Mass Inflation, Yes; Hyperinflation, No

Discussion in 'Economy' started by hvactec, Sep 10, 2011.

  1. hvactec
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    hvactec VIP Member

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    The United States is not going to get hyperinflation unless Congress nationalizes the Federal Reserve System.

    It will get mass inflation at some point: anywhere from 15% per annum to 30%. But it is not going to get 50% or 100% or more.

    Why not?

    1. The temporary nature of the payoff
    2. The fear of getting blamed
    3. The boom-bust cycle
    4. The employees' vested pension fund

    1. THE TEMPORARY PAYOFF

    Hyperinflation lasts only a few years. People in the hard-money camp ought to know this, but they tend to forget.

    Those economic forecasters who keep telling us the dollar will fall to zero forget the obvious: big banks are creditors. Bankers lose when a currency falls to zero. Never forget this. If you believe, as I do, that the Federal Reserve is the enforcement arm of the largest commercial banks, then stop worrying about hyperinflation. But don't stop worrying about Congress.

    Ever since All the President's Men – the movie, not the book – we have been told to follow the money. So, let us follow the money.

    The four big U.S. banks – maybe three, with Bank of America on the skids – make their money by lending money. As with all fractional reserve banks, they borrow short (low rates) and lend long (higher rates).

    Under hyperinflation, long-term interest rates skyrocket. This forces down the discounted present market value of bonds and mortgages. Nobody wants to lend long. Who gets killed? Banks and insurance companies that have lent long.

    What saves them from bankruptcy is fake accounting. They are allowed to keep their bonds on the books at face value. But, sooner or later, bankers get paid off in fiat money. Their portfolios are locked into bad investments. They can't sell them without reporting losses. So, they hang on. Month by month, the value of these assets falls.

    Hyperinflation is bad for the super-rich. Why? Because they own their assets outright. The super-rich own land and homes. These go up in nominal value, but rich people don't pay off their debts by selling a gold coin or two. They have no debts to pay off. They are the creditors. They own bonds and fixed-income investments.

    When we read of the great hyperinflations, we find that urban people got ruined. Farmers did very well. They paid off their mortgages by selling a few dozen eggs. Wealth moved from cities to rural areas.

    Bankers were in big trouble. Farmers were in hog heaven.

    Has it ever occurred to you that there have been no hyperinflation periods in Great Britain? The Brits have gone through wars of their own making. Their elite ran an empire from 1700 until 1946. Yet for all the crises, they never had price inflation above 30%. You know why? Because the Bank of England would not allow it. The BoE was privately owned from its creation in 1694 until the government nationalized it 1946. Even after 1946, the bank would not allow hyperinflation.

    The Bank of England inflated often. This created the boom-bust cycle on numerous occasions, but never got seriously blamed for any of the busts. This is because not enough people understood the Austrian theory of the business cycle, which was discovered in 1912 by Ludwig von Mises. Even today, hardly anyone knows about it, and of those economists who do, almost none believes it.

    Which are the famous hyperinflations? In Western Europe, Germany, Austria, and Hungary after World War I. They had lost the war. There was Hungary in 1946 – the worst inflation ever. It was a Communist nation.

    There was China in 1947-48. The nationalist government fell; Mao took over. No more hyperinflation

    read more Mass Inflation, Yes; Hyperinflation, No by Gary North
     

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