when
the average reader cannot understand the point, the
article is not well written. I read it carefully and can't
see that he made his case at all.
AUD
It's also complete
baloney.
Quasi-fiscal deficit? I don't think so.
dunce
I have no clue what the guy
meant on buying farmland, but the guy that said farming
would not be profitable had a point. What might be more to
the point though is what is known as subsistence farming where
you just produce enough food to feed your family until the financialdebacle runs its inevitable course. Our economy is based on a very
complex distribution system and i do not mean wealth redistribution.
Hyperinflation results in plenty of cash but goods are hard to get.
People can get by with the same clothes for a long time but people
must eat every day. The govt. has a problem with forcing the
farmer to deliver his goods to the market. Espec ially if t he farmer
has guns and ammo.
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alentia
My wife went through
hyperinflation, this is what she told me how it had began
from regular cit izen point of view (T minus about 8-6
months):
1. Everyday local media broadcasted "everything is good with the
economy", people do not have to worry
2. Unempoyment was rising
3. Interest rates started rising in geometric progression
4. Banks advertising high interested rates trying to attract money
5. Smart few started to withdraw cash from bank accounts
6. Interest rates upto almost 100%
7. Run on banks
8. Prices rise in geometric progression
9. Absense to goods to purchase
10. Hyperinflation
11. Crash and Default
H E D G E H O G
you can try to t ax me into
oblivion, but to try and take my land and the air space
above it, that'll be where the shit hits the proverbial fan. as a
most famous person of late voiced, "bring it on!" assholes........
cbaba
Very interesting that the
Author c laims he knows what hyperinflation is but he misses
the biggest reason why it has not arrived yet. He frankly
admits that he doesn't understand..
In fact it is very simple, there is leverage in the system AKA
shadow banking, which is an inflation buffer and its slowly dying...
that's the reason why system is deflating.. in US there is 10 times
more credit than real cash savings, hence the leverage is 10. In
Europe they say its 30 times.. some say in France its 100 times..
Nobody knows exactly the real leverage is in each country but the
effects are same in each country, when the banks cannot lend
money/credit , deflation starts and credit dies, it shrinks ,
companies c annot make profit, start to lose money, lay off more
people, less people buy goods, more companies lose money etc.
this is the killing loop... Gradually Central banks print cash and add
to the system buy it slowly adds inflation and at some point
inflation will be visible and its not near yet.. buy all of us will see
how inflation will rise and exponentially increase and within couple
years will turn into hyperinflation, it can happen in any country and
it has nothing to do with reserve currency..
Confundido
Not true. The author
makes the point on leveraging at the source: deposits,
or money in the system. Leverage is money in the
system. He also mentions the dumb money of pension funds.
Another way to look at this is that even WITHOUT leverage,
you can still avoid hyperinflation if the central bank gets away
with not having net interest losses. It is a simple accounting
demonstration.
sessinpoAuthor: "Frankly, I do
not have a definitive answer to the question of why
we have not seen a quasi-fiscal deficit yet . But I
can intuit that we are still far from seeing one"
I think this is the statement cbaba is referring to. I actually
agree with both of you. But I also tend to keep things more
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simplistic.
I suggest we do not see such type of inflationary pressures
because, despite of the printing or monetary easing, we do
not see that money flowing freely through the system.
There is such an overhang of debt, that basically that
money dissappears. Of course there are various details that
change that simplistic statement, that equation. But that is
the most basic form I can state it. It doesn't change the
overall picture that this fiat system will likely fail.
neutrinoman
Hyperinflation is a political
phenomenon. It happens when a government decides to
utterly trash its currency and monetary system. I don't
mean a currency devaluation or bank reform. I mean utterly TRASH.
The larger public eventually gets the idea and flees the currency.
That's not happening in the US and is unlikely. What is likely is a
1970s or late 40s style inflation, sustained over 5-10 years, to
erase part of the debt. This is already happening in the UK --
although it's not hyperinflation -- as the BoE has abandoned trying
to claim with a straight face that the inflation is "temporary." No
one believes it any more, and everyone there knows what's
happening.
sessinpo
Gross misunderstanding of
economics.
Stuck on Zero
The reason we don't have
hyperinflation is that spending meoney hasn't reached the
average man. All the money printing by the Fed has gone
to the top 5% and they reinvest it with the Treasury, Fed, or stock
market. If but a tiny fract ion of that money gets to main street we
will have explosive inflation.
mkkby
Stuck on Zero IQ -- of
course it's gett ing out. What do you call trillion dollar
deficits every year. Dot gov spends that.
Alpha Monkey
And where do they
spend that? The nominally paid gov't employees, or
the overpaid corporates.
steve from virginia
More nonsense to gin up hyperinflation fears when there is too
much debt remaining to delever.
Angels dance on the head of a pin. How many? Who knows but the
central banks do not print, they lend, they do not create currency
they create debt, they replace one form of debt with another, from
one account @ the central bank to another account @ the same
bank ... they cannot create anything real only claims against real
things.
There are already too many claims ... way, way too many claims.
Real things are gone, burned up for nothing.
BTW: there are as many reasons for hyperinflation as there have
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been episodes of hyperinflation, including in countries with no
central banks. Asset price 'bubbles' are ipso-facto hyperinflationary
with central banks on the sidelines doing nothing. In a debt-money
system all banks and finance non-banks can create credit on
demand. Finance institutions do not need reserves to re-lend and
do not re-lend anything.
The only way (excess) reserves in central bank accounts can be
deployed is during bank runs (when banks themselves are subjected
to involuntary deleveraging). Sorry, FAIL.
>>>>>
AnAnonymous
Another jaw breaking
'american' theory.
Could be elected as the poster child for 'american' justification for
consumption:
there is no other justification to be found to consumption than the
capacity to consume.
Probably a highly educated 'american' (consumption) who puts that
previous consumption to good usage from an 'american'
perspective: that is it allows him to achieve even more
consumption.
Same drivel posted by a non 'american', non graduated, non
corporated employed person would be mocked for what it is and the
waste associated to it would be immediately shut down.
'America' is a big club and if you aint part of it, you wont get the
priviledges of it .
AnAnonymous
And as the 'american' he
is, that 'american' author thinks that he deserves every
single c ent he makes.
Dont try to cut him down on his lethal non sense, he will call in
his unalienable rights coming from the 'american' natural rights
theory.
Wonderful an 'american' world is. No digging.
TheFourthStooge-ing
And as the Chinese
citizenism citizen he is, that AnAnonymous author
thinks that he deserves success as shown through
examples like an hypothetical against reality based on
supposed distorted view of an hand out given to Chinese
citizenism citizens by grateful Tibetans.
Don't try to sit him down on flush toiletry for his fecal non
sense, he will call in his unalienable rights coming from the
Chinese citizenism citizen natural roadside squats theory.
Wonderful a Chinese c itizenism citizen roadside is. No latrine
digging.
TheFourthStooge-ing
Same drivel, posted by
AnAnonymous, non graduated, Chinese Citizenism
Communautist Ministry of Truth employed propagandist,
mocked for what it is and the waste associated to it is
immediately laughed down.
It is an observation based on collection of facts.
Are Chinese citizenism citizens in love with battling wind mills?
bunnyswanson
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Lid has been blown off.
Have you ever stayed at a
Holiday Inn Express?
Harrison
Two points regarding
farmland:
1) you can farm it, and eat what you grow, thereby
surviving a general economic disaster such as what the Fed seems
hellbent on creating;
2) when a new system replaces the destroyed one, the land willretain its value.
True, governments can tax and confiscate, but at some level this
becomes unworkable -- either because the government is pressured
to stop confiscations (see the "foreclosure crisis"), or because
individuals (e.g., Carl Drega) or the c itizenry as a whole will revolt.
Azannoth
"Jim Rogers is wrong and you
should not buy farmland" - it def initely makes sense to have
enough of farm land to feed your self and have something
left over but becoming a food supplier is mighty risky as the
government will disown you the moment the hungry masses start
stampeding through town, just look at White farmers in Africa oreven the recent Presidential Order(in the US) that gives him the
power to confiscate ANY property in the event of a natural disaster
snowlywhite
@Max
as someone living in hyperinflation - or ok, very high inflation, not
hyperinflation, but still double digit inflation with the 1st digit over 4
or 5(Eastern Europe, '90s), contrary to most that post here, I beg
to differ.
The mechanics of hyperinflation, despite the fact that many
attempt to reinvent the wheel, are always lost of trust in the
currency. YES, IT HAPPENS. The govt . can print till kingdom come,
their act ion is irrelevant. Population will just move to a different
currency and let them be. In my case(Romania), the economy was
USD based, than EUR based. After 20 years, and still many ppl.
don't hold reserves in the local currency.
You just use a different storage mechanism and convert in the local
currency for current needs, being immune(bar exchange costs -
which is usually high in this case) to the inflation promoted by the
govt. And still, a big part of the economy functions like crap in such
a system. Anyone selling something to the state(which in US case
is even bigger chunk than in my case - over 30-40% of the econ.?)
is penalized since it'll be paid back in the local currency, leaving him
exposed till he gets paid. That obviously leads to huge mispricing
since everyone tries to guess how much they'll lose till they get
paid, especially since, when econ. starts malfunctioning, the govt.
will pay you back when they want, not when they tell you.
Obviously that guessing produces prices having nothing to do with
reality and reinforcing the cycle, since everyone will expect
inflation to go up and putting additional margins to try and protect
themselves from such an outcome. Which obviously makes inflation
go up.
After 15 years of okish inflation, most contracts are still something
like "pay x EUR at the rate established by the central bank for the
day of payment". Ridiculous in a way, given how much the rest of
the world inflates, but hey... what's far from you always looks
better. Should the govt. try and manipulate the official exchange
rate will just move more of the economy outside the system.
the reason there's no hyperinflation is because everyone inflates.
So there's no refuge currency. USD + EUR more or less = the entire
world currency. Everyone else has more or less to come to the fold
sooner or later(see Switzerland for instance) and join the printing
press. But when that 'll happen(probably when mercant ilists get
tired of holding the bag), you'll have huge inflation in all importing
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nations. Sure, that'll affect fx rates and produce the waited
rebalance.
The only reason why that might not happen for a long t ime is
because the elite of the mercantilist countries have it good in such
a system(China for instance - suppresed rates affect them way
less than the average population since they get parts of their
capital out and buy even more stuff), while the slaves doing the
work have no power.
But really, it's totally naive to believe that having a printing press
has anything to do with the ability to pay your debt. Everyoneknows you have that press and you can use it. Heck, even 70
years old communist educated people figured out the action of our
govt. in... less than 5 years. I'm sorry, but population isn't as dumb
as ec onomists hope it is(ok, I hold some reserves regarding the
average Westerner since you had it good for so long, but trust
me... need makes you learn things fast ; bloody fast).
jmcadg
Diversified portfolio:
Physical gold, silver, copper, platinum, palladium, zinc,
nickel, farmland, food.
A fair start.
Pumpkin
Most of the money supply is
credit. Banks do not loan the money they have, it is
created with the signature and contract to repay. About
95% of the money supply comes into existance this way. And once
created, it is used as a reserve in another bank so it to can create
new money by loaning. The loan side is descreasing and the print
side is increasing. Since the loan side of money creates 95% of the
money supply, it takes A LOT of printing to off set any reductions
in loaning. This is why there has not been hyperinflation.
Fix It Again Timmy
If we haven't arrived at
hyper-inflation, it's only because the bus is running a little
late...
northerngirl
So being stuck in this
artificial market is a good thing?
midtowngSo he's predicting food
shortages, but not recommending buying farmland?
Something tells me he's missing something.
bart.naf
"There cannot be
hyperinflation without high nominal interest rates"
Horse puckey.
The actual interest rate in Weimar Germany was at 8% as late as
early 1923. Look it up... or don't.
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