FED wants Hyper inflation?

[herbkarajan]

Re: FED wants Hyper inflation?

I left out one interesting detail in my previous post above. What happens if the currency of the debt is the dominate (reserve) currency going into the 5 years of tumult, but not so coming out. The U.S. Dollar may well be in this very situation this time around.

I'd suggest the closest precedent in history played out in 1931, when Britain devalued vs dollar. this was the singular moment of the 'great depression', of course what it really was is a falling apart of the global monetary system centered around sterling. Textbooks post 1950's have conveniently scrubbed that part of history and instead concentrated on the stock market crash two years earlier.

Critically, what happened post 1931 is a 'liquidation' on a massive scale of the manufacturing overcapacity built up in U.S over the previous decades. This is what we are waiting for in China now, all those empty cities and shopping malls have to be transferred from 'speculative hands' and put to use.

This is the real estate bubble pop talked about by Chanos and other money managers. What of the Smoot-Hawley? well it's already going up only the current iteration is playing out in the financial sphere. China, Brazil et al. are restricting flow of funds.

[ThePythonicCow]

Re: FED wants Hyper inflation?

I'd suggest the closest precedent in history played out in 1931, when Britain devalued vs dollar. this was the singular moment of the 'great depression', of course what it really was is a falling apart of the global monetary system centered around sterling. Textbooks post 1950's have conveniently scrubbed that part of history and instead concentrated on the stock market crash two years earlier.

If the US/China example of present follows the UK/US example of 1931, then US debt would remain denominated in Dollars, as the UK debt (gilts) has remained denominated in their Pound (even to this day.)

Does anyone know offhand if UK gilts were a good investment in the 20 years following 1931?

[GRG55]

Re: FED wants Hyper inflation?

Some historians trace the origins of the British currency's decline to 1925, when then Chancellor of the Exchequer, Winston Churchill, re-pegged the UK Pound at the pre-WWI exchange rate against the US Dollar and gold. A $4.86 = one Pound exchange rate instantly made British products uncompetitive globally, but created a booming market of "wealthy" Brits for the rest of the world to sell to. The UK's export coal industry was hammered, and led to efforts by the mine owners to cut costs to regain market. Of course the costs to be cut were largely miners jobs and miners wages. Any student of British history would be happy to elaborate on what happened next...Conservative Prime Minister Stanley Balwin's wage subsidy for the miners in the face of strike threats from the Trade Union Congress, the establishment of the Samuel Royal Commission, that commission's recommendations to withdraw the subsidy and reduce miners wages, which is generally acknowledged to have led to the General Strike in May, 1926. That ushered in an era of less than stable UK governments and a decades long period of repeating Sterling exchange crises.

With currencies on both sides of the Atlantic on a gold standard guess which rising industrial power began to ever more rapidly accumulate claims on UK [and European] reserves...

In an effort to stem the drain the Governor of the BoE, Montagu Norman, the Governor of the German Reichsbank, Hjalmar Schacht, and the Deputy Governor of the Bank of France, Charles Rist travelled to the USA in the spring of 1927 to meet with Governor of the Federal Reserve Bank of New York, Benjamin Strong, to urge an easy money policy...on the premise that lower US interest rates would discourage capital flows and investment in the USA. The Fed cut the administered interest rate, and started to buy large quantities of government securities from banks and individuals. Some historians believe that the resulting "cheap money" liquidity flush provided the fuel to start the final speculative blow-off frenzy in the US stock market that culminated in the crash two years later.

[herbkarajan]

Re: FED wants Hyper inflation?

If the US/China example of present follows the UK/US example of 1931, then US debt would remain denominated in Dollars, as the UK debt (gilts) has remained denominated in their Pound (even to this day.)

Does anyone know offhand if UK gilts were a good investment in the 20 years following 1931?

post 1931 they've lowered rates thus ensuring 'competitive' pound, ushering the era of competitive devaluations and trade protectionism. Sounds a bit like the rhetoric of today, still the meaning of austerity and impact of poverty has changed over time (esp. in the developed world). Technological progress has curtailed societies tolerance for pain, thus don't expect bread lines.

It seems the transitional system will involve several currency blocks, something in Asia will have to give and countries within the region will become more self sufficient in terms of trade. It's logical that rmb would assume more of a role as a reserve currency, thus lessening the need for and value of the dollar.

The opening up of consumer market in China and other Asian counties is the goal, yet no one imagines per capita use of energy and natural resources enjoyed in the West. China wants to continue development at the current pace, while the West seeks to check these ambitions by controlling pricing of oil and ensuring large portion of the population in China remains poor.

[herbkarajan]

Re: FED wants Hyper inflation?

With currencies on both sides of the Atlantic on a gold standard guess which rising industrial power began to ever more rapidly accumulate claims on UK [and European] reserves..

It's important to carefully parse words, who began accumulating claims on whom? Someone definitely began accumulating claims on the people of UK and Europe, I can guarantee you, it wasn't American people. It was the same people who grossly overvalued pound in the first place to purchase controlling stakes in the "rising industrial power".

[closedanger]

Re: FED wants Hyper inflation?

"just the opposite of what current economics textbooks like Samuelson's textbook would have you believe."

It's not de-flation. This is in-flation. The opposite of what is needed. Prices are naturally going higher, and the currency value is dropping. The opposite of what you said is true.

The price of durables will rise no matter what, the monetary value of coin will decrease (de-flate). So the meaning of this is hyper in-flation. It's where much more money will have to be spent for less of anything.

True economic status of deflation is when goods, services, and monetary value go down. Two arrows down is acceptable. Two arrows going the opposite direction is disastrous. It then snowballs and slows everything further.

(I) Farmer sells eggs for a dollar. He cannot afford to get it to market for less and make a profit. Dollar is worth .50. It takes me two dollars to buy an egg. It costs him more to get that egg to the market and me more to purchase that egg. I may not be able to afford the egg.

(D) Farmer sells eggs for .50 as no one can afford a egg at a dollars cost. Dollar is worth .50. He does not lose money as both trends are going down. Both the cost and price are going down.


Where you stand: All natural resources are going up in price. Food will go up in price, fuel will go up in price. People will spend on bare needed materials, and the value of the dollar drops by at least 10%.

De-flation: all boats go down with the dock and the tide.
In-flation: all boats go down while moored at the dock that does not drop and sink.

[charliebrown]

Re: FED wants Hyper inflation?

I think the powers that be would like deflation,

The central bank's product is the dollar, and to ruin it would not be good for them. Just as you say, get everone fat on debt, so that you hold the title to their house, cars etc, then deflate and take the real assests through bankruptcy.

the central bank of Japan is now buying ETF's meaning they are buying the corporations of Japan, with printed money. When will benny use this go grab hold corporate assets.

[GRG55]

Re: FED wants Hyper inflation?

Copper Rises to Record in London on Chinese Economic Reports

Nov 11, 2010 8:48 AM MT

Copper rose to a 30-month high in New York and touched a record in London as reports showed higher factory output and stronger inflation in China, the world’s biggest consumer of the metal...

...Copper futures for December delivery added 6.5 cents, or 1.6 percent, to $4.034 a pound at 10:44 a.m. on the Comex in New York. Earlier, prices touched $4.0835, the highest level since May 5, 2008, when the most-active contract reached a record $4.2605...

...On the London Metal Exchange, copper for three-month delivery advanced $101, or 1.2 percent, to $8,861 a metric ton ($4.02 a pound), after touching $8,966, surpassing the previous peak of $8,940 set in July 2008.

Copper will rise to $11,250 next year, according to Bank of America-Merrill Lynch...