muses of the moment

March 17, 2012

Hyperinflation

Jesse over at Cafe Americain has a very good post exploring the possibilities of a hyperinflation and how it might come about.

Click here. There are also excellent links in his post to further information on hyperinflation and examples of hyperinflation from far and recent history.

Groovygirl hopes that the large number of occurrences in history of hyperinflationary events will at least open some people’s minds that it can happen. GG says this, because hyperinflation happens very quickly and all savings, (i.e. pension funds, social security, money markets, cash, bonds) disappear overnight. There is no reaction time. The only consultation is that everyone is in the same boat.

Side musing: the very dangerous difference from other examples of hyperinflation and the Western Countries today is the large population of older citizens. Old people can not start over with nothing. Groovygirl is very concerned that we will have elderly people literally dying in the streets, or worse, dying alone, hidden away, with society ignoring their plight.

Jesse suggests that the highly leveraged and unregulated global derivatives market bubble could cause a situation in which the powers that be would make a dangerous and ill-advised reaction.

Groovygirl completely agrees with Jesse. When the derivative market blows up or deflates, it doesn’t matter, the global economy is in for severe depression. Judging only from Central Banks and Government Entities’ reaction to the small explosions in derivatives, Lehman and AIG, it is clear they will paper over it as much as possible. That much paper (remember it is a $600 trillion dollar market right now) has to end up as cost-push inflation at best and hyperinflation at worse.

Right now, the increase in US dollars to try and catch the falling knife of debt is causing inflation in out-lying countries. It is not yet really impacting the average US citizen, yet. GG’s last post, click here, outlines a trend that could accelerate the US dollar’s inflationary affect on actual US citizens. The Fed is printing more and more dollars to fight imploding US bank debt, but also, now to swap for imploding European banks debt exposure to Greece. At the same time, Eastern and Middle Eastern countries are shying away from more dollars. They are accumulating each others’ currencies as reserves, not US Dollars, and trading in non-dollar currencies and gold.

The world in which the dollar circulates is getting smaller and smaller, but the number of dollars is increasing , not decreasing. This is an unseen pressure from both sides on the Western economies (or those still loyal to the reserve dollar). At some point, a policy or policies may force a large number of dollars home quickly. Perhaps in reaction to a large derivative crisis. Or a large portion of global countries rejecting the dollar as a protest. Or all oil countries demanding payment in gold instead of dollars. Although the Fed says it can take the dollars out, they can not. Anymore than they can direct where the inflation is going now.

Side musing:

And speaking of inflation, here is John Williams’ summary of the real stats. Current inflation in the US is not 2.9%, but 10.5%. 

– February CPI Was Shy of Reflecting Full Impact of Gasoline Prices
– February’s Consumer Inflation: 2.9% (CPI-U), 3.1% (CPI-W), 10.5% (SGS)
– Real Retail Sales Monthly Gain Was Not Statistically Meaningful
– Volatile Monthly Production Numbers Sputtered And Stalled Once Again

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