Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

[labasta]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

I tend to think hyperinflation typically happens when productive capacity is destroyed. Hyperinflation in Germany did not coincidently happen soon after a war. Zimbabwe eliminated their farming class. So I tend to see hyperinflation as an end game. I do not think it is initiated by monetary policy but only in a desperate attempt to buy what isn't there.

I'd go one step further and say that it is the way the government acts to the dilemma of income (productive capacity) being less than expenditure (usually debt burden).

One thing kept coming up in the examples given in that great PFD from Columbia University: inexperienced government. They made the wrong decision.

It seems that sometimes a country does not have the power to reduce the debt burden, e.g. war reparations. Weimar's hyperinflation sounds suspiciously like the whole country went on strike to put two fingers up at the French.

Sometimes, a country has a choice to reduce it's expenditure, but it is politically untenable, e.g. Hungary's massive unemployment payments.


Does the US have an inexperienced or cowardly government?
Is the power of the banks over the governments of the world strong enough to make the reduction in debt politically impossible?
If the government is free from the FIRE, do they have the backbone to reduce the expenditure (debt) in some way?

Just a few quick thoughts.

[ACW]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

All you guys are smarter than me. That I am sure of.

However, to a simpleton like me, flipping the switch from inflation to hyperinflation is all a matter of confidence.

If I wig out and decide to empty the isles at the grocery store. Do that for a few weeks. The neighborhood starts talking about the store always been out of stuff....and they start hoarding...well you get the picture.

Hyperinflation imo will start in a manner like I described above. We wont hear about it on the evening news, CNBC or even here that hyperinflation has begun until We all individually act in a manner like I have described above.

[cjppjc]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

Does the US have an inexperienced or cowardly government?
Is the power of the banks over the governments of the world strong enough to make the reduction in debt politically impossible?
If the government is free from the FIRE, do they have the backbone to reduce the expenditure (debt) in some way?


Yes.
Yes.
No.

[ecortes]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

Jim Sinclair rests his hyperinflation case on cost-push inflation from a collapsing dollar resulting from capital fight. We don’t see it; the US will shut it down.

How would this be impossed and for how long could they be maintained?

[ecortes]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

I think that it is to early to answer that. The last similar transfer of power was from the UK to the US, that one took from the end of WWI to the end of WWII to complete. However at the beginning the US was not ready just like China is not right now.

[FRED]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

How would this be impossed and for how long could they be maintained?

Imposition of taxes is the usual method.

For example:

Problem: Capital flight into gold
Government response: Tax gold sales at 80%

See: US exchange rate and capital controls or bust?

[ecortes]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

So these would be directed at Americans? Would'nt that accelarate the sales of $US by foreigners and a decline of the $US?

[FRED]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

So these would be directed at Americans? Would'nt that accelarate the sales of $US by foreigners and a decline of the $US?

The way capital controls work is to place penalties on capital moving in one direction, benefits in the other. For example:

Attracting Foreign Investment, Sony

Japan's economic depression was rooted in the interest equalization tax instituted in July 1963 by the President of the United States John F. Kennedy... At the time, the American economy was in recession, resulting in a tremendous outflow of domestic capital. To slow this trend, Kennedy took strong measures -- a 16.5% interest equalization tax on all capital leaving the U.S. While this move did indeed decrease the outward flow of American capital, it also incited panic in world markets. Japan was no exception. In 1965, Japan felt the full effects of the tax -- the securities market slumped into the worst depression in its history. When the Tokyo Stock Exchange average dropped to 1,020 yen, many thought that the Japanese economy would collapse.

See: Beware Relief Rallies Update 1: DJIA 7552 the bottom?

[metalman]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

Our contacts tell us that South Korea, Malaysia, Indonesia, and other Asian nations that have built substantial currency reserves since the 1997 to 1998 crisis do not intend to follow the IMF plan and allow their currencies and economies to be wrecked, again. They are aware that their reserves make them targets for speculators. To our knowledge, all of them plan to immediately impose capital controls to thwart any future attack on their currencies.

Asia Agrees on $120 Billion Currency Pool as Crisis Worsens

By Shamim Adam and Seyoon Kim
Feb. 23 (Bloomberg) -- Asian nations will form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies in an expansion of efforts to battle fallout from the global financial crisis.
Finance ministers from Japan, China, South Korea and 10 Southeast Asian nations agreed to the fund at a summit yesterday in Phuket, Thailand. The amount is 50 percent more than was proposed last May, and a broadening of the current arrangement called the Chiang Mai Initiative that allows only bilateral currency swaps. No date was set for completion of the new pool.
A regional currency agreement is vital “in ensuring market confidence in the Asian economies,” Thailand Finance Minister Korn Chatikavanij told reporters. “It is one of our highest priorities.”

[ecortes]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

But at the time the bulk of the fixed income and currency assets were in the US, and today they reside outside. As a result I find it hard to understand why Erik thinks that the US$ would stay strong if the the money is already outside of the US, unless of course they supported it by printing money; might succeed short term but for how long?

[flintlock]

Re: Hyperinflation case revisited: Will we complete the trip? - Eric Janszen

All you guys are smarter than me. That I am sure of.

However, to a simpleton like me, flipping the switch from inflation to hyperinflation is all a matter of confidence.

If I wig out and decide to empty the isles at the grocery store. Do that for a few weeks. The neighborhood starts talking about the store always been out of stuff....and they start hoarding...well you get the picture.

Hyperinflation imo will start in a manner like I described above. We wont hear about it on the evening news, CNBC or even here that hyperinflation has begun until We all individually act in a manner like I have described above.

We saw a taste of this last fall when the SE United States got hit by gas shortages due to the Hurricane. At first there were just longer lines as some stations ran out of gas. Then you started seeing people with extra gas cans filling up. Then you saw people stopping to fill up any time they passed an open station, whether they needed to or not. The herd mentality took over quickly, and for several days, you could just barely get any gasoline. It became a real interruption to normal business.

Definitely something I see happening in this case.