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How Hyperinflation Will Happen

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  • How Hyperinflation Will Happen

    A new way (at least for me) of looking at hyperinflation:
    But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.

    Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

    Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

    ZeroHedge -- link
    I recommend the whole article . . . .


    raja
    Boycott Big Banks • Vote Out Incumbents

  • #2
    Re: How Hyperinflation Will Happen

    That's a fine article. Thank-you for posting it, raja.

    It presents a compelling possible scenario for hyperinflation.

    Almost makes me want to take a cash advance on my credit cards and top off my gold and silver hoard.
    Most folks are good; a few aren't.

    Comment


    • #3
      Re: How Hyperinflation Will Happen

      Originally posted by ThePythonicCow View Post
      That's a fine article. Thank-you for posting it, raja.

      It presents a compelling possible scenario for hyperinflation.

      Almost makes me want to take a cash advance on my credit cards and top off my gold and silver hoard.
      Sigh.....that's the question isn't it?

      Are we up for another deflationary hit? I can't see how, but bonds *are* doing well, rates are falling and Rosenberg has called it IMO better than EJ on the short-term so far.

      Is it going to be such an inflationary mess five years from now that I'll be kicking myself for not retaking out a mortgage on my house and buying gold/silver?

      Am I going to get massively burned because today I have cash and tomorrow I have toilet paper?

      Is there going to be a massive change in the economy where things break down ala the guys at Automatic Earth and Chris Martenson?

      These are the questions I ask late at night after that second shot of scotch (and should I be saving the scotch for barter? ;-))

      Comment


      • #4
        Re: How Hyperinflation Will Happen

        Excellent article.

        In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.
        Well said.

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        • #5
          Re: How Hyperinflation Will Happen

          The article assumes that the Too Big To Fail Banks dump Treasuries. These are the same banks that were already bailed out by the Fed and also are private stake holders in the Fed, yet it is assumed that they are going to shoot themselves in the foot by sinking the very system that lets them live like princes. I doubt it. Seems like doomer fantasy to me. All the big players have wealth and power beyond their wildest imaginations because of the dollar cartel and that goes for many international players too. I think any run is exogenous from TBTF.

          Comment


          • #6
            Re: How Hyperinflation Will Happen

            And really, even if China decided to dump their entire holdings --> what is a trillion or two? Is Bernanke's finger going to get tired of pressing zero a dozen times? Then what happens, the dollar goes down? Recent history seems to indicate that it will go up.

            Look at Japan. News reports say they are considering QE N+1, and what happens? Their currency just hit a recent high.

            Comment


            • #7
              Re: How Hyperinflation Will Happen

              Originally posted by aaron View Post
              And really, even if China decided to dump their entire holdings --> what is a trillion or two? Is Bernanke's finger going to get tired of pressing zero a dozen times?
              The key question is what happens after the Treasuries are exchanged for Dollars.

              The Zerohedge article that raja linked in the original post above presumed that the sellers of Treasuries would not sit on their newly acquired Dollars. Rather some at least would try to make some money somewhere else. That would start an immense bandwagon affect, driving up whatever was next. The article further presumed that what was next would be 'real basic stuff', such as food and commodities.

              If a trillion or two hot Dollars hit the food and commodities markets with a strong bid, then food, gas and gold prices shoot to the moon and we've got our hyperinflation.

              To repeat, the question is not whether the zero key on Bernanke's PC can stand a few more taps. The question is what happens next, the day after some big holder of Treasuries rents a Lockheed C5A Galaxy to carpet bomb the Fed with their T-Bills.
              Most folks are good; a few aren't.

              Comment


              • #8
                Re: How Hyperinflation Will Happen

                I re-read the article. Apparently he considers a double or triple in oil prices to be "hyperinflation". OK. I can buy something like this happening. I guess we already had hyperinflation when oil was at $147. It can happen again.

                But, he makes some assumptions:

                - He assumes the Fed will buy up a lot of treasuries at face value. Why would Bernanke do that?

                - He assumes that markets would not shut down. Aren't there "safety valves" etc, designed to stop trading after a certain percentage of movement?

                He defines hyperinflation as a loss of confidence - tell that to the sheik with 200,000 American troops next door. Or, the peasants who fear the IRS knocking on the door.

                Can prices double?
                Can gold triple?

                Sure... but in a week?

                How much freedom do these bankers really have? Half the world wants them hanging from trees.


                I read an article like this and think: cui bono?

                Comment


                • #9
                  Re: How Hyperinflation Will Happen

                  Originally posted by aaron View Post
                  But, he makes some assumptions:
                  Yes, he does. We've got a fairly complex system that may well be approaching a discontinuity, or at least some serious change.

                  It's easier to come up with quite plausible scenarios for how it will change than it is to call it correctly, ahead of time.

                  Originally posted by aaron View Post
                  I read an article like this and think: cui bono?
                  I'm glad you asked.

                  Your question caused me to chase down the link that Zerohedge provided to the blog of this article's author, one Gonzalo Lira.

                  Mr. Lira is a fine story teller with a fertile and creative mind. He told this story of hyperinflation because he could, and because he figured that's how it might happen.

                  I just enjoyed reading his tale of the Antikythera clockwork, in one of his early posts entitled Why Corporations Matter, Part I. It's a good read. Insightful and delightful.

                  Have a look-see.

                  This forecasting business is rather like preparing for a football game (I'm thinking American football here, as I know nothing of soccer.) In the week before the game the diligent will review films of the other team, noticing all the different ways that that team can handle certain plays, and imagining themselves reacting to and taking advantage of various idiosyncrasies of their upcoming opponent.

                  Then, mentally prepared, during the game, one recognizes some detail that one was anticipating and takes advantage of it, almost as if you knew the next move of the opponent ahead of time.

                  Mr. Lira has laid out one such play. If we see that play unfolding before our very eyes, we will now be better prepared to react with confidence and to our advantage.
                  Most folks are good; a few aren't.

                  Comment


                  • #10
                    Re: How Hyperinflation Will Happen

                    Those are the questions that lead me to buy more farmland abroad...

                    Comment


                    • #11
                      Re: How Hyperinflation Will Happen

                      Originally posted by doom&gloom View Post
                      Those are the questions that lead me to buy more farmland abroad...
                      Where do you consider a "safe" place to invest abroad?
                      Seems to me the whole world is about to experience an economic meltdown. Aside from jungle dwellers in remote areas, what countries will not be affected?

                      I'm sticking with the U.S.
                      Maybe that's a mistake, but if so, I'd like to know why . . . .
                      raja
                      Boycott Big Banks • Vote Out Incumbents

                      Comment


                      • #12
                        Re: How Hyperinflation Will Happen

                        Originally posted by raja View Post
                        I'm sticking with the U.S.
                        Maybe that's a mistake, but if so, I'd like to know why . . . .
                        Taxes

                        Comment


                        • #13
                          Re: How Hyperinflation Will Happen

                          Originally posted by raja View Post
                          Where do you consider a "safe" place to invest abroad?
                          Seems to me the whole world is about to experience an economic meltdown. Aside from jungle dwellers in remote areas, what countries will not be affected?

                          I'm sticking with the U.S.
                          Maybe that's a mistake, but if so, I'd like to know why . . . .
                          As I recall, D&G has farmland in Uruguay! I'm envious of that -- Buenos Aires is one of my favorite cities, my wife is fluent in Spanish and we've bounced around the idea of moving to Latin America several times (every time we've been there it's been awesome -- one day....)

                          We are sticking in the US as well -- family reasons and we have enough land here to be reasonably self-sufficient if it really came to that.

                          But I grew up on a farm, and have no real desire to return to that way of life.... :-)

                          Comment


                          • #14
                            Re: How Hyperinflation Will Happen

                            Originally posted by raja
                            I'm sticking with the U.S.
                            Maybe that's a mistake, but if so, I'd like to know why . . . .
                            I don't think it is either a mistake or not understandable why you would not want to leave the country you live in (and were raised/born in).

                            However, I don't think anyone disagrees that the United States is in for a tumultuous decade or two due to a broken economic model leading to significant (20%+) falls in standard of living, compounded by a singularly corrupt, shortsighted, and selfish political system.

                            The problem as I've always viewed it is this: In a very possible sense, the one thing binding the wildly disparate regions and demographics of the US has been the American Dream - the concept that anyone who works hard can achieve material success. Religion, sex, race, social class, etc etc hasn't mattered as much - indeed most relatively modern nations with as wildly variant demographics as the US have broken up after relatively short times or are actively suppressing small minorities.

                            What happens when the American Dream is broken for several decades?

                            Sure, it happened before in the Great Depression, but America then was a 2nd rate world power and largely agrarian.

                            Today America is a militaristic and urban nation. A fall in standard of living today will IMMEDIATELY translate into easily understandable effects.

                            It will only be after this coming 2 decades that we understand whether there is a stronger unity underlying the American Dream unity.

                            If indeed there is not, then what may happen can be wildly varied - from a Mussolini/Hitler/Peron fascism to a Lenin/November Revolution/Mao collectivism. From a Yugoslavia breakup to a Middle Kingdom turn inward.

                            All things being equal, I suspect the turn inward - America used to be highly isolationist and it could be again were it not for the oil import dependence.

                            But be consoled - if at this point you haven't already made preparations, it is already too late.

                            By the time you hit the 5 year mark where you can change citizenship - which is what matters - we'll have already passed the inflection point.

                            Comment


                            • #15
                              Re: How Hyperinflation Will Happen

                              Originally posted by ThePythonicCow View Post
                              Mr. Lira has laid out one such play. If we see that play unfolding before our very eyes, we will now be better prepared to react with confidence and to our advantage.
                              Large treasury holders are the titans. We are mice. I doubt a read and react defense will work well going forward, certainly not with confidence. This site for me is about laying down advance chips in such a way that I am not the slowest camper running from the bear; because we are all going to take it on the chin going forward. But you probably feel similarly and I am likely parsing (in addition to mixing metaphors!).

                              Comment

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