Debt Rattle October 29 2018


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    Vincent van Gogh Roofs of Paris 1886   • Volcker Rebukes Bernanke and Yellen Feds (Whalen) • China Takes Delivery Of Massive Amount Of Gold From
    [See the full post at: Debt Rattle October 29 2018]


    Diogenes Shrugged,

    Delayed answer to your question a week ago (I was traveling when you posed it, saw it only recently).

    I still don’t see the hyperinflation many see, including Charles HS.

    Still, I may first again have to explain that we don’t define inflation as rising prices, as most people do. For us, inflation is a meaningless term if you don’t include velocity of money. Prices can rise for many different reasons that are not inflation.

    But even apart from that, when asset prices move towards the basement, what prices would rise? Not housing and stocks, they’ve had their day. And that will make so much ‘money’ disappear inflation will be impossible, let alone hyperinflation. Which doesn’t mean some prices couldn’t rise.

    Even if central banks would do another ound of stimulus, and this time focus on consumers (highly unlikely), they would still be at pain keeping up with what will be lost due to collapsing housing and stock markets.

    Dr. D

    Inflation goes up in the quantity of money. However, that’s all backwards when “money” is debt. So increasing money increases debt, i.e., the future demand for money.

    Prices increase only in comparison to something else. So asset prices are rising faster than goods and commodities. Later, when stocks collapse, you could say instead that goods and commodities are RISING vs stocks.

    Or for more interest, MONEY is rising (e.g. US$) vs stocks. So the price isn’t falling, it’s rising. All the same thing, in relativity.

    That’s why there’s so much trouble that DEBT is completely fixed by contract. Whether dollars are higher or lower — whether your product is higher or lower — you owe X many on Date Y. People adjust to inflation by over-borrowing, knowing they will be less valuable, even if they don’t realize it that way, they know what debt they can tolerate. However, if money RISES, then both dollars are harder to get, and more importantly, the value of all loan collateral FALLS. Then there’s a bank run, or more a financial run, as the exact same house, business, land, which was fine collateral a week ago, suddenly becomes half a house? Half a business? Half a property? Odd, isn’t it? But in any case, without collateral, and velocity, as you say, the financial system stops. Since no one works on a cash basis in 100 years or more, then purchases halt as well. For example, when the S&L crisis hit the U.S., automakers couldn’t sell cars for 18 months, because that type of bank made most of the loans. Today is little different, as mortgage market has been destroyed, and almost entirely replaced by the FHA government system. No one has any interest in returning loan origination to the free market. Why should they? And how can they when the prices are clearly too high and not worth the risk? They will come back into the market after it collapses and there’s adequate safety of collateral again, and will be vilified at that time for being evil vultures, playing off the misery of others made miserable by government subsidies and bailouts that kept both taxpayers in poverty, and locked a generation of homebuyers out of the market. But they will idolize and love the problem (too high prices) and hate the solution (low prices that finally clear the market without taxpayer subsidies.) Then they will sell socialism and vilify capitalism, when actually we’re predominantly socialist now.

    Long story to say, isn’t it strange prices are vis a vis something else. Stocks aren’t going up: money is going down.


    For any system to function, there must be records of those transactions. (bookkeeping)
    The function of bookkeeping applies to your credit cards, to bank transactions, real estate transactions, to stock market, etc.
    The bookkeeping system was created by the bookkeepers.
    The bookkeeping system favors the bookkeeper.

    Even if you don’t see it, there must be a fee/cost of keeping the records of the transactions.

    For the stock market to go up, someone must pay more for some shares and someone must sell their share for more.
    If the reverse happens, (for less), then the stock market will go down.
    “heads they win, tails you lose.”
    Its our economic system.
    Its a great scam.
    Think of passing a bag of sugar and each one takes out a spoon of sugar before passing it on to the next person.
    I won’t be long before the bag will be empty.

    Where does the money come from to pay the bookkeeping fees/costs?

    Doc Robinson

    Roofs of Paris 1886

    Wondering how much more crowded that view would look today, I was surprised to find that the population of the city of Paris in 1886 was higher than it is now.

    1886: 2.345 million
    2018: 2.241 million

    However, “the population of the surrounding suburbs is estimated to be around 10.5 million, which makes it the most populous urban area in the European Union.”

    Diogenes Shrugged


    Thank you for your response. With so many calling for imminent “hyperinflation,” I’m a little jumpy. I don’t want one of my deflation oracles to start feeling any change of heart without my knowing why. Not that I suspected as much. (Though the explicit references to catastrophic deflation have waned here over the last year or two, especially without recent contributions from Nicole.)

    I’m seriously puzzled as to why “monetary inflation” and “price inflation” aren’t separate, universally-used terms at this stage of the game. Most pundits automatically attribute rising prices to “inflation,” but it often remains a mystery (to them, too) which kind. As you have repeatedly explained in depth over the years, monetary inflation and price inflation are not the same thing. And you’re right that velocity is equally important, though rarely addressed at all by the inflationist camp.

    (As an aside, shortly after the 2008 mess I briefly spoke with Mish by phone. We both agreed that hundreds of trillions of dollars suddenly brought into existence would not be inflationary so long as it remained buried in my basement. I still remain amenable to participating in a formal test of that idea, by the way.)

    Hyperinflation is the terminus of worsening inflation in most people’s minds, but I now think the word “hyperinflation” is actually a misnomer. “Hyperinflation” ultimately refers to the loss of confidence in a currency, merely assuming that loss will be due to an exploding money supply (historical examples abound). But a loss of confidence in a currency can result from there being too little of it in circulation, as well. In that case, those without money will resort to barter, hand-written IOU’s, a more plentiful foreign currency or Bitcoin, for instance. Thus, catastrophic deflation might also lead to that loss of confidence we call “hyperinflation.” No wonder the gold bugs have it all confused. The coming deflationary “hyperinflation” will witness the gold price declining, not rising, though the purchasing power of that gold might still likely increase.

    Calling attention to flies in my ointment would be most appreciated.

    Diogenes Shrugged

    Dr. D,

    Interesting points, all reminding me of the madness of cryptocurrencies ostensibly tied to the price of gold.

    Were I ruler of the world, I’d peg the value of my coins to the value of pine trees.
    When the forest burned, I’d re-peg them to value of horses.
    When the horse population exploded, I’d re-peg to the value of …
    Bad examples, I know, but the point being that the relative value of my currency will always be in flux.

    What’s needed is a money supply that quantifiably never changes, providing a durable constant against which the value of all things can be measured. Like a meter stick — never 99 cm nor 101.

    Bitcoin comes to mind.

    Diogenes Shrugged


    “The bookkeeping system favors the bookkeeper.”
    With Bitcoin, every miner and every node worldwide is a bookkeeper sharing a single, identical ledger. Transaction fees, by the way, continue to fall and are now often lower than comparable debt-money transaction fees.

    “Where does the money come from to pay the bookkeeping fees/costs?”
    At the risk of answering a rhetorical question, for transactions involving debt-based currencies, the money comes from creditors (i.e. ’thin air’). Thus, the imperative nature of economic growth (shit). Economic growth — for the sole purpose of preventing insolvency and deflationary collapse (the fan). Not to mention that Vinnie the knee-capper has taken up permanent residence just in front of the spinning blades.


    Diogenes Shrugged

    Some people must be looking into the bag of sugar and finding that its not full. 🙂
    Another down day.
    The bubble bouncer is having a lot of trouble keeping the bubble from breaking. 🙂

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