Tuesday, May 03, 2011

More on Hyperinflation

I posted a brief review of When Money Dies recently, a book dealing with the Weimar hyperinflation.  About the same time I encountered this blog post about hyperinflation that I also found very helpful, and helped me grasp some of the concepts of the book.  It is a very long post, but it is worth reading to gain further insight into why hyperinflation is an almost certain outcome of our current financial situation.  Please note that in my previous post I expressed doubt about this, but this article reminded me that the political will that has brought us to this point will ensure that hyperinflation does indeed occur.  There is no going back, read the article if you doubt this.

One of the most important things in the article is the idea that hyperinflation is a political event, or as Adam Fergusson calls it, a moral one.  Our political, or moral will, is simply not strong enough to pursue the reversal of the current policies, and because of this, hyperinflation is all but guaranteed.

As counter intuitive as it might seem, bankers, traders, and Wall Street at large would prefer hyperinflation to deflation--and these are the only two options at this point.  We either cease spending and money printing leading to deflation, or we continue doing what we are doing and we get hyperinflation.  The deflationary route would wipe out Wall Street, pensions, banks, and investors.  Our monetary system is built on debt, and the cessation of debt creation would lead to economic devastation that would be unacceptable to nearly everyone--but most importantly to the financial oligarchs.

Hyperinflation, on the other hand, ensures the system of debt creation continues longer--how long no one really knows.  Debts can continue to be paid, Wall Street continues to get its huge bonuses, and the public is at least consoled by a nominal rise in the Dow, Nasdaq, S&P, etc.  And when hyperinflation comes, it is the bankers and Wall Street that will get the new money first, and the first fruits of the inflation. 

The blogger, "FOFOA", divides people into two groups--debtors and savers.  It is critical to understand that the financial oligarchs, though wealthy, are debtors.  That is, they feast off of a monetary system that creates debt, which gives them their wealth.  Without their leveraging debt, they would be forced to produce something (other than debt) to grow their wealth.  It is the largely the middle class that are the savers--and that will ultimately pay the inflationary piper.

FOFOA writes:

"This is very important: Once hyperinflation commences it is characterized by a running shortage of cash, even though it appears like the opposite to the outside observer. The currency collapses in value against economic goods because the debt and the credit collapsed. There is no credit, only cash, and there is a shortage of cash for everyone, including the Elite and the government. So they, the Elite/government, print and print for their own survival while saying it is for yours."

I made a similar argument in my previous post about the Weimar inflation.  Cash is very difficult to come by--largely because credit is gone.  Purchases that were once made with credit must now be transacted in cash.  Imagine having no credit card and relying upon cash to make all purchases!  There simply isn't enough cash in our system, and it would have to be printed, which would drive further inflation.  It is a self-perpetuating problem that ends in the "crack up boom" Mises predicted.

Silver and gold have increased remarkably since I first wrote about them on this blog, but it is still not too late to protect your wealth, rather than let it be confiscated by the financial oligarchy through a hyperinflationary crisis.

FOA acknowledges you don't invest in gold to see you through hyperinflation.  He writes:

"...gold is not at its highest and best use being spent (circulated) as a currency during a hunger crisis. Instead, if you are one with PLENTY of net worth, gold is the very best way to shuttle your wealth THROUGH a crisis to the other side. If you are forced to deploy this wealth for food during a crisis, then you apparently planned poorly."

I'll simply add that silver (especially pre-1960s silver coinage, aka 'junk silver') is perhaps the best way to get through a hyperinflationary crisis, as it is denominated in small coins making small, simple transactions easy.  It is not too late!

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1 comment:

Pilgrim said...

just wanted to say, glad to see you're back in the saddle at GBL.

not to change subjects, but i for one am hoping for a first-month review of our beloved, but befuddled, baseball team.