Posted tagged ‘hyperinflation’

The Road to Hyperinflation

December 23, 2008

welcome_to_zimbabweThe interim will feel like deflation, but that will only last until the day it doesn’t. We aren’t likely to see a re-emergence of bubble inflation any time soon but when the mass printing of dollars by the Federal Reserve causes people to doubt the usefulness of paper currency to store their purchasing power, look out. The poor may be hungry, but the rich will find the whole world scrambling to allocate their freshly created paper bills to assets perceived as safe. Right now, that’s treasuries, but eventually that bubble will burst and all that cash will look for another home. With manufacturers bankrupt and commodity producers unable to finance exploration due to falling prices, the supply of goods will be extremely tight at precisely the moment the supply of dollars will be at its height.

Picture a giant tower of cash leaning over a few pieces of cheese being fought over by mice. We could go straight from a deflation-like environment to hyper-inflation with very little notice. And if that occurs, don’t pretend for a moment raising interest rates or selling bonds at higher yields will stop it. Hyperinflation is as much psychological as monetary.

Nobody knows how long it will take for people to lose confidence in paper currency, or what event will do the trick, but the unholy alliance of Keynes’ ghost, money-printer Bernanke and big-spender Obama may make it inevitable.

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As I’ve said before, I am sure that Ben Bernanke thinks he can control the situation and head off hyperinflation before it takes root. I just don’t have any faith in Helicopter Ben “I and others were mistaken early on in saying that the subprime crisis would be contained,”  Bernanke.

The Threat of Hyperinflation

December 19, 2008

In an article for CBS News about the auto industry bailout, Declan McCullagh references a report by Celent, a financial services consultancy.

McCullagh later wrote to Lew Rockwell that readers of the LRC Blog might be interested in some additional information he found in the Celent report, particularly that:

M0 money supply “has recently increased at a pace never seen before in US history,” and has increased as much in the last 90 days as it has in the last 83 years.

The M0, according to Wikipedia,  measures “currency (notes and coins) in circulation and in bank vaults, as well as cash (reserves) owned by banks that is held at the central bank. M0 is usually called the monetary base–the base from which other forms of money (like checking deposits, listed below) are created–and is traditionally the most liquid measure of the money supply.”

The stage has been set for hyperinflation in the United States. What remains to be seen is if the Federal Reserve Banking cartel can reign in the huge increase of currency they have created or if hyperinflation will happen despite their efforts to prevent it.

Given how wrong the Fed has been about so much lately, I’m not feeling terribly confident that they will be able to prevent hyperinflation. They don’t call him “Helicopter Ben” Bernanke for nothing.

Ron Paul’s Texas Straight Talk: The Neo-Alchemy of the Federal Reserve

December 2, 2008

As the printing presses for the bailouts run at full speed, those in power are no longer even pretending that the new giveaways will fix our problems.  Now that we are used to rewarding failure with taxpayer-funded bailouts, we are being told that this is “just a start,” more funds will inevitably be needed for more industries, and that things would be much worse had we done nothing.

The updated total bailout commitments add up to over $8 trillion now.  This translates into a monetary base increase of 75 percent over the last two months.  This money does not come from some rainy day fund tucked away in the budget somewhere – it is created from thin air, and devalues every dollar in circulation.  Dumping money on an economy, as they have been doing, is not the same as dumping wealth.  In fact, it has quite the opposite effect.

One key attribute that gives money value is scarcity.  If something that is used as money becomes too plentiful, it loses value.  That is how inflation and hyperinflation happens.  Giving a central bank the power to create fiat money out of thin air creates the tremendous risk of eventual hyperinflation.  Most of the founding fathers did not want a central bank.  Having just experienced the hyperinflation of the Continental dollar, they understood the power and the temptations inherent in that type of system.  It gives one entity far too much power to control and destabilize the economy.

Our central bankers have had a tremendous amount of hubris over the years, believing that they could actually manage a paper money system in such a way as to replicate the behavior and benefits of a gold standard.  In fact, back in 2004 then Fed Chairman Alan Greenspan told me as much.  People talk about toxic assets, but the real toxicity in our economy comes from the neo-alchemy practiced by the Federal Reserve System.   Just as alchemists of the past frequently poisoned themselves with the lead or mercury they were trying to turn to gold, today’s bankers are poisoning the economy with accelerated fiat money creation.  

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