An interesting article from Kris Sayce at money morning. The graphs wouldn't copy from the email. So I'll chuck in the link. http://www.moneymorning.com.au/20110620/the-depression-you-better-hope-we-have….html "The Depression You Better Hope We Have We're often asked why hasn't the U.S. suffered hyper-inflation what with the trillions of dollars printed by the U.S. Federal Reserve. The answer is quite simple. Although we'll admit we overlooked it at first With a gold standard, a nation owed money (creditor nation) by another nation (debtor nation) can demand payment in gold. But without a gold standard, the creditor nation can only receive paper or electronic money money created by the flick of a switch. That's when inflation troubles begin. But still, it doesn't explain why Weimar Germany and Zimbabwe had hyper-inflation whereas today the Western world doesn't. Here's the key: hyper-inflation only takes hold if a nation expands the money supply much faster than other nations and if creditors have real alternatives to the inflated money. That's why Weimar Germany and Zimbabwe had hyper-inflation. And why the Western world doesn't today. Let me sum it up for you Why hyper-inflation happens Following World War I, Germany had to pay compensation to the victors in gold or foreign currency. But because Germany didn't hold enough gold or foreign currency, it had to print new money to swap it for gold and foreign currency. Clearly when your intention is to devalue the currency, working fast is critical. Because as soon as the market gets wind of the plan, holders of the money will look to get rid of it as quickly as possible in exchange for something else. That explains the speed of Weimar Germany's inflation: Source: Wikipedia In a matter of months, one gold Mark (money convertible into gold) had increased in value from 1,000 "paper" Marks to one trillion "paper" Marks. The story is similar for Zimbabwe. Once the central bank began printing money, creditors stopped accepting Zimbabwe dollars because they knew they were being devalued. They preferred a better store of wealth such as the U.S. dollar! But while hyper-inflation is bad, what the Western world is experiencing is much worse. Because there isn't a fixed conversion for paper money into gold for any currency, all central banks and governments know they can inflate the money supply. As long as they don't go too crazy. That's the main reason many central banks publish an inflation target. They don't do it for information purposes. And it isn't to try and cap inflation. It's there as a form of price-signalling showing other central banks how much they can increase their money supply without causing a run on the currency. As long as every central bank knows the limits, they can engineer a globally co-ordinated period of inflation without fear of causing hyper-inflation. And boy, has it worked. How the misery is spread far and wide Trouble is, it punishes the whole world not just one nation. And because gold is demonised as a "barbarous relic", and even blamed for past depressions, most people even pro investors don't realise the value of their money is being eroded. That's the "good" thing about hyper-inflation. You're in no doubt what's happening. You can see your wealth destroyed right before your eyes. But with slow burning inflation caused by central bankers, the effects are near impossible to notice at the time. It's only years later you wonder how you can earn three times as much as you used to, yet you're still no better off. You can see the difference clearly in these two charts. First, this chart from the Bank of England showing the annual inflation rate since 1790: Source: Bank of England And second this chart showing the U.S. inflation rate from 1914: Source: Wikipedia When gold was considered as money, you can see inflationary periods followed by deflationary periods. Wealth erosion didn't happen over the long run. And purchasing power was broadly constant. But once the monetary system removed gold and silver, there have been no periods of deflation. Even during economic downturns, there hasn't been deflation only more inflation. Why the worst is yet to come During the past two years the U.S. Federal Reserve has created almost $2 trillion of extra money to keep the U.S. from collapsing. And what has it achieved? According to Bloomberg News: "The US economy will grow 2.5 per cent this year, down from 2.8 per cent projected in April, the IMF said today, citing higher commodity prices and bad weather in the first quarter and a weak housing market." The U.S. economy got a temporary inflation boost. And now the impact has gone. If central banks want to postpone the overdue depression, it can only do one thing: and that's print more money. Given a choice between that and allowing the global economy to collapse on their watch we know which they'll choose. The fact is, as strange as it sounds, the world needs a depression. It needs to purge the economy of all the past mistakes. Sure, you can sit there and hope it doesn't happen. But that's just accepting you're happy for your wealth to be destroyed by slow-burning inflation This is much worse than the quick shock of hyper-inflation. But the slow-burn can't and won't last. Our guess is that time is fast approaching. And that means inflation even though it may not be hyper-inflation is set to soar. Cheers. Kris Sayce Money Morning Australia" As you can tell from previous posts I am a fan of his work. Bloody Poms, they hold the ashes and one of the only Australian related market news I can get comes from one. Time for SHTF me thinks. Cheers
Great read, I thought this little snippet was very interesting: When gold was considered as money, you can see inflationary periods followed by deflationary periods. Wealth erosion didn't happen over the long run. And purchasing power was broadly constant. But once the monetary system removed gold and silver, there have been no periods of deflation. Even during economic downturns, there hasn't been deflation only more inflation. Can somebody interpret this for me, no matter how much i read that first sentence i cant get my head around it? is it suggesting when people loose confidence in paper currencys and focus on gold the country experiences inflation due to ?? maybe i'm not with it tonight
Hyper inflation occurs when people lose faith in the currency faster than the Govt can print it. In Wiermar Germany, the Govt printed money to spite the allies efforts at restitution. Germany had virtually no gold after the war, so they started taking coal, timber, iron etc, and when that wasn't enough they sent in their soldiers to take over the German factories in the Rhineland too. This was the last straw for the Govt whom ordered the workers to stay at home and stop the facories producing anything. The Govt printed money to pay their wages and this lead to a collapse in the currency. From start to finish, The Allies never wanted nor accepted worthless paper banknotes as restitution payments! In Zimbabwe, the govt destroyed the powerhouses of the economy by driving out the white farmers, factory owners, mine managers, financial services providers and educators. Replacing them with plotfarms and inexperienced staff, productivity and quality plummeted and unemployment soared. To keep the populace (but mainly war veterans happy), Mugabe ordered pay subsidies to the growing ranks of the unemployed by printing money and this lead to the collapse of the currency. Creditors demanding $US dollars never caused the collapse. They're 2 completely different senarios... I can go on, John Law's France, Argentina, Bolivia, Post-Civil War America, all completely different senarios all leading to hyperinflation. Kris Sayce may like the cause of hyperinflation to be as simple as he and his article are, but unfortunately it requires analysis...not guessing or fumbling around to some clumsy, halfwitted, half-baked conclusion based on 5 minute skim read over a couple of Wikipedia pages combined with the I.Q. of a wet table cloth. Kris' parents may have chosen a outlandish way of spelling their kid's name but all it did was get him so badly beaten at school it knocked all the sense out of him. What an idiot!
What ever way you want to sugar coat it and they may have all had different reasons for doing so, they all had Hyper-inflation because political types controlled how much paper was being printed and could not be trusted to do it prudently and they printed too much. You can simplify it even further, you don't need to analyse anything, printing = inflaton plain and simple.
"But the slow burn can't and won't last."? Why not? There are many analysts who say this can go on forever. They can change the laws, manipulate pm markets, even start minting coins out of plastic if they really wanted, so why does it "have" to collapse sometime? If that 'inflation target' business is correct, all the governments are inflating in unison, so no ONE currency is likely to stick its neck out to be the one to precipitate a collapse... unless they figure out a way for THAT to be super-profitable for the elites (if they do exist in an organised sense.) Maybe that's the key to it. It can drift along like this forever and they can kick the can along the road until it's the next leadership's problem, but a couple of governments are going to get sick of all holding hands and singing kum-ba-yah, and will push to be the next super-power. I think the 'collapse' is most likely to take the form of a world war.
Do you mean the sentence above? All it is saying is that when you have a gold currency the amount of currency in circulation is automatically adjusted by supply and demand, there can never be a situation where the currency supply grows to unsustainable and unnatural levels. Inflation is really the increase of the money supply, the result being the appearance of rising prices. So when they talk about inflation and deflation, what they are really talking about is a rise or fall in the currency supply.
