Ponce
31st October 2011, 12:00 PM
Credible analysts say we've already taken the on-ramp to hyperinflation, that there's no real chance of escape, and all talk otherwise is but noise and fog. They point to facts which appear to be a good fit to past catastrophes. In a commonly cited example, the German mark of 1914 traded at 4.2 to the US dollar, but after the war there was an induced inflation, intended to be strictly back-office and therapeutic, which it was for a while.
Prices in Germany temporarily stabilized and remained rock-steady during fifteen months in 1920 and 1921, and there was therefore no surface inflation at all, but at the same time the government began again to pump out deficit expenditure, business credit, and money at a renewed rate. Germany's money supply doubled again during this period of stable prices. It was this time, when Germany was sublimely unconscious of the fiscal monsters in its closet, which was undoubtedly the turning of the tide toward the inflationary smash.
Jens Parsson, Dying of Money, 1974, von Mises Institute
Eerily similar, aye? With huge deficits and uncollateralized credit, misallocation followed and inflation was set in motion, which then went off the rails and barreled sideways through the neighborhood. By November 1923, one US dollar would buy 4.2 trillion German marks. Prices doubled every two days. That's how it works when the money supply is increased irresponsibly. Inflation seems almost normal at first, although confidence in the currency takes a little hit. Then events cause confidence to slip noticeably, then alarmingly, then exponentially. The day comes when confidence drops to zero, when everybody wants what the currency may buy, but not the currency itself. When inflation takes a right-angle turn it earns a new name: hyperinflation. Said another way, hyperinflation is a matter of blundering into a critical mass, i.e., it's a non-obvious explosive with a nearly instantaneous ramp-up. In 1923 Germany it happened in mere weeks.
With our electronic banking and money exchanges, what took weeks in 1923 may now take days, perhaps hours, perhaps the second 64-bit computer architecture can't handle the numbers. When the currency becomes worthless and obviously so, when truckers and firemen and power plant operators understand they're working for nothing, the real economy collapses. Only then is the fullness of the debacle in plain sight, when there's nothing for sale at any amount of fiat, when only silver or gold or food is likely to be acceptable. It's just here deflation and inflation achieve identity, currency ceases to function, or as techno-economists would put it, the velocity of money approaches zero.* Thievery and barter take over. The benighted are understandably outraged and there's blood in the streets. Only future historians can say what follows.
It's never quite so simple of course, there are always stop-gaps and gimmicks. Revaluation is a classic weave-and-dodge, simply lop off a few zeros and issue new currency, which fails as fast as the old, but it's a stutter-step, an exploitable pause created by bedazzling the hopelessly hopeful. The Zimbabwe dollar was revalued four times, the last time at 10,000,000,000,000 to 1—ten trillion to 1—before it vaporized altogether in 2009, not to be seen again. And Zimbabwe wasn't even the record, the Hungarian pengo of 1946 holds the record with daily inflation at 207%, meaning prices doubled every 15 hours, inflation so colossal it's commonly expressed in scientific notation.
Hyperinflation can't be understood as extreme inflation, hyperinflation is the outright repudiation of the currency. When nobody wants or even accepts fiat, then we have true hyperinflation. Once it starts nothing can stop it, people's perception takes over, meaning everybody from CEOs to families around the kitchen table, all making tens of millions of self-preservation decisions every day. The soundest of economic countermeasures can't act fast enough to offset such a loss of confidence, nor does government have the credibility to merely make announcements and expect them to stick. Worse, the more draconian the action, the more fear and instability is put into the system.
Be assured hyperinflation can happen here, in fact it has happened, well, almost but not quite. Fiat printed during the Revolutionary War era, known as the Continental, reached 47% inflation monthly in 1779. Civil War-era US fiat known as "greenbacks" came close at 40% per month in 1864. The Federal Reserve Note, the only US currency in circulation today, is also fiat money. They promise the bearer it's legal tender and nothing more. Technically they're a gussied up debt entry, what Wimpy uses to buy 'a hamburger today' except engrossed. DC prefers to think of them as pre-defaulted IOUs, therefore available without limit or consequence. "If the government does it, it's not counterfeiting," says government, but yes, yes it is, although we're obliged perforce to use their shabby product as if they were the real thing. Hence the term fiat, from the Latin: "or else, and your little dog too."
It's not reassuring to know the CPI is up by about a third in the last seven years, and that's if we believe statistics from the same people who under-report unemployment by goal-seeking the data. A little arithmetic says their numbers work out to about 4% annual inflation, and sure enough, it's the number quoted by those who are paid to quote it. Independent analysts put the real number somewhere around 9%. Dispatches from other fronts are worse. For the last quarter the growth in the money supply has been running north of 40%, annualized. And where have we seen that number before? Some sunny souls postulate an underlying deflation which offsets M2-minus-CPI, an idea which waddles suspiciously like happy talk. Nope, sorry, the numbers describe a spring compressed to solid, or near enough.
Such value as economics may have lies in its predictive power but cautionary tales from the "I told you so" school can keep us entertained on our way to penury. One notion says all debt must be repaid and will be repaid, if not by the borrower then by the lender, and if not by the lender then by some otherwise uninvolved bystander who can be convinced to do so, or forced to do so or tricked into doing so. That would be us. Check. Another notion says virtual wealth gained by leverage alone is certain to be misallocated, to get more virtual wealth natch, because those who deploy leverage have nothing of value at risk. There comes a time when 'risk' becomes 'gamble', the string runs out and equilibrium reasserts itself. Deleveraging is economic's black hole, it devours virtual gains and everything else within line of sight. Check. Just look around. And it's barely begun. Then there are the Too Big To Fail banks.
The biggest U.S. banks continue to grow and they continue to get even more power. Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets. Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets. These banks have gotten so big and so powerful that if they collapsed our entire financial system would implode.
Michael Snyder, Economic Collapse
Some say the centralization of financial decision-making, with its global interconnectedness and its use of super-leverage, meaning leverage of leverage, has gotten us to into this fix. What used to be containable by compartmentalizing risk, at least in theory, is now tightly integrated throughout every time zone. In effect it's a monolith, intended or not. What fails in one place pulls down counterparties everywhere else. Bank of America alone is said to hold $75 trillion in derivatives for instance, recently transferred to the FDIC side of their operation—meaning the taxpayer guaranteed side, another casual outrage. When they speak of contagion they're talking about the imperilment of treasuries and central banks which have conspired with each other and TBTF banks to protect and serve their own ends rather than attending to their legitimate mandates and charters. Their putative clients get patsy duty. Check again.
It's said to be surprised is to reveal ignorance. Other than that faint praise, these things are forensic and add little of value to situational awareness, besides, no matter how fascinating the autopsy it stinks up the place eventually. The exercise does suggest a strategy however. Panic. It's still true, the first ones out the exit do quite well, recompense falls off precipitously thereafter. Market crashes were called Panics in more forthright times for just that reason. Everybody knew he who panics first panics best. Panic is a wise and sound alternative to the roadkill option currently on offer, not panic as seen in '50s sci-fi movies but the kind which prompts one to abandon the souvenirs and dinner jacket and get thee to a lifeboat, betimes. It's a mistake to look down on tactics which can't be accessorized with half-glasses and elbow patches, rather think of panic as a martial art. It focuses the mind. Panic effectively, if ruthlessly, reorders priorities with the necessary urgency to handle rapidly emerging and maximally unpleasant realities.
Preppers know all this. As the saying goes, panic now to avoid the last minute rush. When all a Benjamin gets you is "do you want fries with that?", when fiat finally staggers off into the sunset, dragging its incestuous spawn behind, it's too late for panic to be really useful. We're obliged to participate in the economy as-is until the Greatte Reset of course, but we can do so with our coat in one hand and our car keys in the other, trending toward the exit all the while, quietly and inconspicuously, so as not to spook the herd.
* It's sort of like cosmology. If you have nothing, you have nothing. But if you have half of nothing, now you've got something. If those two halves meet, you've got nothing again. There's your proof. Which is all you need to know to understand high energy physics, politics and economics.
http://www.woodpilereport.com/html/index-239.htm
Prices in Germany temporarily stabilized and remained rock-steady during fifteen months in 1920 and 1921, and there was therefore no surface inflation at all, but at the same time the government began again to pump out deficit expenditure, business credit, and money at a renewed rate. Germany's money supply doubled again during this period of stable prices. It was this time, when Germany was sublimely unconscious of the fiscal monsters in its closet, which was undoubtedly the turning of the tide toward the inflationary smash.
Jens Parsson, Dying of Money, 1974, von Mises Institute
Eerily similar, aye? With huge deficits and uncollateralized credit, misallocation followed and inflation was set in motion, which then went off the rails and barreled sideways through the neighborhood. By November 1923, one US dollar would buy 4.2 trillion German marks. Prices doubled every two days. That's how it works when the money supply is increased irresponsibly. Inflation seems almost normal at first, although confidence in the currency takes a little hit. Then events cause confidence to slip noticeably, then alarmingly, then exponentially. The day comes when confidence drops to zero, when everybody wants what the currency may buy, but not the currency itself. When inflation takes a right-angle turn it earns a new name: hyperinflation. Said another way, hyperinflation is a matter of blundering into a critical mass, i.e., it's a non-obvious explosive with a nearly instantaneous ramp-up. In 1923 Germany it happened in mere weeks.
With our electronic banking and money exchanges, what took weeks in 1923 may now take days, perhaps hours, perhaps the second 64-bit computer architecture can't handle the numbers. When the currency becomes worthless and obviously so, when truckers and firemen and power plant operators understand they're working for nothing, the real economy collapses. Only then is the fullness of the debacle in plain sight, when there's nothing for sale at any amount of fiat, when only silver or gold or food is likely to be acceptable. It's just here deflation and inflation achieve identity, currency ceases to function, or as techno-economists would put it, the velocity of money approaches zero.* Thievery and barter take over. The benighted are understandably outraged and there's blood in the streets. Only future historians can say what follows.
It's never quite so simple of course, there are always stop-gaps and gimmicks. Revaluation is a classic weave-and-dodge, simply lop off a few zeros and issue new currency, which fails as fast as the old, but it's a stutter-step, an exploitable pause created by bedazzling the hopelessly hopeful. The Zimbabwe dollar was revalued four times, the last time at 10,000,000,000,000 to 1—ten trillion to 1—before it vaporized altogether in 2009, not to be seen again. And Zimbabwe wasn't even the record, the Hungarian pengo of 1946 holds the record with daily inflation at 207%, meaning prices doubled every 15 hours, inflation so colossal it's commonly expressed in scientific notation.
Hyperinflation can't be understood as extreme inflation, hyperinflation is the outright repudiation of the currency. When nobody wants or even accepts fiat, then we have true hyperinflation. Once it starts nothing can stop it, people's perception takes over, meaning everybody from CEOs to families around the kitchen table, all making tens of millions of self-preservation decisions every day. The soundest of economic countermeasures can't act fast enough to offset such a loss of confidence, nor does government have the credibility to merely make announcements and expect them to stick. Worse, the more draconian the action, the more fear and instability is put into the system.
Be assured hyperinflation can happen here, in fact it has happened, well, almost but not quite. Fiat printed during the Revolutionary War era, known as the Continental, reached 47% inflation monthly in 1779. Civil War-era US fiat known as "greenbacks" came close at 40% per month in 1864. The Federal Reserve Note, the only US currency in circulation today, is also fiat money. They promise the bearer it's legal tender and nothing more. Technically they're a gussied up debt entry, what Wimpy uses to buy 'a hamburger today' except engrossed. DC prefers to think of them as pre-defaulted IOUs, therefore available without limit or consequence. "If the government does it, it's not counterfeiting," says government, but yes, yes it is, although we're obliged perforce to use their shabby product as if they were the real thing. Hence the term fiat, from the Latin: "or else, and your little dog too."
It's not reassuring to know the CPI is up by about a third in the last seven years, and that's if we believe statistics from the same people who under-report unemployment by goal-seeking the data. A little arithmetic says their numbers work out to about 4% annual inflation, and sure enough, it's the number quoted by those who are paid to quote it. Independent analysts put the real number somewhere around 9%. Dispatches from other fronts are worse. For the last quarter the growth in the money supply has been running north of 40%, annualized. And where have we seen that number before? Some sunny souls postulate an underlying deflation which offsets M2-minus-CPI, an idea which waddles suspiciously like happy talk. Nope, sorry, the numbers describe a spring compressed to solid, or near enough.
Such value as economics may have lies in its predictive power but cautionary tales from the "I told you so" school can keep us entertained on our way to penury. One notion says all debt must be repaid and will be repaid, if not by the borrower then by the lender, and if not by the lender then by some otherwise uninvolved bystander who can be convinced to do so, or forced to do so or tricked into doing so. That would be us. Check. Another notion says virtual wealth gained by leverage alone is certain to be misallocated, to get more virtual wealth natch, because those who deploy leverage have nothing of value at risk. There comes a time when 'risk' becomes 'gamble', the string runs out and equilibrium reasserts itself. Deleveraging is economic's black hole, it devours virtual gains and everything else within line of sight. Check. Just look around. And it's barely begun. Then there are the Too Big To Fail banks.
The biggest U.S. banks continue to grow and they continue to get even more power. Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets. Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets. These banks have gotten so big and so powerful that if they collapsed our entire financial system would implode.
Michael Snyder, Economic Collapse
Some say the centralization of financial decision-making, with its global interconnectedness and its use of super-leverage, meaning leverage of leverage, has gotten us to into this fix. What used to be containable by compartmentalizing risk, at least in theory, is now tightly integrated throughout every time zone. In effect it's a monolith, intended or not. What fails in one place pulls down counterparties everywhere else. Bank of America alone is said to hold $75 trillion in derivatives for instance, recently transferred to the FDIC side of their operation—meaning the taxpayer guaranteed side, another casual outrage. When they speak of contagion they're talking about the imperilment of treasuries and central banks which have conspired with each other and TBTF banks to protect and serve their own ends rather than attending to their legitimate mandates and charters. Their putative clients get patsy duty. Check again.
It's said to be surprised is to reveal ignorance. Other than that faint praise, these things are forensic and add little of value to situational awareness, besides, no matter how fascinating the autopsy it stinks up the place eventually. The exercise does suggest a strategy however. Panic. It's still true, the first ones out the exit do quite well, recompense falls off precipitously thereafter. Market crashes were called Panics in more forthright times for just that reason. Everybody knew he who panics first panics best. Panic is a wise and sound alternative to the roadkill option currently on offer, not panic as seen in '50s sci-fi movies but the kind which prompts one to abandon the souvenirs and dinner jacket and get thee to a lifeboat, betimes. It's a mistake to look down on tactics which can't be accessorized with half-glasses and elbow patches, rather think of panic as a martial art. It focuses the mind. Panic effectively, if ruthlessly, reorders priorities with the necessary urgency to handle rapidly emerging and maximally unpleasant realities.
Preppers know all this. As the saying goes, panic now to avoid the last minute rush. When all a Benjamin gets you is "do you want fries with that?", when fiat finally staggers off into the sunset, dragging its incestuous spawn behind, it's too late for panic to be really useful. We're obliged to participate in the economy as-is until the Greatte Reset of course, but we can do so with our coat in one hand and our car keys in the other, trending toward the exit all the while, quietly and inconspicuously, so as not to spook the herd.
* It's sort of like cosmology. If you have nothing, you have nothing. But if you have half of nothing, now you've got something. If those two halves meet, you've got nothing again. There's your proof. Which is all you need to know to understand high energy physics, politics and economics.
http://www.woodpilereport.com/html/index-239.htm