U.S. Economy Risks Dire Prospect of Hyperinflation

[jtabeb]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

[quote=Starving Steve;100568]

You damn right I am shrill. I have much to be pissed-off about, and especially when I see governments now trying to inflate their way out of this mess. The worst possible solution is inflation because that is the how we got into this economic mess in the first place. Prices are too damn high, and no-one can make this cost of living........ So why do we need more inflation?

quote]

The BEST thing that can happen to the world is a nice multi-decade sustained deflation.

Reward SAVERS, discourage unproductive borrowing, Period.

[ThePythonicCow]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

The BEST thing that can happen to the world is a nice multi-decade sustained deflation.

I suspect jtabeb has positive net worth .

Inflation, deflation, whatever. What we need to do is remove the instability caused by the corruption dominating our money system.

I have visions of freezing the monetary pipes, then ripping the Banksters and their corrupt minions in government from the faucets they have been sucking on. Rip their lips off!

[jtabeb]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Your argument holds in a monopoly game. But we temporarily got around the basic limit of what can be financed in a monopoly game by adding a second monoply game to the system: we increased the money supply in the bank using money from a second monoply game; we liberalized the building rules so that we could build as much as we wanted to on a property; we issued IOUs to each other to prevent bankruptcies; and among other "Bernanke-like" changes, we added houses and hotel pieces to the original game's supply.

Our monopoly game went on for two or three more trips past Go, and then there was one gigantic bankruptcy. So your argument holds: in a closed money supply system, there is a basic limit to what can be financed from the bank.

We played this double monopoly game as kids one hot afternoon in San Jose, and we learned some important lessons in economics that apparently the Federal Reserve Bank has yet to learn.

As we added the second game's money to the original game and liberalized building rules, the first thing we noticed was that the cost of living on the game board went up. ( We had inflation.) The cost of living made the final bankruptcy bloodier than ever.

The most interesting thing was that the second bankrutcy--- the killer--- came quite fast. A couple of trips around the monopoly board, and it was game-over. Unless we wanted to issue more IOUs to each other, the game had reached an end determined by the money supply shortage at the bank. There was not enough money (even with the second game's supply of money added-in to the money supply) to pay the new rents on the original game board.

Awesome! Deflation it is. (And thanks for the great teaching tool for my kids)

As to the point about the Fed adding money to the system you have it exactly correct. It is REACTIVE policy, not PROACTIVE policy. That means sustained DEFALTION because the FED is allways meeting a PAST need for money, not a future one. The only way to get inflation in this mess is to meet the FUTURE demand for money.

So far including EVERYTHING they have done, they are only meeting the present or past demand for money, they have not YET met future demand.

As long as this persists, the Deflation will persist. Simple as that. (Until hyper-inflation kicks in when they attempt to meet the true future demand for money OR the economic system utterly collapses).

I'm betting on UTTER COLLAPSE before hyper-inflation occurs. (Hyper-inflation is what you get when the FED tries to meet the FUTURE demand for money in the present). Hence No DEBTS and lots of phsycial PM's (and GUNS and AMMO and FOOD and Scotch, Hat tip to Finster on the booze).

[ThePythonicCow]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

I'm betting on UTTER COLLAPSE before hyper-inflation occurs.

It's not a closed system.

The oil producers and the holders of treasuries will take the marbles and go home.

When the dollar denominated price of oil paid by Americans goes up, Americans will scream "Inflation!" with a common voice.

Then the necessary downsizing of the American life style will begin in earnest.

[charliebrown]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Sorry, folks I hit a few times while typing and those are the hot keys for quick post. The really long post is what I meant to say.

[Starving Steve]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

We also increased the passing-GO payment in double monopoly to $500 from $200. (That alone was very inflationary.)

[jtabeb]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

It's not a closed system.

The oil producers and the holders of treasuries will take the marbles and go home.

When the dollar denominated price of oil paid by Americans goes up, Americans will scream "Inflation!" with a common voice.

Then the necessary downsizing of the American life style will begin in earnest.

Why would you "take the marbles and go home" when the real value of that debt (treasuries) rises and rises. Now if prices PLUNGE and yeilds go UP, now you're talking runaway freight train.


I really hope rates go way the heck up. Then Housing would really crash and I'd actually be able to afford to buy a house.

For the record, I think the next deflationary impluse move is about upon us, like last September, If I'm wrong and this is POOM, then I'll spend all night weeping over my pile of bullion. (tears of Joy, of course);)

[ThePythonicCow]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Why would you "take the marbles and go home" when the real value of that debt (treasuries) rises and rises. Now if prices PLUNGE and yeilds go UP, now you're talking runaway freight train.

Because they no longer trust the dollar. Would you? The problem is the unpredictable volatility even more than the specific value.

Besides, sooner or later, treasury prices will plunge.

Be extra careful at railroad crossings :eek:.

[Mango]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

So what you are saying, Ricket, sounds like Michael Hudson when he states, repeatedly, that all economies eventually wipe out debts in bankruptcy because the magic of compound interest cannot be sustained forever.

Is that right?

[ASH]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

So what you are saying, Ricket, sounds like Michael Hudson when he states, repeatedly, that all economies eventually wipe out debts in bankruptcy because the magic of compound interest cannot be sustained forever.

Is that right?

Obviously, I ain't ricket, but yes -- that's the same theme.

Actually, I think one needs to differentiate between the tangible and intangible. Compound interest leads to exponential growth, and exponential growth of tangible things like productive economic activity or material wealth or human population must be bounded by the finite supply of raw materials, resources, and room. On the other hand, modern fiat money is largely intangible, and its supply can grow exponentially for a lot longer than can the tangible things one exchanges money for. If you want your intangible money to bear a constant relationship to the tangible things that it can be exchanged for, then there is a problem with compounding interest (which ricket has been talking about recently), because the money supply has to grow exponentially to service the debt -- and the tangible things which one is supposed to be able to exchange money for can't follow suit. If the interest doesn't compound because those who receive interest income spend it all, rather than re-investing it to earn even more interest, then this wouldn't necessarily be a problem. That is the special case that Sharky pointed out, and which I have been harping upon recently.

But from a practical standpoint -- the way things actually work -- yes. If you use debt-based money with interest, and you allow the interest to compound, then you automatically get

(1) inflation because the supply of money grows more-or-less exponentially whereas the supply of tangibles cannot forever
and
(2) an accumulation of debt that has to be serviced by an ever-expanding supply of credit, and which causes problems when that credit expansion is interrupted (think loans going bad, because too much of the new credit is going into asset price inflation and not enough going into inflating wages)

(And it has been awhile since I last posted this disclaimer, so here goes: I ain't no economist. I'm repeating and interpretting the things I have read, and which make sense to me, but I don't speak from authority on these matters.)

[Diarmuid]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

(And it has been awhile since I last posted this disclaimer, so here goes: I ain't no economist. I'm repeating and interpretting the things I have read, and which make sense to me, but I don't speak from authority on these matters.)

I think some of the so called "qualified" economists today would do well to follow your example and add a similar disclaimer to their own pronouncements with a small proviso.

"I am an economist. I'm repeating and interpreting theories I have read in University, these writing have mostly proven to be bunk, and so I speak with no authority on economic matters."

[Mango]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

I liked that link. It helped a lot.

[vanvaley1]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Moral Hazard -- you are rewarding the risk takers and penalizing the prudent savers.

There is no magic solution to the current economic mess that will make it all right . . . .
But the best result is to let the gamblers take their losses.

And when 'selected groups' are not taking their losses but passing them along to the taxpayer?

[ricket]

Re: U.S. Economy Risks Dire Prospect of Hyperinflation

Somewhere else on this site it is discussed and this is my understanding...

As the loan is paid back, with interest, the bank takes the interest and purchases the borrower's labor. That is how the borrower has the interest to pay the loan back.

Joe has a 100 dollar loan... he pays back 11 dollars a month.. The bank turns around, uses the 10 dollars to pay down the loan and uses the interest payment to buy Joe's great plumbing skills. Joe makes the dollar back, which he uses to pay the next month's interest.

So, there is not 110 dollars in existence.. There is one hundred dollars the whole time. It is just just passed back and forth between the bank and Joe.

IE: It is accounting.

This scenario is valid. However, I have one problem with it.

So what was the purpose of charging interest on the loan? Ah, yes because that's how banks make money. So how come they get to get the interest AND free labor for that interest? Also, as ASH stated earlier in the thread, the reality is that banks do not spend 100% of their interest income back into the system because they are a private company and they are seeking profits (with which their shareholders no doubt will hoard and save and not spend back into the economy). The solution would be for money to be declared a public good (such as roads, etc) of which no private corporation can enact control over. The Federal Government (Congress) should issue money directly, as stipulated in the Constitution, and should either issue money into circulation at 0% interest, or they should be required to spend 100% of the interest back into the economy on other projects.

Unfortunately, humans are too greedy and one person would rather have a room full of $100 paper bills instead of allowing a few hundred starving families to not have to steal from one another for survival.