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HyperInflation Revisited

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  • #16
    Re: Germany after world war I.

    Originally posted by BadJuju View Post
    Weimar Germany was immensely affected by the war and the extreme demands placed upon it by the victors. Reparations had to be paid both in currency and in goods with some of the most damaging reparations being in the form of coal payments. .
    From your description, it was the terms of the treaty, more than damage during the war, that
    caused problems for Germany.

    I think a key difference is that Germany was required to pay in gold. The US debts are in its own paper currency. However, the US is highly addicted to foreign capital inflows.

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    • #17
      Re: HyperInflation Revisited

      I've insisted on terms definition on this. In my point of view, Rampant inflation, the one you are talking about, is noted in a monthly period and there is time for government to replace the full coinage cone and to add and retire pertaining note denominations. In hyperinflation you lose track of values within days or even within hours and the cash becomes worthless before it can be replaced since there is a limited capability of designing and manufacturing new coins and notes.

      Mostly a major economy nowadays, given the extent of its worldwide commerce network, can get reserves at a speed that can reduce or offset the possibility of hyperinflation up to a certain limit. If things get worse, trade will suddenly stop, given the inability to import the overpriced stuff needed and the losses that could be carried selling price depressed goods. I remember personally seeing between the years 1982 to 1987 that the imports here in Mexico were non existent in stores or very expensive and that the grey market (known here as "fayuca") became a flourishing industry amid the stagnated local manufacturing.
      sigpic
      Attention: Electronics Engineer Learning Economics.

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      • #18
        Re: HyperInflation Revisited

        Originally posted by ocelotl View Post
        I've insisted on terms definition on this. In my point of view, Rampant inflation, the one you are talking about, is noted in a monthly period and there is time for government to replace the full coinage cone and to add and retire pertaining note denominations. In hyperinflation you lose track of values within days or even within hours and the cash becomes worthless before it can be replaced since there is a limited capability of designing and manufacturing new coins and notes.

        Mostly a major economy nowadays, given the extent of its worldwide commerce network, can get reserves at a speed that can reduce or offset the possibility of hyperinflation up to a certain limit. If things get worse, trade will suddenly stop, given the inability to import the overpriced stuff needed and the losses that could be carried selling price depressed goods. I remember personally seeing between the years 1982 to 1987 that the imports here in Mexico were non existent in stores or very expensive and that the grey market (known here as "fayuca") became a flourishing industry amid the stagnated local manufacturing.
        What would "replacing the full coinage cone" mean in the case of the US? The largest circulating note is the $100 bill. We have already abandoned the penny and the nickel. The US does have bills the go up to $100,000 ( the Woodrow Wilson bill) but they do not circulate. It looks to me like the US is dangerously close to "hyperinflation" by this metric.

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        • #19
          Real savings and investment.

          Originally posted by *T* View Post
          Bernholz says savjngs equals investment. Could anyone explain why this is so? Isn't he forgetting about credit?
          I am also very interested in this idea. I think he should have said, real investment can never be greater than real savings. It means that total output = consumption + investment + other.

          Savings = Output - consumption.
          I don't think the amount of savings is always equal to the amount invested.

          The "other" category is things like waste, warfare, and bubbles. They consume resources without producing any commensurate value.

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          • #20
            Re: Germany after world war I.

            Originally posted by BadJuju View Post
            Weimar Germany was immensely affected by the war and the extreme demands placed upon it by the victors. Reparations had to be paid both in currency and in goods with some of the most damaging reparations being in the form of coal payments.
            Vince Cate says: "Many people dismiss the German hyperinflation, saying it was caused by war reparations and we don't have those. However, war reparations were only 11.8% of the German governments budget in 1921."

            http://pair.offshore.ai/38yearcycle/
            raja
            Boycott Big Banks • Vote Out Incumbents

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            • #21
              Re: Bernholz on USD

              Thanks for the article link.

              Here's a link to Bernholz's book -- .pdf format.
              It can be downloaded for free.

              http://www.goldonomic.com/Monetary_r..._inflation.pdf
              raja
              Boycott Big Banks • Vote Out Incumbents

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              • #22
                Re: Germany after world war I.

                Originally posted by raja View Post
                Vince Cate says: "Many people dismiss the German hyperinflation, saying it was caused by war reparations and we don't have those. However, war reparations were only 11.8% of the German governments budget in 1921."

                http://pair.offshore.ai/38yearcycle/
                You are overlooking all of the other things I listed. Reparations were not the only thing. Germany lost a lot due to the Treaty of Versailles and it was very marginalized by it. Germany lost significant amounts of territory, its overseas colonies, its most industrious areas were occupied, it was blockaded, and all the other things I said. Weimar Germany and the USA are not alike. Not even remotely.
                Last edited by BadJuju; 12-31-12, 04:41 PM.

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                • #23
                  Re: Germany after world war I.

                  Bresciani-Turoni discusses this book, and concludes that reparations were not the critical factor leading to the hyperinflation. His brief, but poignant description of the societal effects of the monetary debauch is haunting, and, it seems to me, vaguely analagous to that of today.

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                  • #24
                    Re: HyperInflation Revisited

                    Originally posted by Polish_Silver View Post
                    Thanks for the link.
                    I re-read the whole thread.
                    This post by Fred jumped out:
                    Imposition of taxes is the usual method.
                    For example:
                    Problem: Capital flight into gold
                    Government response: Tax gold sales at 80%



                    This agrees with Rickards prediction of 90% windfall profits tax on gold.

                    There are a lot of people counting on gold to be their savior . . . .

                    My thought is that if there is hyperinflation, it's best to have gold to trade on the black market.
                    Vince Cate says: "People start to use a foreign currency or gold as store of value, even though government may forbid it. The black market starts in currency exchange."

                    And, "At this point the government has some hard choices if it is not going to fail. It needs to do something so that the "black market" is legalized and taxable and deficits are nearly eliminated. It could just legalize a foreign currency or gold. But then it would forever give up on collecting any "inflation tax". It could get rid of budget deficits and stop printing money. However, people will still fear that it could start again at any time and so be hesitant to use that money. I think the most frequent end to hyperinflation is by making a new fiat money but with enough governmental changes that deficits and inflation are under control and people will use the new money. If they switch to a new currency then old money is no longer used as a store of value, or unit of account, or even for transactions. It has died."

                    http://pair.offshore.ai/38yearcycle/
                    raja
                    Boycott Big Banks • Vote Out Incumbents

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                    • #25
                      Re: Bernholz on USD

                      Originally posted by Polish_Silver View Post
                      EJ's argument is that reserve currencies are invulnerable to hyperinflation. However, EJ has also said that USD is losing status as reserve currency. So, if USD is not international reserve currency, we have:
                      Being the reserve currency, the US can print up free money anytime it wants.

                      But there is a limit.
                      I think many of the countries of the world will get tired the US free lunch.

                      Of course others, like Saudi Arabia, will support the US because in return they get the US's military power guaranteeing their continuation in power.
                      raja
                      Boycott Big Banks • Vote Out Incumbents

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                      • #26
                        Re: HyperInflation Revisited

                        To show how the money evolves in a rampant inflation period and the way the cone is modified I'm focusing on one of the longest lived denominations of the past century that appeared as something as strange as the Woodrow Wilson bill and evolved into nothingless.

                        In 1943, the Bank of Mexico first emitted the American Bank Note produced MXP 10,000 note. It was very rarely used and the common people rarely saw it in its first emission. Even it was one of the main subjects of a mexican movie from 1963 "El Hombre de Papel". By 1978 inflation had accumulated to the point that it was placed again into circulation. It was the epoch when I knew it first hand. Later it was replaced with the Banxico made Lazaro Cárdenas variation. Later inflation made the cost of producing it quite high and the watermark was retired and the design modified in 1987. At the revaluation it was again modified and then replaced before dumped because of its low value.

                        Now another example, but in metallic, that is more difficult to replace, same initial condition. That was what I was referring to as coinage cone.

                        The largest circulating gold coin emitted by the Mexican Mint in the past century is, without a doubt, the "Centenario", emitted first in 1921 with a face value of 50 MXP. It has remained as one of the standards of bullion coinage up to present, but it was pushed out of circulation (Gresham Law) by the beginning of WWII. A 50 MXP coin was not emitted until the Copper-Nickel "Coyolxauqui" was emitted in 1982, but it didn't last long. In 1984 it was replaced by the smaller "Benito Juarez". That also was replaced from Copper-Nickel to Stainless Steel in 1988. At the revaluation of 1992, it was equivalent to the new MXN 5c coin that was dumped before the end of last century due to its low value.

                        It's worth noting that according to mexican monetary law, all coined precious metal (gold, silver, platinum or palladium) is seen by authority as per its precious metal market value when it is larger than the face value.
                        sigpic
                        Attention: Electronics Engineer Learning Economics.

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                        • #27
                          Re: HyperInflation Revisited

                          Thanks a lot for the post, I simply love Professor Fekete!

                          Will print this out fast and read thoroughly!

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