What are the preconditions for Hyperinflation?

Edward Harrison here. Yves is away at the INET conference I was unable to attend. So I will post a few articles in her absence. This is one I wrote yesterday at Credit Writedowns. I look forward to your comments. If you want to post comments on twitter instead of down below, you can reach me here.

I don’t like talking about hyperinflation because it veers into the fringe element of discussion. But, in the blogosphere you often hear vague references to it. So I thought I would take this on. This post came together in response to an appearance I had on the Max Keiser show. I was talking to Max about precious metals, currency debasement and hyperinflation. Max was pushing the view that the U.S. was on its way to hyperinflation due to its reckless monetary policy. I argued against this view. The video is in the original post at Credit Writedowns, but let me argue my case here.

People arguing that hyperinflation is around the corner usually are pushing this view because of an ideological bias against fiat money. This is a bias I share because I believe that fiat money allows excessive money creation that winds up as a credit super bubble – and our experience over the past 40 years demonstrates this. However, I don’t let this bias get in the way of my analysis of the economics of the situation. I have a better understanding of the fiat money system because I am not anchored in a gold-standard mentality when looking at the constraints on government in the fiat money system and the types of events that lead to hyperinflation. The hyperinflation talk is a gimmick used to push a particular ideological viewpoint. While I share that viewpoint and don’t like fiat money, I am not a fear monger, so you won’t see pushing an ideological agenda which has the economics wrong.

Here are a few bullet points that are salient for understanding fiat money and hyperinflation.

  • The Gold Standard is based on a fixed exchange rate of currency to the price of gold. This is crucial to understanding the difference to a fiat money system. I would argue that fixed exchange rates, while less volatile than floating rates, are an example of central planning, meaning government rather than market forces decides how much the currency is worth vis-a-vis other currencies and gold.
  • Gold is thought by many to have intrinsic value such that tethering money to it creates an arbitrage opportunity which limits money creation. If too much money is created, debasing the currency, arbitrageurs would redeem their money in gold instead of in currency causing a depletion of gold reserves. If government had enough gold to back its money, then that would not be a problem. However, if they had inflated the money supply, government would run out of gold as arbitrageurs converted currency into gold. In a gold standard money system, currency has value because of its government-decreed convertibility into gold, an asset which has a value independent of the currency. Money loses its value when users of currency opt to convert that money into gold and government is unable to meet that convertibility due to the excessive creation of money not backed by gold. Note, that the reason this arrangement works without creating inflation is because there are limited supplies of gold. If you discover boat loads of gold (or silver) in Peru and ship it back to Spain, you get inflation and currency debasement as government increases the supply of money in concert with the availability of gold.
  • Fiat money has no intrinsic value. It simply represents a liability of government, an IOU. The only promise government makes is to repay the holder of that liability with another IOU of equivalent nominal amount in whatever money form the government decides: it could be coins, bonds, paper currency or electronic credits. Because money is created by government, this means government faces no solvency constraints in its own currency since it could always fulfill its IOU liability by creating more money. There may be political motives in defaulting on those liabilities, however. I call this the Ecuador risk factor. See "Bill Gross: Deficit Hawk, Bond Vigilante".
  • Why accept fiat money, if it has no intrinsic value? There are two reasons. The first is a derivative of the second. Most people understand that since money operates as a medium of exchange, one accepts it because it is universally accepted. Legal tender laws give government monopoly as national money creators eliminating any competition in the medium of exchange. But of course, this is a circular infinite regress argument for why people accept money. Certainly, it is true that U.S. dollars were already established as a medium of exchange and legal tender when the U.S. went off the gold standard. But the Reichsmarks created after the Weimar inflation had no installed base of users. Given the previous hyperinflation, clearly there was ample reason for currency revulsion. So you can consider this argument a necessary but not sufficient precondition. What makes the universal acceptance stick is that government accepts its own money to expunge liabilities to it. In plain English, fiat money has value because it is the only money you can use to pay taxes. Remember, government is the only entity in society that can coerce any and everyone in its jurisdiction to accept a liability. Taxes are coercive, meaning they are not a voluntary arrangement between two parties like a mortgage. Government tells you that you must pay. If you don’t, you suffer the consequences. This means you need government’s money to expunge your tax liability. The fact that this money is also the medium of exchange only entrenches its use. So the tax liability is a necessary pre-condition for fiat currency to work, something I will return to.

So what about Hyperinflation?

Weimar Germany 1919-1923

After World War I, every nation which fought was broke because of the war’s cost. No country had enough gold assets to repay the billions of dollars they owed. And this was a multilateral problem. For example, Britain could not repay its debts to the US until the other Allies repaid their debts to Britain. The Americans were not sympathetic. The prevailing desire was recovering the over $25.5 billion the US had loaned to other nations during the war.

As a result of these debts, the war’s victors laid out draconian terms to punish the Germans in the Treaty of Versailles in 1919. War reparations were one third of Germany’s spending. Therefore, Germany’s budget deficit was half of GDP. (The situation in Iceland due to Icesave’s collapse comes to mind here).  And to make things even worse, reparations were in a foreign currency.

It’s not as if the Germans could print off a bunch of Reichsmarks to make good on their reparations (The Reichsmark is the more legitimate currency that came into being after the hyperinflation). When the Germans defaulted on their obligations, the Belgians and the French moved in and occupied the Ruhr region, Germany’s industrial heartland. The result was widespread strikes and idled productive capacity. Afterwards, demand for goods in Germany far outstripped the productive supply.

So, with a huge portion of tax revenue going to pay reparations in foreign currency, the German government turned to the printing presses to make good on its domestic obligations. The surge in money supply and the lack of productive resources led to hyperinflation and collapse.

The key to Weimar’s hyperinflation was two-fold.

  1. The German government had a large foreign currency debt obligation.
  2. The German economy lost huge amounts of productive capacity causing prices to soar as demand outstripped supply.

That’s Weimar.

Zimbabwe

While the facts in Zimbabwe are different, the underlying causes for hyperinflation were the same: foreign currency obligations and a loss of productive capacity.

Zimbabwe had established Independence from Britain in 1980. Yet, by the late 1990s 70% of productive arable land was still held by the small minority 1% of white farmers in the country. After years of talk about redistribution, in 2000, the President Robert Mugabe began to redistribute this land.

The redistribution process was a disaster, both legally and economically. Many whites fled as violence escalated. The result was an enormous decline in Zimbabwe’s agricultural production.  With agricultural production having plummeted, Zimbabwe was forced to pay to import food in hard currency.

Meanwhile, the government turned to the printing presses to fulfil its domestic obligations.  as in Germany, the foreign currency obligations, the loss of productive capacity and the money printing was a toxic brew which ended in hyperinflation.

Hyperinflation in the USA, May 2010

As you can see from the two most severe cases of hyperinflation, the problem in each case was a loss of productive capacity, foreign currency liabilities, and a loss of the ability to tax. When the economy is overheating, traditionally we think of interest rates, the price of money, as the mechanism which government could use to slow things down and bring inflation to heel. However, fiscal policy is effective here. If government increases taxes, it cools the economy and reduces consumption, relieving the pressure on productive capacity. Thus, the loss of the ability to tax is central in hyperinflation.

In the German example, the Germans had a huge foreign currency liability that it had to pay, meaning it could not make good on the liability by printing money. It was a currency user as far as these liabilities went. Meanwhile, with productive capacity limited, the government was then unable to ease price pressure through the tax lever. The shortage of goods drove up prices inexorably and the government was forced to turn to the printing press in order to meet its domestic obligations.

In the Zimbabwe example, taxes were again central. Unable to recoup enough tax revenue and with large foreign currency obligations and a loss of productive capacity, the government resorted to printing money in an environment where prices were rising.

So, hyperinflation has very specific preconditions that are not apparent in the U.S..

  1. No foreign currency liability: The U.S. dollar is the world’s reserve currency so the U.S. can pay for trade goods in U.S. dollars. The U.S. does not have a peg to gold or some other currency which acts as a de facto foreign currency liability. And the U.S. government has substantially no foreign currency liabilities. All of the debt is issued in domestic currency.
  2. Price pressures are still anchored: While commodity prices are rising, they are rising in all currencies, not just in USD. Moreover, their rise will create demand destruction before any hyperinflation could occur. Why? Unemployment is high and capacity utilization is low, meaning there are no inflationary pressures on that front to help push inflation higher before demand destruction sets in.
  3. Currency revulsion has not set in: Tax compliance is high in the U.S. We are not talking about Russia, Greece or Argentina where government has had a difficult time in raising tax. Moreover, as the USD is still the world’s reserve currency, there has been no freefall sell off of dollars, nor do I anticipate any in the near-to-medium term.

In short, there will be no hyperinflation in the U.S. any time soon. As to fiat money and the need for a new world order, that is a separate topic to take up at a later date.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward http://www.creditwritedowns.com

150 comments

  1. Lilguy

    The problem with the gold or any other currency standard is that NOTHING has intrinsic value. All value is derived by a market–a willing and able buyer and a willing and able seller–for better or worse.

    1. Jardinero1

      I concur. Some libertarians, particularly Miseians says there is no objective measure of value. All value is subjective. Value is a perception which exists only in exchange and during exchange between two or more parties who engage in such exchange without coercion.
      There is a tendency among the unread conflate those who advocate a gold as a medium of exchange, which in most states is prohibited by law; and a gold standard where states regulate gold as a medium of exchange. Those are two entirely differently things. Libertarians, Miseians in particular, espouse the former not the latter.

      1. F. Beard

        I concur. Some libertarians, particularly Miseians says there is no objective measure of value. Jardinero1

        Mises was no libertarian. He advocated a government enforced gold standard. But that’s fascist, not libertarian.

        The Austrians claim that they want government to play no role in money creation. That’s right. They want to force the government and, by extension, the rest of us to use gold since taxes would be paid in gold.

        But gold, being a non-performing asset, requires usury to generate a return. Thus, the Austrians are for government sanction for usury.

        The true libertarian money solution is separate government and private money supplies per Matthew 22:16-22.

        To conflate liberty and gold is nonsense.

        1. Jardinero1

          You are mistaken about Mises. If you read no more than Chapter 1 of The Theory of Money and Credit, you will understand why. You can get an html copy at Mises.org

          You are also mistaken about Austrians. No Austrian wants to “force” the government or anyone else to use a gold standard. The polar opposite is actually the case. Austrians say money is whatever commodity that people are willing to use for exchange. It can be gold, seashells, buttons, cigarettes or strips of paper with dead presidents imprinted upon them. The only difference between gold and the other commodities is that it doesn’t fall out of fashion as a medium of exchange. With gold there is no requirement for coercion to enforce its use as a medium of exchange as is the case with the strips of paper with dead presidents.

          Austrians don’t care what medium the government uses for money as long other mediums are allowed as well. You make a material mis-statement when you say “They want to force the government and, by extension, the rest of us to use gold since taxes would be paid in gold” but you also illustrate in one sentence that the problem therein lies with the government not with the gold. Governments can demand payment in any medium they choose. That’s precisely how they determine and enforce the “official” medium of exchange. What Austrians and some libertarians desire is to break that monopoly on the medium of exchange.

          1. F. Beard

            You are mistaken about Mises. Jardinero1

            I doubt it. Here’s a quote from George Selgin

            “Ludwig von Mises is well-known for his uncompromising defense of the gold standard during a period when that standard was being denounced by most other prominent economists. Mises’ reasons for preferring gold over a managed fiat money are not so widely understood.

            Some self-styled ‘‘Misesians’’ defend the gold standard (or
            an extreme ‘‘100 percent’’ gold standard) on ideological and moral (‘‘natural rights’’) grounds, while portraying it as a practically flawless institution (Rothbard 1974, Sennholz 1975). Mises, in contrast, made a utilitarian case for the gold standard, while recognizing gold’s drawbacks:
            Mises defended the gold standard, not because he considered
            it ideal or because he thought fiat money immoral, but because he was convinced that a managed fiat money would prove less stable than gold.”
            George Selgin from http://www.cato.org/pubs/journal/cj19n2/cj19n2-4.pdf

            You are also mistaken about Austrians. No Austrian wants to “force” the government or anyone else to use a gold standard. The polar opposite is actually the case. Jardinero1

            Uh no,

            I have debated the Austrian extensively and they do wish to enforce a gold standard on the rest of us. Here’s a quote from Gary North:

            “The government does have the right to establish the form of money that citizens must use to pay their taxes. The government should limit itself to a statement regarding the weight and fineness of the tax coins. If private enterprise produces coins that meet these standards, the government must accept such coins as valid for the payment of taxes. The government lawfully controls the form of taxation; but it should not have any power to monopolize the production of coins. Governments have always asserted this authority, and they have always done so to the detriment of liberty.” Gary North from http://www.lewrockwell.com/north/north895.html

            To be completely fair, the government must recognize all private money forms equally, which is impossible, or none at all. And since “none at all” is the only correct solution then the govermentt MUST issue its own fiat for the purpose of taxes and fees.

            With gold there is no requirement for coercion to enforce its use as a medium of exchange as is the case with the strips of paper with dead presidents. Jardinero1

            Then there should be no objection at all to limiting gold ONLY to the private sector, should there be? However, if gold is required for taxes then coercion is indeed being applied.

          2. Jardinero1

            My view of things is that if you want to know what Mises said you should read what Mises said. Why don’t you read what Mises said before you mischaracterize him? Gary North reads Mises and he also has his own opinions. Where you quote him, he says essentially same thing I said with the proviso, “The government should limit itself to a statement regarding the weight and fineness of the tax coins. If private enterprise produces coins that meet these standards” which is a subject of debate.

            “Then there should be no objection at all to limiting gold ONLY to the private sector, should there be?” No, as I said there should be no monopoly on the medium of exchange. Especially a government monopoly.

            “However, if gold is required for taxes then coercion is indeed being applied” Well, yes. That’s the whole reason for breaking the government monopoly and for having competitive mediums, to weaken the government and its hold on the people.

            The notion that Austrians are gold bugs is fundamentally wrong. Austrians are fundamentally concerned with liberty, the ownership of the self and what the self produces. When Miseians talk about gold and rail against fiat money, it’s not becasue they love gold, it’s because they are opposed to the violence of the state. If you take away the state’s ability to create money you take away the ability to infringe on liberty.

      2. Septeus7

        Quote: “All value is subjective. Value is a perception which exists only in exchange and during exchange between two or more parties who engage in such exchange without coercion.”

        Absolute nonsense. All Perception is based on real objects because one cannot consider that which outside real objects in real economics. Subjects must consider real objects and interactions.

        The exchange only produces value if the thing being exchanged has value related to what an individual thinks he can physically do with a good i.e. real object obtained by exchanged while the concept of future action is adduced subjectively by reasoning from understanding of nature of the object in question from the subjectively adduced principles believed to relate to the objective universe as a whole.

        In short, one can only generate value based on principled understanding of man in the universe as determined by the whole of the influences placed on him by his history, society, and culture. Man is not a sovereign particle with an existence contained entirely within himself but a holon within hierarchy of social constructions.

        Value is both objective and subjective based on the objective historical context and the subjective interpretation of that context.

        A economic decisions are therefore based on abductive reasoning and thus all forms economic theory based on deductive modes of human reasoning are false because all decision are in fact made within a historical context based on understandings within the context of abductive reasoning.

        Von Mises was an idiot and one merely has to review his opinions about classical versus popular music to see he was incapable of understanding true human beauty and reason.

        1. Jardinero1

          Demonstrate just one wholly objective measure of value. Then explain how you reconcile the one wholly objective measure with the concept and the fact of arbitrage. Because if there were even one wholly objective measure of value there could not be arbitrage.

          1. Septeus7

            Quote: “Demonstrate just one wholly objective measure of value. Then explain how you reconcile the one wholly objective measure with the concept and the fact of arbitrage. Because if there were even one wholly objective measure of value there could not be arbitrage.”

            Easy, you Austrains seems to think lack of coercion is an wholly objective value otherwise why mention it as precondition to the correct determination of value. If everything is subjective then idea value must arise from a situation lacking coercion is baseless. Without an objective standard as to define coercion then no claim of coercion could every be anything but subjective and therefore any attempt to enforce any standard against coercion would require it leading to self contradiction.

            So the Austrian himself believes in an objective standard of coercion and an objective means of measuring it.

            You cannot make any subjective claim with dealing with some objective reality. My entire point was that claiming that value was ether wholly subjective or wholly objective is wrong because the nature of real world is having to deal with both at the same time. The truth is that there is two wholly pure substances that existence entirely within a two separate universes of subjective and objective because there is only one universe.

            As for partly objective values, I believe the Declaration of Independence defines then fairly well. Life, Liberty, and the pursuit of Happiness are fairly objective.

            Is the property of Life subjective or objective, Jardinero? If you can’t answer that then I’m afraid there’s not much hope for you.

  2. Jim Haygood

    Hyperinflation is interesting to analyze, because it represents an extreme and dramatic case of financial crack-up. But like stock market crashes, hyperinflation is a statistical long shot — such really extreme events don’t occur that often. If you tally all the nation-years that acculumated in the 20th century, and then examine the portion of those years that were hyperinflationary, the percentage would be well under one percent.

    On the other hand, uncomfortably high double-digit inflation is fairly commonplace, though somewhat cyclical on a global basis. In the Seventies, plenty of ‘serious’ countries, including the US and Japan, reached double-digit inflation rates. In the Eighties, inflation was endemic in Latin America. And so forth.

    In passing, one should note the serious asset inflations which occurred more recently, in the Nineties and the Double Oughts: the tech bubble, the global real estate bubble, and now record food, gold and commodity prices. Such asset price distortions don’t count in CPI, but they are most definitely a manifestation of excess credit creation.

    Those who have assets rather like asset inflation, while the majority with little net worth quietly finds itself priced out of financial investments, houses, and now even the food and fuel to live.

    Hyperinflation warnings, while colorful, are rather like showing smokers photos of cancer-ravaged lungs. In both cases, it’s not the dire, less-than-certain end game, but rather the predictable deleterious effects on the quality of everyday life which are to be deplored and avoided.

    Too bad there’s not a Fed-B-Gone(TM) patch which we can stick on our arms, and then wash the larcenous detritus of Bozo Ben down the drain in a safe, easy, 10-day ‘freedom from fiat’ program to restore our purloined purchasing power.

  3. Allen C

    Hyperinflation is certain if the US continues to monetize the fiscal deficit.

    Reserve currency status requires additional confidence as external holders voluntarily hold USD.

    Hyperinflation is generally an issue of confidence. Loss of confidence in the USD is likely to begin with external divestiture of USD.

    Basel rules essentially provide for zero percent bank reserve requirements for holding US Treasuries. A sort of shadow QE is possible via foreign CBs and other bank entities.

    Anyone not alarmed by the impressive rise in commodities is deluded.

    The Great Reflation Experiment is a reflation at all costs proposition. Reversion to austerity is admission to experiment failure.

    The fundamental flaw in the Great Reflation Experiment is a lack of economic growth in relation to the debt growth. The 35+ years of chronic trade deficits are ultimately unsustainable.

    Devaluation is an ultimate result for countries with large debts, large external debts, and chronic trade deficits. The ’70s devaluations led to a 50% decline in purchasing power over 10 years. The imbalances today are greater. A significant loss of purchase power is a significant loss regardless of label.

    1. MB24

      So really, the risk for the US is that some time down the road, a gold standard or alternative reserve currency is created. At that point, the US would not be able to print its debts away and if some production problems occur, then hyperinflation may be a real risk. How far into the future will this happen? When or how will a new reserve currency come along to replace the US$ and how quickly will the markets react, punishing value of the dollar and making non-US products more expensive? Maybe a very low probability event but those are what seem to really kill invetors and way more frequently then one would assume to happen!

    2. Edward Harrison Post author

      Extreme currency revulsion is certainly a possibility but it would take a lot of events to get there (loss of reserve currency status, pricing of gold in euros or gold, massive tax evasion, loss of large amounts of productive capacity, continual injections of money into system instead of accepting debt deflation, etc).

      All of these factors would take years to coalesce. Hyperinflation is not an event that has any relevance in the short-to-medium term. In the long-term, it would take a confluence of events like the ones I outlined to occur. From an investment or public policy perspective, it’s a non-issue at this point. It’s just a rhetorical talking point used for ideological purposes.

      1. monday1929

        Do you believe the earthquakes have raised the odds of a Japanese hyper-inflation? (IE. loss of production.)

        1. Edward Harrison Post author

          Yes, I would imagine Japan is a better case for potential hyperinflation than the U.S.. It would be interesting to see what MMT’ers say about this. If any are on this thread, I would like to hear you take.

          1. Mike

            ??????
            Based on your analysis, that we in the U.S. would not face hyperinflation because of 1 no foreign currency liability, 2 price pressure are still anchored, and 3 currency revulsion has not set in, then I must conclude that “there will be no hyperinflation in Japan either any time soon.”

            I think you’re missing the big picture. What do you think our military spending is for? As long as we can force the world to use dollars, there will be a demand for dollars, and a little inflation means that the demand increases over time. The question to ask is whether our military superiority can be sustained, and whether the young lives sacrificed are worth not having to have a real economy for the rest of us.

      2. john bougearel

        Geez Ed,

        Maybe we ought to start worrying.
        1) The US is losing its reserve currency status, like quicksand.
        2) There is massive tax evasion going on at the corporate level. And there is a ton of lost tax receipts from the 44 million long-term unemployed citizens now living on food stamps.
        3) The US has lost more than 15% of its productive capacity to offshoring.
        4) We are gov’t guaranteed to continually inject money into TBTF institutions instead of requiring creditors to accept haircuts.

        1. Cedric Regula

          I’ve lost faith in the gov’s ability to raise taxes too. We have only seen tax cuts, exemptions and subsidies. They say they can’t raise them because GDP would go down, and that would be bad for the economy. Or maybe I have that backwards.

      3. R Foreman

        These might be sufficient conditions for hyperinflation, they’re not all necessary though. All you need for hyperinflation is government debt service and other foreign obligations to exceed its ability to collect taxes from citizens. How many examples of this have you seen in history ?

        Our government seems ok with tacit default of debt by currency devaluation in the hopes our once mighty engine of growth will restart and overtake the current mountain of transfer payments which constitutes most of our economy. Will they be successful ? I don’t know. My bet is no, once they cross a certain point of debt monetization they cannot mathematically succeed in this.

        1. KnotRP

          As Foreman and others point out, Edward, your argument is not convincing in the slightest.

          Hyperinflation only requires holders to lose confidence and attempt to exit…into *anything* else. It’s a non-linear change
          in the confidence of currency holders.

          And only a fool would think “inflation” (wage-price spiral launched by excessive printing) is a necessary stepping
          stone on the way to hyperinflation.
          Hyperinflation is what one gets when wage-price
          spirals are impossible to start (because wages cannot be
          forced up due to existing excess global labor availability at cheap prices and no environmental or work-week standards).

          If we do QE3 and then QE4 (which I expect we will), you will probably be surprised when it all suddenly falls apart…and
          all the King’s Horses and Men won’t be able to put it back
          together again.

          1. Your Daddy

            But your argument, Knot, isn’t convincing either.

            What’s the likelihood that Japan, Saudia Arabia and other oil exporters (the pricing of oil in dollars), the U.K. and China exit the dollar and/or dump treasuries en masse? I would not say it’s a zero percent event, however, practically speaking it’s very close to nil.

            Japan needs American military protection; without it, China would own them. They also obviously need our consumers.

            Saudia Arabia and others likewise needs protection from Muslim radicals that would likely own them, if left unprotected.

            The U.K. and the U.S. relation ship is like little brother, big brother. The U.K. (little brother) will follow and do whatever the big brother does. The banking and financial industries in both these countries are very strong and very interconnected. Also, many sovereign and hedge funds operate from and conduct financial transactions in the Caribbean out of U.K. territories, and this group is also a large buyer of treasuries.

            And China…we have a symbiotic relationship with them. Americans (get cheaper goods from China (American middle class wages are/have been stagnant for years) and the Chinese get economic and employment nourishment for their country. Also, it bears repeating that China has huge savings denominated in dollars; they cannot afford to take a short-term view and make an impulsive and hasty action that would negatively affect the value of their holdings and the long-term economic future of their country and the special relationship with the U.S.

            I do agree overall with Edward. I just don’t see how hyperinflation can happen in a country that has both very high tax compliance and very high productive capacity and, very importantly, has the biggest, most advanced military in the world which gives this country the leverage necessary to seek rent[s] (get them to play the game, that is, get them to buy treasuries, to denominate asset in dollars, to conduct financial transactions in dollars) from the rest of the world for not only providing them military protection but expertise (e.g. leadership) and other competencies as well.

    3. nonclassical

      Allen,

      that’s what I have come to understand-hyperinflation is a
      reaction, particularly if dollar goes off international monetary “reserve currency” standard..

      Many more dollars are circulated due to this standard, worldwide, than in the U.S. Should dollar no longer be “reserve currency”, all those dollars will return to U.S.
      banks..

    4. Stevie b.

      Allen C – your last 4 paragraphs hit the nail on the head. Hyperinflation or not, to all intents and purposes the $ is done-for, because the only way out is for the debt to be devalued.

  4. Sufferin' Succotash

    On the post-WW1 situation: note that the French claimed they couldn’t repay their war debts to the US unless they received German reparations. Also, consider the following, namely that the Germans did not in fact have to pay the amount stipulated by the Allies. This article by Sally Marks is essential reading on the subject.

    http://www.jstor.org/pss/4545835

  5. voislav

    As someone who actually lived through a severe hyperinflation (Yugoslavia, early ’90s) I can say with certainty that anyone talking about hyperinflation in the US needs to have their heads checked. The only way for the hyperinflationary cycle to start is for the government to print a lot of money. Since dollar is a world reserve currency, in this case a lot of money is a LOT of money.

    US might see higher inflation, single to low double digits, but this is a far cry from hyperinflation. Hyperinflation (as opposed to inflation) is always a conscious decision by the government, it never, ever just happens. Usually it’s produced for the benefit of a few whose interest is to wipe all debts held in that currency. Typically, in the past these were government cronies who built their fortune on government loans that they do not feel like or feel capable repaying.

    There was a case in Yugoslavia, where now a well endowed businessman, borrowed millions of dollars before hyperinflation from government banks on a five year term. When the loan was up, he walked into the bank tossed then a hundred dollar bill and told them to keep the change.

  6. rjs

    i was under the impression that the Weimar hyperinflation was precipitated by massive shorting of german marks by the english…

    1. antti k

      Nope. Shorting only kills your exchange ratio, which is great for export, btw, if you have any. It also improves trade balance by killin imports very effectively.

      E.H. is right, hyperinflation in Weimar was the result of government trying to keep people in their jobs and their purchasing power intact with two methods:

      1) Monetizing it’s own debt through printing of more currency units

      2) Raising of workers wages and pushing this newly minted growing amount of new currency into circulation to compete for a fixed set of resources.

      Both were consioucs and political activities, not mere blunders of finance.

      Both are require for a hyperinflationary spiral ala Weimar Republic.

      Just being indebted to your ears doesn’t create it. Nor does printing money. This can create speculation, rises in specific (investment assets), but not general hyperinflation per se.

      For anybody misinformed about the Weimer, I recommend the two following books to understand the process of hyperinflation:

      Peter Bernholz, Monetary Regimes and Inflation: History, Economic and Political Relationships

      &

      Farrokh K. Langdana, Macroeconomic Policy : Demystifying Monetary and Fiscal Policy (esp. chp. 6.3 on hyperinflationary mechanisms).

    2. Cedric Regula

      One of the things that no one ever understands when discussing the W years is that German war reparations were convertible to gold, same as pre Nixon dollars. So when they say the English were “shorting” marks, that means by the rule of the day they could take payment in gold rather than marks.

      Germany was a big exporter of coal and steel. They were out of biz on the value added industry of war production. So they had to either earn foreign exchange by shipping tons and tons of coal and steel, or buy gold to convert marks on demand from foreign holders of marks. Not a good weight match up.

      Then for some reason probably understood only by MMTers, they cranked up the printing presses to wipe out remaining domestic savings and purchasing power. Private German savers began buying wool sweaters as a store of value. Who knows what mal-investment was caused in industry.

      Ultimately the Germans did default on much of the war reparation debt. They re-negotiated after the end of hyper-inflation, and once agreeing to paying the new lower amount in gold, they were given new loans to pay off the old!

      Now that the state survived, Hitler began gaining traction, but it was under a gold standard for foreign exchange!

  7. Moopheus

    Of course money has no intrinsic value. Why should it? It doesn’t need to have any. Money is an abstraction we invented to make accounting easier. That’s all it is or has to be. Convertability is just the government saying they will buy or sell a material asset at a fixed price, a price they get to determine at will. The only reason they have to do this is because some people are psychologically uncomfortable with the fact that money doesn’t really exist as a physical commodity. And yes, a practical matter, the people in charge tend to be weak-willed about controls. However, why should there be any particular connection between the monetary needs of our economy and the amount of some metal we can dig out of the ground? The two things are not related at all. Particularly since the metal is costly and destructive to mine. Sure, we need to control the money supply, but surely we can come up with some more rational way to do it.

    1. LJR

      Surely? Surely you jest. You need to recheck the definition of “rational.” It’s not the same as “fair” or “balanced” or “reasonable.” A “ratio” derives from the mathematical notion of the relationship between a numerator and a denominator. Some might call this a balance but I’m arguing that there is no simple (and for the dumbos in this country it would have to be simple!) and fair way to regulate the creation of money. Fear and greed are the two emotions that end up running the show – as usual. The reason gold and silver are attractive in an environment where money is created in excess of productive capacity is simply that precious metals can’t be printed and they (especially gold) have a long history as a store of value and medium of exchange. Everyone knows this. Especially the Chinese.

      Think of the money as water sloshing around in a bucket. While we can see all the dollars being printed and dumped into the top, what we can’t see is all the bad debt that is draining from a big hole in the bottom of the bucket. The dollars that would normally come from outside to buy government debt have dried up because the banks simply don’t have it – the assets they would pledge are going bad and they aren’t willing to commit them. Consequently the Fed has to step in and buy government debt. Otherwise the government could not fund its ongoing operations. Naturally this is gussied up as QE2 or some such nonsense. House of cards? You bet.

      The engineer mentality keeps thinking that money is simply a matter of “engineering” a rational way of creating money. The mistake is, as always, in the one dimensional mindset of engineers. They believe social systems can be engineered. They cannot. Forget it. Social systems are simply too complex and feedback loops occur across widely separate domains of description. Simple minded engineers can’t figure this out. They think there is some mechanical formula that would settle the question of “how much is enough.”

      This is, like it or not, a “muddle through and hope for the best” issue with no right and wrong solutions. Gold and silver are, in my opinion, right in this situation because they can’t be created out of thin air. The difficulty in creation is essential to their value.

      While hyperinflation seems unlikely, rising prices for commodities seems pretty cooked into the cake at this point until demand destruction slows it down. That demand destruction is likely to precipitate a crash of some sort and then gold and silver will dump like everything else.

      Count on Obama to pull every string at his disposal to keep the circus going until he gets reelected. Looks like he has everyone he needs in his pocket.

      1. polack in idaho

        that’s well put, LJR. I think that in discussions of gold standard, both supporters and opponents often see more in this approach than there is in it, really. It is not some magical cure for all financial ills – but it DOES offer a modest ability to discipline the government, when government (of course with the best intentions) wants to do good by giving more money to everyone. Gold standard makes it difficult. And if more gold is dug up, than government can print more money – and more people would be able to afford gold jewelry or some bullion. There is nothing wrong with that.
        Also, gold DOES have an intrinsic value – it is used in manufacturing and electronics, dentistry and medicine, even if we discount jewelry. It does not rust, is practically indestructible (even dissolving gold in acid leaves the gold in a solution), has a high density of value per unit of volume, and is portable. What more can you ask?

  8. indio007

    “Fiat money has no intrinsic value. It simply represents a liability of government, an IOU. The only promise government makes is to repay the holder of that liability with another IOU of equivalent nominal amount in whatever money form the government decides: it could be coins, bonds, paper currency or electronic credits. ”

    For the record.
    Theoretically speaking FRN’s are redeemable in lawful money.
    12 USC 411
    Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.

    Has anyone actually tried to redeem them for lawful money and fail?

          1. Richard W

            I tried it once. I was met at the door of the B of E by a very nice chap in a dress coat and top hat with a rather fetching yellow band about it. I wanted the five pounds that my bill said was payable on demand. He rather dismissivly informed me that I might try the pawn shop down the road.

    1. monday1929

      I believe, if pushed, they will say they are backed by Treasuries, which are redeemable for FRN’s………

      1. indio007

        Good question. I’ve been trying to figure it out for some years now.
        So have many others. Maybe someone else can figure it out .
        I think lawful money is both hard currency of intrinsic or paper certificates which have the characteristics of a warehouse receipt for hard currency.

        Here’s some legal opinions on it. I can’t really say there is a definitive answer.

        The Theory of Money in the Law of Commercial Instruments
        Herman Oliphant
        Yale Law Journal 1920

        The Gold Clause in Private Contract
        George Nebolsine
        Yale Law Journal 1933

        Basic Monetary Conceptions in Law
        Arthur Nussbaum
        Michigan Law Review 1937

        The Concept of Lawful Money
        Edward C. Simmons
        Journal of Political Economy 1938

        A Note on Lawful Money
        Ira B. Cross
        Journal of Political Economy 1938

        Links to each are below
        https://docs.google.com/document/pub?id=1Zb3SDZSjJSX6R2UoU8ejYI8qpfGdUXz_UgBbAFIMEXs

  9. Jim A

    ISTR that during the Weimar period, US banks were leaders in the financing of the German deficit. So we were lending them the money to pay the Allies to pay us back for the money that we’d lent the Allies.

    1. Sufferin' Succotash

      This was true in the mid-20s after the Dawes Plan was implemented, at least until 1928 when American banks began taking a much bigger interest in that wonderful bull market on Wall St. that seemed to go on and on forever.

  10. Dave

    Ed neglected to mention the most important factor. Hyperinflation has never occurred in a country with high personal debt. Large numbers of mortgages are a fairly recent condition and didn’t even exist in many countries that suffered hyperinflation. Credit cards and auto loans also.

    Our banks, which control the country, would never allow this as they do not wish to be repaid with worthless money. So if you are deeply in debt, abandon all hope. You will never be able to pay off your house with a month’s pay. Sorry!

    1. pebird

      Dave:

      Excellent point! One has to remember that in a hyperinflationary episode, the public needs to be able to obtain the rapidly deflating curency. This means that wages must be increasing, since that is the primary way the public receives currency.

      My mortgage wouldn’t mind a bit of an inflationary period in the US, but I think Chase would object.

      1. LJR

        Bingo! This is the point none of the hyper-inflationists can seem to understand. There has to be a money conduit. Unless the government can re-inflate the housing bubble (and that’s unlikely) there just isn’t any way to get money or credit into the hands of the spending masses. And without spending there cannot be hyperinflation. Wages aren’t going up anytime soon (except for FaceBook engineers).

      2. Karen

        “Excellent point! One has to remember that in a hyperinflationary episode, the public needs to be able to obtain the rapidly deflating curency. This means that wages must be increasing, since that is the primary way the public receives currency.”

        But the public IS obtaining the new book-entry dollars the Fed is creating – through our government’s own deficit spending. If the Treasury could not borrow (could not sell Treasury bills, bonds and notes), government spending would be a lot lower than it is. Of course, because we already HAD a big bout of asset-price inflation (the housing boom), current government spending is just counteracting some of the deflationary tide that would be unchecked otherwise.

        What we are now getting from QE is mostly asset-price inflation (sadly, not in houses this time) instead of consumer price inflation. I think that’s because (a) deficit spending is only enough to keep us treading water and (b) there are enough investors willing to buy Treasuries if given the opportunity, so that the main effect of QE2 has been to displace those investors and force them to buy other investments, creating a ripple-through effect and a generalized investment-asset bubble.

        If nothing much changes, then I’d expect the asset-price inflation to switch into consumer price inflation whenever investors start drawing down their investments on a large enough scale. That would be when enough baby boomers are retired that most pension funds are paying out more each year than they take in, and/or when the Chinese government begins to spend dollars rather than continuing to hoard them, or when we jack up the estate tax high enough so investment managers have to liquidate rich people’s invested assets when they die.

    2. Dan

      bingo. In my mind hyperinflation, especially in the US, would the equivalent of all personal debt being wiped out. If that happens, the Mayans were right.

      1. PianoRacer

        The mistake you’re making is in assuming that “they” (TBTF banks, Fed Gov, whatever boogeyman you are imagining) have the power to stop hyperinflation. You are making this mistake because you have been conditioned to believe that people do not have power, and that “they” do.

        What you fail to understand is that hyperinflation is the repudiation of irredeemable currency. When it is obvious that the “preferred” currency is a terrible investment, and when the losses incurred by holding that investment begin to accelerate rapidly, that currency is repudiated.

        What happens is this: people want to get out of the rapidly devaluing currency at any cost, and as soon as possible. This increases the “velocity” of money; you spend your paycheck as soon as you are paid so that you can acquire something in the “real world” TODAY because tomorrow that same amount of money will buy you less.

        This increase in velocity effectively increases the money supply. When nobody wants to hold onto the currency, there is more of it in circulation; remember, saving currency is effectively taking it out of the money supply.

        Whoever named the (rational!) repudiation of irredeemable currency once it inveterately begins to be devalued in lieu of suffering difficult economic pain was an idiot, because of course everyone thinks that it is a form of inflation, i.e. rising prices. But rising prices are the RESULT of the repudiation of a broken currency.

        Weimar and Zimbabwe are a very narrow scope to focus on. This account of hpyerinflation in France was particularly illuminating to me:

        http://www.gutenberg.org/dirs/6/9/4/6949/6949.txt

  11. Steve Roberts

    Reggie is a smart guy. I’d love to read what his opinion is of what will happen if average yields on US interest rates should spike to 6-7% when our public held debt to GDP is nearing 100%. That could mean we are spending 30% of our tax revenue on the interest alone (not including currency production). If we have trouble with a budget now, what happens with a scenario like that?

    We can afford 200% debt to GDP at 2% interest rates but if they should ever shoot up out of control because of a black swan event? How do you stop the snowballing of debt production?

      1. maude

        It appears Mr. Roberts was reading Zerohedge and clicked on wrong link.

        As for Black Swan events…

        Financial meltdown
        Unemployment
        EU Bailouts
        Egypt
        Libya
        Oil – $108
        Fukushima

        How many black swan events do we need to have before interest rates go up to 6-7%… Just asking.

      1. Lilguy

        Agree! Reggie does some good financial analysis, but is so incessantly patting himself on the back for the things he’s gotten right (or close), I’m surprised he hasn’t needed shoulder surgery. (Of course, like all others in the business, he ignores his mistakes.)

        I gave up reading his work a year ago.

  12. constantnormal

    “Unemployment is high and capacity utilization is low, meaning there are no inflationary pressures on that front to help push inflation higher before demand destruction sets in.”

    I fail to see how this is an effective barrier to hyperinflation. What was the unemployment rate or capacity utilization in Zimbabwe when their hyperinflation was in full bloom?

    I’m not arguing that we are about to embark on a course of hyperinflation (yet), as your other two reasons are sound. But unemployment and capacity utilization are no barrier to the destructive effects of hyperinflation — rather, they are a consequence of it.

    Once the USD loses its global reserve currency standing, and the imposition of a substantial VAT tax begins to drive economic activity out of this country, hyperinflation seems like a very real possibility to me. But those things have to occur first.

    And unfortunately, I can see those events coming.

  13. Brick

    My thinking is that it relates to obligations, ability to tax and the velocity of money. I am not sure it matters whether debt is in your own currency or not. There have been many examples of hyperinflation, Austria, Hungary, Brazil, Greece many times, Mexico, Peru, Romania, Russia and lets not forget that the USA has come pretty close to hyperinflation twice in its history and not all had debt in a foreign currency. During the Civil War, when the Union government printed greenbacks to finance the war effort, inflation peaked at a monthly rate of 40 percent in March 1864.

    Strictly speaking in my view hyperinflation is a revulsion of the currency but often that revulsion has its roots in an inability to raise taxes to meet obligations or to reduce expenditure. The inability might be that increasing tax rates or reducing expenditure would just reduce tax revenues by damaging the economy, it can be an idealogical problem or a combination of both. This leads to debt being issued which to some extent can be absorbed internally through savings or by foreign trade imbalances. The government finances are then subject even more to the acceptance by the population and foreign investors in the perceptual value of the currency through the debt obligations. The problem comes when the government starts printing money which can be to pay debts rather than addressing taxation and spending issues. Revulsion starts outside the country for the currency and moves to the general population usually on the back of high inflation.It has little to do with treasury markets if printing is used to pay off debts, but once revulsion begins to set in treasury yields can start to rise which increases the temptation to print money to pay off the debt. Because QE is an asset swap it is conceivable that actually QE could be used to stave off hyperinflation for a while. QE can only work though while there are reserves which are not already in the asset class in question.

    In conclusion I would say foreign currency liability is a factor but not a condition. Price pressures being unanchored is part of the sequence. Currency revulsion is key but not just by the population but by the world trade community as well. So correctly you state there is little evidence of hyperinflation in the U.S. at this point, but that does not mean the US does not appear to be taking some worrying steps which may lead to it, if not addressed over the longer term.

  14. TC

    Hyperinflation is not “around the corner.” It is here now and it has been here ever since FDR’s Bretton Woods System establishing global, fixed exchange rates was destroyed by those fascist jellyfish Nixon and Shultz. Hyperinflation is a dynamic, physical process, intimately involving human beings, not some monetarist mumbo jumbo placing those things possessing “money-ness) at the pinnacle of observation supposedly allowing for hyperinflation’s identification. Hyperinflation entails the shutdown of physical capacity facilitating growth in labor’s productive power per capita and per square kilometer. Hyperinflation is realized by a policy promoting death by means not so fearsomely stark as a concentration camp, but with the same intended outcome nevertheless. Hyperinflation is slavery to debt no matter what little due diligence went into its formation. It is here now.

  15. Cathryn Mataga

    No, it’s not Weimar Germany — but what about the recent housing price inflation, err, bubble. The housing bubble didn’t show up as inflation because inflation has been redefined to not include that, but still. For a normal human, you went out to buy a house, and the price was higher.

    This talk of hyperinflation is a straw man — the danger is the creation of new bubbles. The elite banks have been given access to vast amounts of money to speculate and gamble. Will this cause prices to rise? Well, I think it’s based on the whim of the banks. Previously that money speculated on houses, that popped — they’ll find something new to gamble on. No lessons have been learned.

  16. oliverks

    It is an interesting theory that hyper inflation requires the loss of productive capacity (or perhaps high capacity utilization). Can you make the same argument for Chile in the 1970’s?

    Oliver

    1. Edward Harrison Post author

      The productive capacity and foreign currency examples are conduits through which the loss of taxing power manifests itself. So I am not saying that these are mandatory preconditions. I am saying “the loss of the ability to tax is central in hyperinflation.”

      When the government loses the tax lever, these other problems act as a trigger.

      1. Cedric Regula

        Of course the government may eventually get upset that they can’t buy anything with their tax revenue…..

      2. oliverks

        So what do you think the break down was in Chile? I must confess I remain somewhat confused by that example.

        Oliver

  17. Dean, Cincinnati, OH

    This seems to ignore our trade imbalance. The trade issue isn’t just a balance of payments issue. If many things you buy come from China, and China has relatively high inflation, and China’s currency is also set to rise, the price of Chinese products will being going up sooner rather than later.

    Consider what effect 5% inflation in China and an annual 3% strengthening of the China’s currency will have on prices. Even without addition demand pressure, prices may well double in seven years. However, demand from China, India, Brazil, and others is rising, so the price increases may very well be even worse. Perhaps this doesn’t qualify as “hyper” inflation, but it won’t be a picnic either.

    Perhaps Wal-mart will have to change their adds from daily price rollbacks, to daily price increases.

    1. reslez

      The mistake is to imagine these changes happen in isolation. There are consequences to your scenario.

      > Perhaps Wal-mart will have to change their adds from daily price rollbacks, to daily price increases.

      More likely they’ll decide to import from some other slave wage country instead.

      If you change your theory to imagine that the world suddenly runs out of slave wage countries for Wal-mart to import from, the result is there is less need to import at all as we can source domestically.

      1. Dean, Cincinnati, OH

        I don’t image the world is running out of wage slave countries, I image the world is running out of stable wage slave countries that can produce even a fraction of what China does.

        Even then, the issue of Chinese (and Indian, and Brazilian, et. al.) demand will still affect American prices, regardless of where stuff is produced. Just look at world food prices. They are going up everywhere, not just the US and China.

  18. F. Beard

    “The only promise government makes is to repay the holder of that liability with another IOU of equivalent nominal amount in whatever money form the government decides:” Ed Harrison

    Wrong! The government promises to accept that fiat in payment of taxes. That’s the true backing of fiat.

    Fiat is wicked, not because it has no intrinsic value, (It should have none, for reasons I won’t go into here) but because we are forced. by one means or another, to use it for private debts.

  19. F. Beard

    You have at least learned the insufferable arrogance of the disciples of MMT. RebelEconomist

    MMT is 1/2 of the solution. Government money should ONLY be pure fiat but ONLY legal tender, in fact as well as law, for government debts, taxes and fees, not private ones.

    Jesus gave us this solution in Matthew 22:16-22.

    The time to heed that command is getting desperately short, and not just in my opinion. Just read the news.

      1. F. Beard

        Is there a class at Liberty College? Jack Parsons

        I don’t know. I read the Bible on my own to avoid the distortions of others such as those who defend usury despite Deuteronomy 23:19-20

    1. RebelEconomist

      The comment that you refer to appears to have been deleted. It pointed out that Ed’s argument for two of the preconditions – foreign currency obligations and loss of productive capacity – were not very convincing even in the context of his own Weimar example (I do agree that insufficient tax revenue is key though). Evidently, MMT disciples can dish out the disparaging remarks about those who disagree with them “not getting it”, “not understanding the modern monetary system” etc, but not take them.

  20. dave

    1. No foreign currency liability: The U.S. dollar is the world’s reserve currency so the U.S. can pay for trade goods in U.S. dollars. The U.S. does not have a peg to gold or some other currency which acts as a de facto foreign currency liability. And the U.S. government has substantially no foreign currency liabilities. All of the debt is issued in domestic currency.

    2. Price pressures are still anchored: While commodity prices are rising, they are rising in all currencies, not just in USD. Moreover, their rise will create demand destruction before any hyperinflation could occur. Why? Unemployment is high and capacity utilization is low, meaning there are no inflationary pressures on that front to help push inflation higher before demand destruction sets in.

    3. Currency revulsion has not set in: Tax compliance is high in the U.S. We are not talking about Russia, Greece or Argentina where government has had a difficult time in raising tax. Moreover, as the USD is still the world’s reserve currency, there has been no freefall sell off of dollars, nor do I anticipate any in the near-to-medium term.

    ——–

    I agree with all of these and don’t see it as a near term problem. I think things like a rising gold price are early warning signs that can be taken with a grain of salt. A reminder that these three preconditions will only hold if you don’t abuse them too much.

  21. john bougearel

    Nice opening Ed,

    The 800 pound hyperinflation gorilla does appear to be very scarily close to us. But like objects in the rear view mirror that appear closer to us than in reality, this hyperinflation gorilla is further away from us than it seems. And that is partly the fault of the cognitive distortions created by the hyperinflation beliefs or mindsets that we have given the direction policymakers have chosen.

    I would warn you that the commonality you spotted with Weimar and Zimbabwee both had experienced a loss of productive capacity. America is said to have tons of excess capacity because capacity utilization has declined from 85%-ish to 70% over the past decade or so. However,excess capacity is a misnomer. What it really is is a loss of productive capacity. That capacity is never coming back on line because we offshored it. Hence, we can be forced to pay dearly to import those goods with fiat dollars.

    Additionally, the other commonality is a loss of the ability to tax in Weimar and Zimbabwe. Well, same thing is occuring here in America. Corporate tax cuts/subsidies, combine with millions less folks on payrolls to generate tax receipts, and states with less ability to assess property taxes because of declining property values and millions of foreclosures…..

    “It” hyperinflation could happen here sooner than we think, I am thinking either after 2012 or after 2015.

    God only knows what the US debt to GDP ratios are relative to Ireland and Greece, two countries being arm-twisted into austerity measures akin to every other IMF shock doctrine since the 1960s.

    In short Ed, your precipitating factors are good to consider, however, I think you are drawing the wrong conclusion. The US is enjoying the same precipitating factors you highlight with respect to both the Weimar Republic and Zimbabwe.

  22. Clampit

    “The Gold Standard is based on a fixed exchange rate of currency to the price of gold … I would argue that fixed exchange rates … are an example of central planning, meaning government rather than market forces decides how much the currency is worth vis-a-vis other currencies and gold.”

    Fail. A gold standard is a fixed exchange of physical gold for paper, what the hell does the “price of gold” mean on a gold standard? Any discussion of a gold price inherently negates the concept of a gold standard. For Christ’s sake, my realtor was more convincing in 2005…

  23. JollyRoger

    I believe your strongest argument against the possibility of hyperinflation of the USD is it’s current reserve status. I see troubling signs that the world is moving away from dollar hegemony.

    First, fewer foreign buyers are showing up at treasury auctions. The Federal Reserve recently surpassed China as the number one holder of US Treasuries. China has actually been reducing it’s treasury holdings of late.

    Second, the IMF recently publicly called for a replacement of the US Dollar as the world’s reserve currency.
    http://money.cnn.com/2011/02/10/markets/dollar/index.htm
    Granted, the USD would probably be a major part of any reserve basket.

    Third, there have been reports recently that Arab Gulf states would like to circumvent using the dollar for oil transactions.
    http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html
    These meetings have not been confirmed, but they do make sense, as China and Russia have been very open about their opposition to US monetary policies.

    These are all troubling signs that the other major economies are making moves to end dollar hegemony. That will take years, but when it happens, a major inflationary anchor will be cut. I agree with you that the chance of Weimar or Zimbabwe style hyperinflation are slim. But I do think the rate at which our government is building debt is staging the American public for years of high inflation. Add that to high unemployment that will cause wages to stagnate, and you get the recipe for a declining middle class. Thanks for your article, Cheers!

  24. ambrit

    Dear Constantnormal;
    From down here in the trenches,(literally so, I’m in construction,) production has been moving offshore for thirty years and more. I’ve personally seen contractors using supplies from Taiwan and Korea on Government Projects, for years! So, wouldn’t your arguement be more supportive of an increase of the public debt for the short term in order to get some money into the pockets of the working classes? I’ve read that there is a multiplier effect involved, too. Add a VAT to the mix, and your multiplier effect applies to tax reciepts as well. While we’re on the subject; no reading that I’ve come across has suggested that the experience of the VAT in European countries has trumped general rent seeking by the corporate class as a source of production flight to cheaper labor zones. The VAT will raise large amounts of money, but from those least able to afford it during hard times, the working classes and petit bourgeois. So, since it looks like we’re going to stick it to the ‘little folks’ again, let’s at least use the money for socially productive uses. Nuff said!

  25. Ed Seedhouse

    It is not just money or gold that has no intrinsic value, nothing at all has any intrinsic value. Value is an abstraction in the minds of people. We “value” something when we want more of it. Value is an action taken by a mind, and it is only we humans who have allowed ourselves to be deluded into believing that there is some external “thing” called “value” that exists in the external world.

    We value some things and not others. The “value” is in our minds, not in the so-called “external” world.

    In fact, of course, as the Buddhists have pointed out, nothing has any intrinsic self existence. Every “thing” is “caused” by other “things”.

    Any economic system that is based on illusory concepts like “intrinsic value” is bound to fail eventually. It is not that abstraction is something wrong, in fact it is one of our most powerful tools. It is the confusion of our abstractions with “reality” that is the cause of difficulty.
    There is nothing wrong with valuing things, it is necessary for us to value things to live at all, but imagining that the value lies in the thing itself is an error in thinking that causes an awful confusion and a terrible mess when it becomes widely spread as it has in our civilization.

    1. Jim Haygood

      Yes. It can be argued that energy (the power to do useful work) is the ultimate universal medium of exchange and store of value in an entropic universe.

      Of course, the form in which energy is to be delivered (kilowatt-hours, liquid fuel, or gaseous fuel at a given geographic location) has to be stipulated. As contracts for electricity, crude oil and natural gas show, the supply and pricing of energy can be quite volatile.

      Which brings us back to gold. It has no intrinsic utility as an energy source. But no amount of human effort can expand its cumulative supply by more than 1 to 2 percent per year, making gold a wonderfully stable base money.

  26. kevin

    Let us turn this argument on its head. If free markets were allowed to work without government intervention, would not most asset prices naturally fall as they did in 2008? And under this circumstance, would it not once again become obvious that the banks are bankrupt and money funds not holding treasuries are worth less than posted NAVs? In such a scenario, what is your “money” worth?

    I won’t get into a discussion of hyperinflation, but suffice it to say that tangible assets that are highest in the hierarchy of needs or that can easily be bartered must rise in value relative to “money” in such a scenario.

    Why am I wrong?

  27. Edwardo

    Edward Harrison wrote:

    “Extreme currency revulsion is certainly a possibility but it would take a lot of events to get there (loss of reserve currency status, pricing of gold in euros or gold, massive tax evasion, loss of large amounts of productive capacity, continual injections of money into system instead of accepting debt deflation, etc).”

    All of these factors would take years to coalesce.

    I think they “could” take years to coalesce. That they would take “years” to come together is far from certain in a world where change that once took decades now occurs in a fraction of the time.

    To wit:

    1.) Loss of reserve currency status is well underway and has been for some time. Going forward the amount of global trade in dollars will not require a great many catalysts to accelerate.

    2.)I don’t know what you are referring to when you say gold priced in Euros. It is priced in a variety of currencies. In the meantime, the move into gold amongst the very wealthy, which has occurred quietly, is, in essence, a removal of taxable wealth. Loss of large amounts of productive capacity? We are well down that road as well, and, again, it will not take much to accelerate that process. As for the necessity of continual injections into the system, that’s the odds on bet, wouldn’t you say?

  28. spark

    There are structural factors making it hard for external creditors to avoid holding USD.

    Read Michael Hudson.

  29. dw

    just what will replace the US dollar? The Euro? nope. The yuan? not a chance. The rupee? nope. so that leaves what? there isn’t any other currency that will replace it. the only way it could happen is if the US government did it by going to the gold standard. but before any body just gets all happy about that, they would set the exchange rate (as I recall it was $35 to the ounce). and being on it didn’t stop inflation from happening. and the likelihood of massive deflation is almost guaranteed. cause your incomes would also deflate too.

    1. Lilguy

      Agree absolutely. As bad as the dollar may be, no other currency is doing better–with the exception of the yuan. And the yuan is constrained by Beijing’s controls. IF those controls are lifted (slowly, over time), the yuan could become the “world’s currency” in, say, 20 years if nothing else changes.

  30. dw

    could rising gold prices be a sign of nothing more than commodities (and gold is one now) being pressured by speculators, and being used to replace other assets. like real estate, and stocks and bonds?
    and is the will to tax being shown in the continuous drumbeat to cut taxes? or maybe its really the will to tax those who have the money as opposed to those who don’t?

  31. MyLessThanPrimeBeef

    To me, the single most important precondition for hyperinflation is when people start asking what are the preconditions for hyperinflation.

  32. Conscience of a Conservative

    Each time the inflation discussion comes up the against crowd points to high unemployment. To that I say this time is different. In previous years the U.S. imported deflation from abroad where we could buy from those who had low wages and use a strong dollar as currency. Well now the dollar is lower, foreign wages in China are rising and commodity prices are rising. It’s a global market, our dollar buys less and commodities can go to the country willing to pay top price. If Americans are unwilling to pay the higher price then those goods go elsewhere.

    My feeling is prices increase until China makes a hard landing due to over-investment which can’t be sustained by local demand, but until then we see prices rise with the rate of increase going up.

  33. Andrew

    The preconditions for hyperinflation in the US could come about very easily and at a moment’s notice even using the conditions mentioned in the artice of:

    1. large foreign currency debt obligation.
    2. losing huge amounts of productive capacity causing prices to soar as demand outstrips supply.

    How? Simply, in a peak-oil world, with oil imports becoming harder to obtain, the various countries that export oil to the US could demand payment in something other than dollars – another currency, gold, hard goods, food, etc. With energy limited or becoming more expensive, the US economy becomes less productive, meaning less goods, with more and more dollars chasing those goods.

    1. cs

      I think you’re on the right track to think that an event will cause an international loss of faith in the dollar as the reserve, and then cascade inward.

      My guess is probably the last one considered, our military losing in a war. (From being overstretched)

      1. Jim Haygood

        Thank goodness for our decisive victory in Afghanistan!

        Doubtless Gadaffi will be dispatched just as quickly.

        What a cakewalk …

      2. Jim Haygood

        Thank goodness for our decisive victory in Afghanistan!

        Doubtless Gadaffi will be dispatched just as quickly.

        What a cakewalk …

  34. Paul Tioxon

    In Weimar Germany, Franz Neumann points out in his analysis of Nazi Germany, “BEHEMOTH”, the export of much of the industrial production was not paid for at all. It was not trade but extraction of finished goods with no hard currency in exchange. With foreign currency drained, gold reserves all but gone, the German currency was not needed, because the importers simply took what was delivered with no need to pay under the terms of Versailles. Also, Agricultural production was inadequate to the task of feeding Germany. The domestic currency was hyper inflation because the currency itself ceased to function as the economy itself ceased to function, and was simply being run for the benefit of creditors to the victors of the WWI. Money is the medium of exchange in a functioning economy, with trade and some semblance of a market where there were buyers and sellers.

    German was not a seller, but a hostage. It was not a buyer because it had nothing with which to pay. The printing of money in such a situation does not follow the logic of a market based economy. It did not matter how much they did or did not print. It was not too much money chasing too few goods. The printing went on because that is what the cultural expectation was. The truth, the defeat had consequences that superceded the cultural norms in regards to the set of expectations that Germans had of their own currency. Money in addition to having functions prescribed by law, contract, and the constitutional authority of the state, is a part of cultural behavior, is a learned set of expectations. The loss of the war created on novel, misunderstood situation where the old learned behavior was no longer valid. The situation changed but the expectations did not. With high unemployment, economic output being sent out of the country, and no capacity to import, the printing of money had nothing to command since the sovereignty of Germany had been diminished to a critical level where its own currency had no meaning. In this situation, you could get all of the blood in world out of a stone, but no one wanted to drink.

  35. Karen

    I think this is much simpler than all that stuff about loss of production capacity etc. etc.

    Hyperinflation occurs when the entity that controls the supply of money in a society/economy decides – FOR WHATEVER REASON – to churn out ever-larger quantities of new money which it dumps into the economy.

    If “helicopter Ben” developed a mental disease that had him convinced he needed to add an exponentially increasing amount of money to the economy over time, and he then did that, the result after a while would be either (1) we replace him at the Fed and send him to the loony bin or (2) we get dollar hyperinflation.

    That’s what I think, at any rate.

    And for anyone curious about the Weimar German hyperinflation, I thought this book was very interesting:

    http://university.unitedstatesliberty.org/654/textbooks/adam-fergusson-when-money-dies-nightmare-of-the-weimar-collapse/

    According to the author, severe inflation was already well underway when France invaded and took over that industrial part of Germany.

  36. Nate

    Hyperinflation has nothing to do with fiat currency. Hyperinflation happens when the capitalism reaches its finality in expansion after the burst of bubble. When the government try to stop the deflationary force with more liquidity that is when stagflation happens and runaway inflation caused by excess of paper money that cannot be slowed down with interest rate hikes. ( interest rate adjustment works only during the expansion not after the burst of bubble ).

  37. dpat

    I can say certainly:

    1. In my lifetime, there has been significant currency inflation in the USA. Holding dollars long term is a bad investment, unless you are a poorer investor than a holder of dollars.

    2. The business cycle is alive. Feedback loops keep on getting more and more complex as there are more input/outputs, more ways to play the game, and more players.

    3. Gold and silver are not the answer to price stability. Instead like any commodity, they provide diversification to have something that other people will want in the future and price its value.

  38. Philip Pilkington

    Hey, Ed – a quick question… or two… You write:

    “This is a bias I share because I believe that fiat money allows excessive money creation that winds up as a credit super bubble”

    Do you then believe in the quantity theory of money? Do you believe that money creation leads to increased circulation?

    Do you not think that it makes more sense that neither the government nor the central bank controls the money supply? I mean, it seems fairly obvious to me that the money supply – whatever that term even means – is not exogenous at all, but instead a product of a given set of macroeconomic circumstance together with the weight of regulation in place at a given point in time.

    “…and our experience over the past 40 years demonstrates this.”

    Well, I don’t think that’s true. In order for that to be true you’d have to be able to show that every time a hard currency is in place credit booms become impossible. That’s nonsense. The most obvious counterexample being the 1920s in the US, where a credit super-bubble inflated while the central banks were pegged to gold. That simple example seems to blow up your theory.

    And you may now start giving me loads of qualifications for why you think the 20s were an exception, but it seems obvious that your assertion has little basis in fact…

  39. Philip Pilkington

    Oh, and for anyone interested in the specifics of how hyperinflation occurs check out this blog:

    http://bilbo.economicoutlook.net/blog/?p=3773

    Mitchell shows how the money printing under a hyper-inflationary regime actually take place in response to rapidly rising prices and not generally vice versa.

    He also makes the important point – often glossed over – that had the money-printing not been undertaken in Zimbabwe far more people would have starved to death. This is far too often overlooked.

  40. F. Beard

    When Miseians talk about gold and rail against fiat money, it’s not becasue they love gold, it’s because they are opposed to the violence of the state. Jardinero1

    But we do have a state and states are based on violence; that is their nature.

    If you take away the state’s ability to create money you take away the ability to infringe on liberty. Jardinero1

    The problem is not that the state creates money but that the money the state creates is legal tender for private debts in addition to its proper role as legal tender for government debts, taxes and fees.

    The proper solution then is to repeal legal tender laws for private debt and to remove every other obstruction to private currencies including the capital gains tax, not just on PMs as Ron Paul advocates, but on everything.

    With genuine private currency alternatives then government overspending would only hurt the government itself and those who received money from it (government workers and contractors, the military, SS recipients, etc.)

    Gold is thus completely unnecessary to limit government spending. Furthermore, any recognition of gold or any other money form except the government’s own fiat is fascist since it would be government privilege for private interests.

    The idea of separate government and private money supplies is not mine; it comes from the Lord Himself (Matthew 22:16-22 ).

  41. Philip Pilkington

    “When Miseians talk about gold and rail against fiat money, it’s not becasue they love gold, it’s because they are opposed to the violence of the state.”

    Hehehe… yeah, libertarian types are usually almost hopelessly naive when it comes to… well… history, social structures and their formation or even reality generally. How much ‘violence’ do you think the state would have to impose against its people in order to enforce a gold standard in a modern economy?

    It would be massive. The sheer level of repression needed in order to mitigate the effects the neo-gold standard would have on, say, employment would guarantee that repressive state institutions would extend their power (let’s not even mention the rise in crime levels that would occur under such high-unemployment)… and once extended, this power rarely recedes.

    What people need to understand – and perhaps we should send them to China for a while – is that the form of monetary system you operate under and the level of state repression have nothing to do with each other (read ‘The Great Transformation’ to see just how complex the relationship between money and state actually is).

    Frankly, I think that the ‘gold-standard = liberty’ people come across as a bit neurotic. They seem to have this irrational anxiety tied up with anything to do with government – its reminiscent of neurotic childhood phobias of authority figures such as school teachers.

    1. F. Beard

      Frankly, I think that the ‘gold-standard = liberty’ people come across as a bit neurotic. Philip Pilkington

      ‘Gold-standard = liberty’ is actually a logical contradiction. There should be no government enforced money standard for any money but government money. But since government is force then the ONLY ethical money form for government money is pure fiat. Otherwise, the force of government is applied in the service of private interests such as gold owners, gold miners and usurers (since PMs require usury, being non-performing assets.) But that is not libertarian; it is fascist.

      1. Philip Pilkington

        Honestly, I think even if you allow yourself to get involved in the ‘debate’ at this level you’ve already lost.

        When economics – I mean, economics at a theoretical level – gets caught up with issues as vague as ‘liberty’, you’re already one step away from idiocy, two steps away from neuroticism and three steps away from tyranny.

        It’s just an alternative to Marxism really. And it goes something like this: do you find your life lacking in some way or another? (In Marxism this reads: do you feel alienated – in Austrian School ideology it reads: do you feel like government is doing something bad to you?).

        “Well,” responds whatever brash preacher you encounter, “Here’s a set of rational-sounding beliefs that tell you what that lack is and how you can fill it. No, go and allow yourself to be manipulated by people who recognise ways to further their own desires for wealth and power and mask it with your dumb-ass ideology.”

        Hubbard realised how to manipulate these sentiments, too.

        Just don’t get caught up at this level of debate. Its juvenile and it goes nowhere. Once the word ‘liberty’ is mentioned, every naive moron chimes in with their particular psychology gripes projected onto imaginary powers-that-be (“Boo hoo – I feel downtrodden and dejected and this must the fault of the bureaucrat/capitalist/cookie-monster…”).

        1. F. Beard

          Honestly, I think even if you allow yourself to get involved in the ‘debate’ at this level you’ve already lost. Philip Pilkington

          You are mistaken. The Miseans/Austrians pride themselves on being lovers of liberty AND logic. It has been logically proven to them that government recognition of gold as money is fascist, not libertarian as they supposed it was. I assure you that they do not take that lightly. Their choice now is to abandon gold in favor of liberty or else abandon liberty in favor of gold. But if the latter, then they admit to being fascists, not libertarians.

        2. stephen

          Philip,

          Well, that’s a little lame. I mean, Thomas Jefferson tended to prattle on incessantly about “liberty” and “freedom”, and look where *that* got us.

          Stephen

          1. Philip Pilkington

            Mr. Jefferson was not an economist living in the 21st century.

            If you wish to be a moral philosopher and a revolutionary be my guest – just don’t invite me over for dinner, because I can’t imagine you earning much money. However, if you want to be an academic economist – give it up. It’s just childish…

  42. Mickey Marzick in akron, Ohio

    Ed,

    I enjoyed your piece as well as the comments that followed. Found both very useful.

    And so long as the US Dollar remains the global reserve currency I’m inclined to agree that hyperinflation is remote so long as petroleum is priced in dollars. The world isn’t going to shake its addiction the latter soon… nor are we.

    But it does raise an interesting question. Namely, as the era of “cheap oil” comes to an end and our energy-intensive agricultural system finds its costs increasing commensurately, inflation – if not hyperinflation – is built into the system.

    Couple this with the fact that as Chinese consumers and others develop a taste for “western diets” and have the means to pay for it, the price of food will spiral upwards with more US consumers priced out of the MARKET. The US will be exporting grain – agricultural commodities – for a global market able to pay for them at the same time that many Americans increasingly go hungry. Not that this isn’t happening now, but it will likely increase as more and more Americans find “cheap” food scarce, exacerbated even more by crops grown for the production of ethanol.

    It wouldn’t be the first time that the logic of accumulation resulted in both inflation and starvation, except perhaps that it would be happening here and not abroad. This time it would be different, right?

    Anyone been to the grocery store lately? I don’t know about your dollars, but mine buy less than they did six months ago! How ’bout yours?

    1. Edward Harrison Post author

      Mickey,

      I wrote a piece at Credit Writedowns today which goes to my thinking on inflation, inflation expectations and inflation anchoring:

      http://www.creditwritedowns.com/2011/04/anchoring-inflation-expectations.html

      I didn’t talk about peak oil or peak resources but using the flow from that piece, I would see these as fundamentally deflationary forces, meaning the increase in commodity prices causes either demand destruction or a policy response from the monetary authorities that precipitates debt deflation. While we have a balance sheet recession in places like the U.S or Spain, I expect deflation to be the primary force driving the secular trend.

      But, I think you’re right, that once the balance sheet recession is over, peak oil is going to be a big problem. I know Yves thinks peak oil is rubbish. But, let’s call it the end of cheap oil, then.

      1. Mickey Marzick in Akron, Ohio

        Ed,

        I too think “peak oil” is overworked as there literally trillions of barrels of oil-equivalent – tar sands, oil shale – that at the right price become “economically” viable. No matter the environmental costs, etc., fossil-fuel energy is the lifeblood of the global economy.

        But “cheap oil” is another matter… and when it costs $120 or more a barrel the “game” changes. And I believe it is CHANGING…

        As always, thanks! Take care.

      1. Mickey Marzick in Akron, Ohio

        Ed,

        I read the piece but its underlying premise – scarcity of natural resources – fails to address the issue of why these resources are scarce. In an absolute sense, point me to a natural resource that is actually scarce – in an absolute sense? Iron ore, copper, petroleum, platinum, lithium, and the list goes on.

        Water is perhaps becoming scarcer because of human stupdity/greed but that is another matter.

        Even at current consumption rates, there is enough PROVEN reserves of liquid petroleum too last for at least 30 years! Iron ore reserves are not running out… Moreover, recycling has also dented this notion of scarcity and become quite profitable in the process. Aluminum and steel are just two examples.

        No, the ultimate source of scarcity is PRIVATE PROPERTY – ownership and control – which by definition means that I can deny the use of that particular natural resource [commodity] to you, regardless of need, because I OWN it. Let me qualify this a bit and narrow it to the means/forces of production for the sake of argument.

        So the “scarcities” are actually artificially-induced to maintain the current sociopolitcal institutions supportive of private property and “all” that flows from it. If supply is deliberately manipulated to maintain “sufficient” demand then the price remains relatively constant and tends to increase gradually, making for happy producers and happy consumers – STABILITY.

        It isn’t that “we” can’t produce enough stuff – at least in the advanced political economies of North America, Western Europe, and Asia – but that it cannot be consumed/purchased within the current pricing structure predicated on profit. Turning on the “credit spigot” was an acknowledgment of this development, merely the first experiment or attempt to come to grips with POSTSCARCITY within the current array of sociopolitical institutions. SUPPLY is not the problem but DEMAND is.

        Austerity is nothing more than an a reactionary attempt to redress the imbalance between OVERsupply and insufficient DEMAND without a decrease in price and hence, the “hit” to profits. By reducing the supply [artificially-induced scarcity] demand will destruct downwards to maintain the illusion of the law of supply and demand. Producers will remain happy with consumers less so, but the MARKET will be maintained, expanded, and relocated. And that’s all that really matters, right?

        POSTSCARCITY makes the ideology of scarcity – economics – irrelevant and undermines the very foundations of capitalism – private ownership of the means/forces of production. That’s why it is necessary to restore the balance between supply and demand to more “sustainable” levels via AUSTERITY. Hence, arguments pointing up shortages of natural resources play right into the hands of the AUSTERIANS.

  43. hermanas

    Mickey has a point. They talk of “wheel barrows of money to buy a loaf of bread” in that hyper-inflation era. So a loaf of bread is the standard. Not the money, not the gold. Malthus said we would have a problem because agriculture expanded arithmetically, while population expanded geometrically. He was put on a back burner with the knowledge fertilizers. Now, with the cost of fertilizer dependent on oil, we sould be developing solar powered robot agricultural towers to keep the cost of bread constant.
    Unless your whole point is to enslave people.

    1. Philip Pilkington

      “They talk of “wheel barrows of money to buy a loaf of bread” in that hyper-inflation era. So a loaf of bread is the standard. Not the money, not the gold.”

      That’s not right at all. How can a commodity be a standard? – that’s just wrong by definition. Making the wheelbarrow the ‘standard’ would be more accurate – but it would still be silly and pointless.

      The loaf of bread is NOT the standard. The money still is. The loaf of bread is denominated in Reichsmark. The Reicksmark is not denominated in loaves of bread.

      As we speak I’m drinking a can of Fosters beer. It cost about €1.20. Now, do we say that my €s are thus worth 0.8333 of a 440ml can of Fosters? Of course not! Where did I but it? Was it cheaper in another shop? Is it imported? Is there a mark-up on it? How much of that €1.20 was tax (rather a lot in Ireland…)? Etc. etc.

      You’ll encounter many of the same problems trying to prove an ‘oil standard’ logic.

      1. hermanas

        I did not say the wheel barrow was the standard, I said it’s the bread that should be. (ie. feeding people.)”Money is B.S. food is real.

      2. hermanas

        I like my Buddy Weiser but I predict a society that has 40 million citizens on food stamps while the top dog gets $51 million salary is not sustainable.

  44. Atomkraft Moratorium


    gold assets to repay the billions of dollars they owed. And this was a multilateral problem. For example, Britain could not repay its debts to the US until the other Allies repaid their debts to Britain. The Americans

    ~~Edward Harrison~

    Did ECB president Jean-Claude Trichet say? Ah! Jacked up interest rates again did he? Why he had to jack but we were allowed the benefit of not jack, Jack? Elementary, My Dear Watson-Crick! Simple trick! Originally our bonds were backed by gold but later by smoke-stack-factories and industry. Chinese now have the smokes. They back their credibility with pollution as we back ours with improved real-estate. But, you then say, “they can tax their smoke-stacks for debt-service.”. Got it. But we can use property taxes to debt-service our t-bonds.

    Chinese are now raising rates, Mediterraneans raising rates,but Benny,s gang is hanging cool. Did bond gurus sell off long bonds too soon? Did they hit panic button before checking the now inflating McMansion prices? Who knows? One thing for sure, “Fed Governors were not born yesterday.”

    Does all this mean that Greenish was on track after all? Is he still the all-time-great of monopoly-board-jockey-s? Before you answer that question you need to check out the home prices in Vegas.

    History proves all puddings, Plum
    !

    1. Philip Pilkington

      Trichet is worried that there might be inflationary pressures in the EU that aren’t just endogenous – I think he’ll be proved wrong in the long-run. The hike is further savaging the troubled PIIGS economies – especially those where there were housing bubbles and these interest-rates directly affect mortgage repayments.

      As the debt-crisis gets worse – partly, but not mainly, in response to the hikes – I expect that the Eurozone as a whole will slow down…

      I sit in Ireland this very moment saying to myself, “You Yanks with your low-interest rates – you just have no idea how good you have it right now… no idea at all…”

      1. Philip Pilkington

        I meant: “Trichet worries that there aren’t inflationary pressures that are just exogenous” (I meant oil, food, etc)…

        Damn you Yves Smith and your lack of edit buttons!!!

  45. Karen

    I agree that U.S. dollar hyperinflation is unlikely, but nonetheless it could happen if we don’t get some adults in charge.

    Our government has been choosing not to tax, which is different from being unable to tax. But taking advantage of the ability to tax requires a Congressional change of heart that might or might not occur. If it doesn’t, and the Fed sees itself as responsible for stepping in to stave off actual default, then hyperinflation could happen. It would be a real Armageddon situation affecting the entire world if it did happen, so hopefully they won’t be THAT irresponsible.

  46. Karen

    I also have a couple of quibbles with specific statements in this blog post:

    (1) “Fiat money has no intrinsic value. It simply represents a liability of government, an IOU.”

    I agree with the first statement, but the second statement stopped meaning anything in 1971 when Nixon took us off the gold standard. Before then, there was a promise to convert each dollar bill into a fixed amount of gold if the holder asked. Now all it is is a promise to give you back what you just gave them (a dollar, or a tenner, or a twenty, or whatever). As an IOU, that’s meaningless.

    (2) “What makes the universal acceptance stick is that government accepts its own money to expunge liabilities to it. In plain English, fiat money has value because it is the only money you can use to pay taxes.”

    I don’t agree. It would be quite easy to treat dollars as a special-use currency like frequent-flyer miles and use something else as money for all other economic activity. The fact that we don’t do this needs another explanation.

    The real reasons we all accept dollars as our money are twofold. One is coercive: right there on every dollar bill it says “this note is legal tender for all debts, public and private.” In other words, it is illegal (in theory, anyway) to refuse to accept dollars in payment of a debt.

    The other reason is much more fundamental: we trust that dollars will hold their value, at least more or less. We believe our government will not and cannot go down the same path as Weimar Germany did, or as Argentina has done so many times it has become a joke. If and when that trust evaporates, it will be very difficult to apply enough coercion to prevent capital flight and the migration of much of our economy underground, to black markets with their own spontaneous currencies, whatever those turn out to be.

    1. F. Beard

      The other reason is much more fundamental: we trust that dollars will hold their value, at least more or less. Karen

      That’s only part of it: The capital gains tax on potential private money alternatives such as common stock (sophisticated) or PMs (primitive) prevents them from totally protecting their owners from FRN debasement since the capital gain is measured in FRNs. Still, they (common stock and PMs) are some protection since the capital gain is not taxed at 100%.

        1. F. Beard

          Ah, but what idiot would pay taxes on his/her black-market transactions? Karen

          Speaking of idiocy, it is idiotic for a government to drive its population (and economy) into the black market via monetary mismanagement.

          Instead the government should freely allow private currencies and limit its own money to being legal tender for government debts, taxes and fees, not private ones.

          This means in practice that the government need only repeal legal tender laws for private debts and the capital gains tax. The Income Tax could remain since every private currency would have a free market exchange rate with the government’s fiat.

          Jesus gave us this solution – separate government and private money supplies – 2000 years ago in Matthew 22:16-22.

          1. Calgacus

            F. Beard: Instead the government should freely allow private currencies and limit its own money to being legal tender for government debts, taxes and fees, not private ones.

            This means in practice that the government need only repeal legal tender laws for private debts and the capital gains tax. The Income Tax could remain since every private currency would have a free market exchange rate with the government’s fiat.
            &&&&&
            The US already allows private currencies. Legal tender laws are utterly meaningless. They could be repealed tomorrow and it would have no effect on anything. If you’re saying the government would tax private currency transactions at the dollar value, you are describing what we have today.

            If not – well, it ain’t gonna happen – the government is not going to renounce its taxing power. It would be a catastrophe if it did. We are getting too close to this catastrophe, which amounts to official, practically complete tax exemption for the wealthy, as it is. It’s a prescription for a master/slave society. The rich would just put all their transactions/income in the private currency, and leave the poor to pay all the dollar taxes.

            But money requires an authority – and the leading private money authority would have so much power it would be a government, it would rob all the other rich thieves. No, the rich thief oligopoly prefers the current government, the steering committee of the ruling class, with a pretense of popular participation, to making one of their own the dictator.

    2. Philip Pilkington

      Can I just make a point… moreso directed at Ed, but since I see it here being agreed with I’ll slip it in:

      “Fiat money has no intrinsic value…”

      This is a tautology. Nothing has any intrinsic value. Not gold; not cars; not TVs; not toenails. Value is imparted to something by people. And it is done so under various differing circumstances. If I live in the City of Gold, gold with be worth very little. If I live in a tax-regime that accepts US$ then US$ will be worth something. If I’m a Martian that poops gold, then gold will again be worth very little (it may even have negative value).

      This may sound like philosophical nit-picking, but I don’t think it is. Hard currency people – Ed included – seem to be chasing after the philosopher’s stone when they seek some sort of standard measurement of value (gold etc.). If they were able to find it, it would give all economic analysis a ‘hard’ grounding which, I would argue, it cannot possess.

      It would also – in their minds (I think) – give the economy itself a sort of ‘grounding’; an Archimedean point around which everything moves.

      This is actually very similar to the way people used to think in Medieval times before Descartes and Newton and their mates introduced more relative concepts that allowed them to map space.

      It gives us a standard by which to measure value – even if this measure isn’t quite as reassuring as, say, the labour-theory of value, or the even more nonsensical marginal-theory. It would give us a point at which we can establish some ‘essence’ underlying the economic system as a whole.

      Needless to say, I think this is regressive and extremely illusionary…

      1. F. Beard

        – seem to be chasing after the philosopher’s stone when they seek some sort of standard measurement of value (gold etc.). If they were able to find it, it would give all economic analysis a ‘hard’ grounding which, I would argue, it cannot possess. Philip Pilkington

        Bingo! The Austrians claim that the mining rate of gold closely tracks the historical long term average real economic growth rate, about 2-3% per year.

        However, what they don’t consider is that the economy may have been limited to 2-3% growth a year because it was tied to the mining rate of gold when it was money.

        And then there are the economic growth problems associated with money forms (including fiat and PMs) that require usury such as the need for periodic debt forgiveness.

      2. Karen

        “Nothing has any intrinsic value.”

        I think this is indeed philosophical overanalysis. It’s the word “value” that is human-dependent, and in this context “intrinsic” just means there are at least some people who consider it valuable for a reason other than the ability to trade it for something else.

        So for example some of gold’s intrinsic value comes from its industrial uses, but most of it comes from its ornamental properties (generally, jewelry, but in India there are food dishes that are served with a gold-leaf garnish – great fun!)

        About the only “intrinsic value” for paper money I can think of is you might be able to use it in your woodstove or fireplace. Or maybe roll a cigarette?

        “Hard currency people – Ed included – seem to be chasing after the philosopher’s stone when they seek some sort of standard measurement of value (gold etc.).”

        ALL humans in a trading economy (not just “hard currency people”) need to be able to compare values/prices in terms of a single commodity – otherwise it just gets too complicated and hard to remember. That’s why as soon as most people in a society start depending on trade to obtain more than just a few items, some item (very often gold, but sometimes something else) is given the role of “money” – universally accepted by common consent, even though most who accept it don’t actually want it.

        1. Calgacus

          This is Menger’s story of the development of money, found in all the textbooks. Problem is, it’s a fairy tale, based on zero historical research, and filled with logical holes. That’s not how money historically arose. After the more ancient and fundamental concept of credit, Money came first, then prices and markets, then dependence on trade. Money is not, never was, and cannot be a commodity. Money is a type of credit, and credit is a social relationship. Money is a relationship, not a thing. Thinking a commodity can be money is like thinking a wedding ring can be a marriage.

          Money, most particularly and most clearly, fiat money, does have intrinsic value. Of course value is subjective. This doesn’t mean it is irrational, or not practically uniform for all people. The value of money is it can be used to keep you out of jail. Money is freedom from the violent coercion of the state.

        2. Philip Pilkington

          Haha! I knew I’d regret this… I knew that pointing out the naval of economic theory (i.e. value theory) would provoke various assertions… for this is what they are… assertions.

          Anyway, let’s carry on for the fun of it.

          But before I proceed further, I have to say: this is theology. I am only interested in proving a negative. In saying that these things, I am only trying to disprove theological nonsense.

          Questions of ‘value’ and questions of ‘worth’ have, in my opinion, NO relevance to economic theory. I only engage with them here to show that certain strains of economic thought are substitutes for religions – no more, no less.

          “It’s the word “value” that is human-dependent…”

          Here we are – we run into Wittgenstein. Is it really the word ‘value’ that is human dependent or the concept? If I say that my coat is worth €350 is this really an ‘objective’ measure? Yes, in a sense. But in a deeper sense it is still imparted by humans (i.e. the €350 of ‘value’ is imparted by humans collectively to the coat).

          “…and in this context “intrinsic” just means there are at least some people who consider it valuable for a reason other than the ability to trade it for something else.”

          No, in fact it means the exact opposite. It means that people hold it to be ‘valuable’ in relation to other items. Therefore, if I’m on Crusoe’s island I know that I can trade my coat for, say, twenty of Friday’s coconuts. You can’t fudge this transaction with sophistical philosophical analyses of words.

          We weigh the coat against the coconuts. We come to an agreement. Value is established. Simple as. But neither good is ‘worth’ anything independently. Without Crusoe and Friday and their coats and their coconuts, the ‘values’ could not exist. Hence, they are not intrinsic… they are dependent on what Friday and Crusoe think of coconuts and coats at any given point of time.

          “So for example some of gold’s intrinsic value comes from its industrial uses…”

          Bull…

          “ALL humans in a trading economy (not just “hard currency people”) need to be able to compare values/prices in terms of a single commodity…”

          Yes, its called money. And it is completely relative to other economic fluctuations. My gripe is if people try to tie it to some fetishised commodity. That’s when problems arise.

          I say, let people measure their coconuts against their coats without interference from some worshiped metal.

        3. Philip Pilkington

          Oh, and on a side-note – because I loathe pseudo-Wittgensteinian analyses…

          You say that the word ‘value’ is human dependent – i.e. it is relative and has no meaning. But then you say that ‘intrinsic’ MEANS something – i.e. it is not relative and has a definitive meaning. Like most pseudo-philosophical analyses what you’re doing is picking apart the ‘words’ that you don’t like and affirming the ‘words’ you don’t.

          I’m only too familiar with this practice of nonsense. Let me give an example. Consider the following:

          “Jimmy is not really a person”

          Now, let’s say that I like Jimmy and want to affirm that he’s a person. Here’s how I go about it in the pseudo-philosophical manner of language analysis (not REAL language analysis… but that deployed to prove MY point):

          “Oh,” I would say, “Well, the word ‘really’ is human dependent – its wholly subjective really [sic]”

          “Now,” I would say, “The word ‘person’ DOES mean something – because I think Jimmy is really [sic] a person. This is because at least SOME PEOPLE [sic] consider the word ‘person’ to have meaning…”

          Anyway, some people will see the vagueness here – some won’t. What those that see it will see is simple assertions using fudged philosophical language (i.e. language that continuously contradicts itself).

          I hate to get into this, but I’ve heard these types of arguments used too many times when you point out that a concept is relative to another. And they’re simply bullshit.

  47. MimiL.

    While I believe that this article is trying to help us lay-folks understand that we dont need to be scared about the future in terms of hyperinflation although we all know there is money being printed as we speak, I’m actually not comforted.

    We might not be looking hyperinflation in the face for the near future but I dont know that there isnt still a chance that we are looking at something (couldnt there be the possibility that there is something still nameless happening which history books havent seen before or theorists havent yet argued about?)

    Point 2 seems pretty thin.

    Point three: Personally, I think this is very much the case around the country. I just read a book about living off the grid and the author goes all over and one thing he is looking for is people/communities that are using something other than our regular idea of money as currency. The author found a lot of that depending on the community.

    Additionally yard sales these days are a big way to shop (no taxes). Also the advent of online posts which have a barter option are clearly very popular. This is not an easy one to address because in it’s very essense it is outside of the law.

    I dont want to be mean here or simply argue. I like this blog and it’s articles a lot but I foresee a very rough 10 to even 20 years ahead hyperinflation or no.

  48. Paul Kostel

    One relatively recent example of currency tied to reality is what Worgl did in Austria in ~1933. but more important and relevant is Egypt before the Romans.
    They used money tied to grain. Grain is far more important to our LIVES than gold, silver or fiat currency.
    Money tied to grain must lose value if you hoard it just like grain goes bad over time, is eaten by mice and rats and costs to store.
    this eliminates interest based on an exponential equation. The world we count on for survival: Agriculture, Mining and Manufacturing is based on linear functions: You can’t square the amount of grain you grow. You may be able to grow 10 % more in a given year, you can’t increase by 10% a year, year after year.
    The gap between these interest/exponential function and the linear function that is the part of the world humans need for survival is the reason we are destroying the parts of the environment needed for human life.
    I am a biochemist and I had to read “Wealth and Democracy” by Kevin Philips to realize the obvious: All human life has always depended on Agriculture, Mining and Manufacturing. We get nothing for survival from the FIRE economy (Finance, Insurance and Real Estate, referring to buying and selling real estate not creating or using real estate.)
    the Psy Ops Propaganda was so all encompassing that a biochemist forgot what supports human life.
    By the way that title comes from Justice Brandeis: You can have Democracy or Wealth in the hands of a few, not both.
    the Romans destroyed the Egyptian system because the Romans wanted the rest of the human race to be either Slaves or Debt Slaves.
    It brought them down too, at the end roman coins were copper “washed” with silver.
    As you must have noticed we are just debt slaves. Actual slaves would have to be fed and taken care of.

    1. Philip Pilkington

      An even more recent example would be the tobacco standard in 19th century America. Actually, screw that… just visit any prison and you’ll see that they’ve usually established a fairly efficient tobacco-standard currency, in that they directly use the cigarettes as currency (“To buy and sell you ass…”). The same thing often happens in military situations.

      Anyway, unless you’re going to spend some time in the Pokey or you’ve decided that it’s time to strap-up and “fight them turrurists”, I don’t think this is really the way the currency system works anymore.

      In fact, Randall Wray argues quite convincingly in his book “Understanding Modern Money” that this was never really the way currency systems worked. In the book he claims that most major payments were done through simple debt negotiations and were repaid in commodities (note: not in ‘standard’ commodities, just commodities – as in a barter economy).

    2. indio007

      I read somewhere that the ancient Roman’s had a maxim that said something like “We shall conquer by administration. I have no doubt they succeeded as The Roman civil law is in full effect.

  49. russel1200

    I glanced at them, but I am going to have to go back through the comments more carefully.

    I think and argument should be based on more than two cases.

    I think looking at the historical cases where there was inflation and their was a gold standard would also be telling. Demand driven inflation through pressures on supply due to both increased populations and increased affluence is also an issue.

    Hyperinflation? Maybe not, but I don’t know of too many instances where you had demand driven inflation and a fiat currency. If you can get inflation when the currency is actual gold (not a gold equivalent), it does not strike me as odd that the inflation would become worse with a fiat currency involved.

  50. Septimus

    Ed, you offer a well thought out argument, but I think your “conditions for hyperinflation” are too narrow.

    The US has massive, and growing, foreign debt obligations. You imply that these can be inflated away, because they are denominated in USD, but fail to follow the implications of doing so.

    The US has gutted its’ productive capacity. Note that the recent, much heralded growth in jobs was all in the Service sector, implying NO additional productivity. The “supply” for the US is now mainly imported, and sure as hell, I’m not selling anything to you if you want to pay in a depreciating currency. So the possibility of demand outstripping supply is all too real.

    You claim that Currency Revulsion has not set in. Again, you are looking at it only from an internal perspective. Phil Gross now refuses to buy US Treasuries. Isn’t that a form of currency revulsion? China is as nervous as hell about its holdings of US Treasuries. Again, Currency Revulsion?

    Gold, denominated in USD, is going through the roof. But not when priced in other currencies. For example, Gold has been pretty rock-steady when priced in Australian Dollars.

    Similar for most commodities priced in USD.

    This isn’t “world-wide inflation”, it is world-wide revulsion at the ever-depreciating US Dollar.

    US Stock Markets are booming, and US Hot Money flowing freely. But it is NOT being used to re-build the productive capacity of the US, it is being used to speculate. The US has not only eaten its’ seed corn, it has mortgaged the farm to bet on other country’s economies, country’s that are getting more and more Teed off with the US, more and more likely to tell the US where to shove it. What else would you call controls on foreign Capital?

    The merry-go-round will stop when QE2 ends, but the collapse that that will occasion will result in QE3, further depreciation of the US Dollar, and more revulsion of the US and its’ Dollar from the productive economies of the World.

    1. Philip Pilkington

      “US Stock Markets are booming, and US Hot Money flowing freely. But it is NOT being used to re-build the productive capacity of the US, it is being used to speculate.”

      That’s the key to what you’re saying. Investment is flowing into reinvestment (i.e. speculation) and not into productive capacity. What’s happened is that you’ve allowed your financial sector to grow too large:

      http://fixingtheeconomists.files.wordpress.com/2010/11/graph-2.jpg

      This has nothing to do with gold or fiat currency or anything of the sort. This has to do with regulation and profit-seeking. I know, that sounds less glamorous than critiquing the entire way we structure our society, but that’s what’s happened.

      You’ve allowed your banking sector to expand into high-risk areas while ignoring the decay of your manufacturing and productive sector. (When I say this, I always mean relative to your total economy – of course I recognise that the US still has excellent industry… its just that the ratio of industry:finance has gone haywire).

      What you need to do has nothing to do with the monetary system. That’s just a series of illusions built upon distracting fantasy. You need to invest in your infrastructure, in your productive capacity, in your human capital – that, and tear your banking system to shreds with regulation.

      Not so exciting… indeed, there’s no ‘flashy’ answers. There’s no imaginary solution of changing the monetary system. No, there’s just hard work. Hard work facilitated by government investment in hard work – and that means: fiscal policy.

  51. Charlotte Chiang

    I tend to agree with the view that the US does not face a threat of hyperinflation, but it is important include in this discussion the role of speculation – foreign and domestic – on the US dollar. The analyses here both of post-war Germany and Zimbabwe, fail to address that a key element pushing each economy from inflation to hyperinflation was the loss of confidence in the domestic currency. Domestically, fearing that their currency holdings were subject to rapid depreciation, citizens in both economies desperately sought to transfer their money into tangible goods, diminishing the savings rate to virtually zero. The result was a dramatic increase in the money velocity, which put upward pressure on the price level. Simultaneously foreign investors (more in the case of Zimbabwe) withdrew capital from the economies in question, which had the dual effects of exacerbating foreign-denominated debts and reducing domestic productive capacity.

    The purpose of my brief analysis here was to show that underpinning the ingredient-list for hyperinflation that Mr. Harrison proposes, are the looming threats of explosive monetary velocity and capital flight. These propel the variables he lists, such as reduced productive capacity and foreign debt burdens, into a self-reinforcing cycle of inflation. The crucial question then, is not only if these more superficial “risk factors” are evident in the US economy, but whether they will be exacerbated by the deeper issue of consumer and investor confidence (or lack thereof) in the USD.

    To this question I believe the answer is a resounding “no.” As JollyRoger and others have pointed out, as the world’s reserve currency there is no need to fear rapid devaluation of the dollar – at least in the short term. Other commenters have pointed to rising commodity prices as evidence of an inflationary trend, however as the article notes, these rising prices are true in all economies regardless of whether they use the USD or not; in fact, because commodities are currently denominated in dollars, the price increases seen in the US are likely less severe than elsewhere.

    As to whether hyperinflation is a threat in the long term (assuming that the USD is replaced by another currency as the world’s anchor currency), I remain skeptical. For this to occur, the Fed would have to be in a position where it could not retain control over its currency through the buying or selling of assets. What is different about the US financial system and those of countries that have experienced hyperinflation, is that the financial institutions (ie: central banks) in these economies were by comparison, far less embedded in the world economy as credible defenders of currency value. The determinative factors of this reality is an issue better suited for another discussion, but the fact remains that the US is so deeply intrinsic to the global financial market that I don’t see a time when it will lack the foreign reserves to buy and sell as needed to maintain exchange rate parity. Perhaps this is an overly idealistic view of the USD’s legitimacy in the global financial market looking forward, but for now there are few foreseeable alternatives.

    1. fajensen

      I don’t buy the “America is a special case so nothing bad will ever happen”-argumentation. I am old enough to have seen a similar story unfold before.

      The Russian Ruble was once the reserve currency of the USSR and its satellites. This worked for a while. Then suddenly one could not buy coffee, sugar, orange juice (or rather, the orange juice cost more than the vodka one was mixing it with). Right up to, and well past that point, we had everybody in authority producing analysis about how the USSR would dominate because their centrally-planned command economy did not waste so many resources on fun and frills as capitalism. Only the lunatic fringe in the West and “terrorist” in the East openly described the system as unsustainable.

      USD today cannot buy everything one needs: Rare earths, Russian grain, probably soon Vietnamese rice, definitely Egyptian oil. People need that stuff for themselves and having those resources have, apparently, infinitely higher value than having a bunch of USD since they are just not available at any price.

      Those are, IMO, “preconditions”. It will still take about a decade for the American empire to unwind, but I absolutely think that it will.

  52. herman sniffles

    You don’t need a bazillion percent inflation to wipe out a society. Try 25% for four years (do the math). At the Costco store in Chico CA a three pound can of coffee was about $9 last year. I just paid $17 for the same three pound can yesterday. By the International Accounting Standards Board’s definition of hyperinflation as “a cumulative inflation rate over three years approaching 100%” in the limited case of coffee at the Costco in Chico we already have hyperinflation.

  53. F. Beard

    If you’re saying the government would tax private currency transactions at the dollar value, you are describing what we have today. Calgacus

    Yes, that would continue. However the capital gains tax is the problem. If a private money maintained its real value but the government’s money declined in purchasing power, then the private currency would register a phony capital gain and be taxed for it.

    If not – well, it ain’t gonna happen – the government is not going to renounce its taxing power. Calgacus

    The government need only repeal the capital gains tax not the income tax nor any other tax that I know of.

    It would be a catastrophe if it did. We are getting too close to this catastrophe, which amounts to official, practically complete tax exemption for the wealthy, as it is. It’s a prescription for a master/slave society. The rich would just put all their transactions/income in the private currency, and leave the poor to pay all the dollar taxes. Calgacus

    Since only the capital gains tax need be repealed your alarm is unwarranted. Income Taxes and other taxes could be raised to compensate. Government would benefit from a vigorous, stable economy. The need for socialism should decline.

    But money requires an authority – and the leading private money authority would have so much power it would be a government, it would rob all the other rich thieves. Calgacus

    Perhaps but it is more likely that the private money issuers would have to compete for acceptance of their monies. For one thing, private money would be completely unacceptable for taxes and government fees. So why would anyone accept private money? Ans: Only because that private money is redeemable for something of value or because that private money is an equity share (common stock) of the issuer’s capital.

    No, the rich thief oligopoly prefers the current government, the steering committee of the ruling class, with a pretense of popular participation, to making one of their own the dictator. Calgacus

    Who cares what they prefer? Their money system is causing major suffering. It is fundamentally crooked and unstable. Just how much more money do they need at the risk of their heads and their souls? They should rejoice that there is a peaceful solution.

  54. Charles Peterson

    Thanks for posting this article, I was very glad to see it after I had opined a few weeks ago on some blogs that hyperinflation is primarily caused by loss of production capacity. It appears that I was basically correct (nice for a change).

    The current trickle-down food fight has all to do with class warfare, and not actually reducing the future risk of hyperinflation.

    The best prevention for future hyperinflation would be the development and deployment of sustainable energy, agriculture, etc., which will require large government investments funded by debt. Those debts and investments would be possible except for the class warfare, in which the current wealthy seek to maintain their relative power despite their ever decreasing legitimacy and disasterous stewardship.

    Debt is a good thing when it enables actual investment to improve production of needed things in the future. That is one of many things governments should be more concerned about than debt or monetary expansion.

    Modest inflation is a good thing and represents a dynamic economy.

    The long term effect of the wealthy clinging to their power and not allowing even modest inflation will be disaster for all.

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