Something's Gotta Give
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Definitely the spanish bond market isn’t happy. I’m not going to freak until spanish bond yields top the previous high (7.25%), but the move today sure doesn’t look good. At 1.24 the euro is only a penny away from its previous low of $1.23. Those are my price levels to watch.
Martin Armstrong talked about this issue a week ago. He wrote:
“There must be a consolidated single debt for a single currency. Any fragmentation will result in the collapse of Europe being torn limb from limb. They are running out of time. Our models are pointing to August/September as the critical time period. Europe has its back against the wall. It is time to wake up before everything collapses into dust.”
https://armstrongeconomics.com/2012/06/27/europes-back-is-up-against-the-wall/
He also concurs with the outcome – only peripheral countries face hyperinflation; core economies go into default:
“We do not face hyperinflation in Europe or the USA. These are not peripheral economies. These will simply implode into a Sovereign Default. This is far more dangerous for this is what causes war and brings society to the brink of extinction. Hyperinflation is typically domestic in its impact for foreign capital fled long before. What we face is much more like a bank run ending in collapse. Then the finger-pointing follows and usually war.”
I keep reading about hyperinflation and I keep asking the same question to which nobody, even here, has an answer.
Being TAE readers I assume we accept that inflation is a monetary phenomenon. It happens because there is too much money in circulation
But no government in the world (except maybe Zimbabwe) is printing and circulating money, they are all creating it as debt which has to have both a lender and a borrower.
But the borrowers are busy paying down debt and the lenders are only lending back to the government from which they received the $$ in the first place, hence sucking even more cash from the productive economy to pay the interest.
So my question is, how exactly is this hyperinflationary money supposed to get into circulation in enough quantity to produce the inflation, let alone the hyper version?
Banks will NOT permit governments to actually print and distribute money, which is why Steve Keen’s idea wont fly. ALL new money MUST be debt and debt has nowhere to go. They have created trillions in the last 5 years but there has been only deflation. Why? There is no pathway for the money to get into circulation. It is having no more effect than the makers of Monopoly printing more of their money. Since it never gets into circulation, but is stuck in the board game, it can’t change the real world.
The hyper people can’t seem to get that and either they are hallucinating or I am missing something very serious. But I have been asking this question for 5 years and NOBODY has even attempted to answer it. Please, Ashvin, Nicole, Illargi, someone, what the hell is the pathway?
RE: rlmrdl
One pathway is QE => FedGov => Economy. In other words, the Fed prints the money to buy US Treasuries. This is a “loan” to the FedGov that was created out of thin air. The FedGov spends the money into the economy via defense contractors, military, and all the leeches on the FedGov payroll, including SS & Medicare recipients, etc. They then cash their checks from the UST, which was borrowed from the Fed, who created it out of thin air, and spends it into the real economy. SO – the portion of the federal deficit that is financed by QE is all “new money” that is going into the real economy every single day. This will continue to increase the amount of circulating currency until such a time as the government stops running deficits, a laughable notion as it is difficult to bribe the populace with their own money – the trick is to steal it from the unborn and young children.
Hyperinflation is NOT a monetary event – it is a psychological event. If enough people were to recognize the system for the Ponzi that it is tomorrow, we would have hyperinflation on Monday.
Hyperinflation is a rejection of the existing monetary system, and a desire to exchange currency into something tangible that will hold its value over time. The currency doesn’t have to even be actively depreciating; this can happen due to fears that the currency might depreciate sometime in the future.
I mean, look at the readers of this blog; the USD isn’t depreciating substantially, and yet I would guess that many of us have taken a portion of our “investments” out of the system and put them into something tangible. If a few million people did this, I have no doubt that we would have hyperinflation in short order.
“But I have been asking this question for 5 years and NOBODY has even attempted to answer it. Please, Ashvin, Nicole, Illargi, someone, what the hell is the pathway? “
What question is that?
The question is how does all this “money” get into circulation to cause the inflation?
Yes, government can spend on various things but, as has been true in the last 25 years, most of that money gets captured by the top 1%. I can’t see how we can have inflation, let alone hyperinflation, unless the money circulates sufficiently widely to create more demand than there is supply.
Military spending is huge, but its benefits are limited to a few large corporations that capture the money and don’t pass it on via broad spectrum hiring and raises.
Medical spending is also huge but, again, the money flows from the government to the corporations with barely a pause in the pockets of the sick, if at all.
And what money DOES leak into the rest of the economy is being used, in significant measure in a futile attempt to pay down debt. Straight back to the bank where it sits on their books waiting for a loony, er borrower but otherwise extinguished.
As others have observed, the velocity of money is falling. I cannot see how that can result in hyperinflation.
In the old days a Government would build a highway, employ thousands of people, even on make work schemes to put money into circulation at the bottom of the heap and it would be used to buy shoes from the cobbler, who bought leather from the tannery which needed more hides from the farmer etc etc etc until finally it made its way home to the IRD and the banks. Not any more.
Those $$ that are used for consumption make a brief stop at a big box store and go offshore to China which can’t raise prices because the market is too soft so no inflation there.
In the late 80’s we had plenty of money flying around the system, far too many people had far too much and they bid up the price of everything; inflation. In the 00’s we had far too much money in the banking sector and it was used to buy, or hypothecate real estate and went straight back into the banks. No inflation, except in asset prices which have the “benefit” of being a build one/sell many times product and which (after they are built) have little impact on the rest of the economy.
Nobody has shown me HOW all this QE or its siblings can get into circulation, create massive and unmet demand that drives up prices through the roof. With falling employment, falling incomes, rising real costs for energy and food and deleveraging when possible, there is no “pathway” for the money being created to engender the hyperinflation that some call for.
I’m a deflationist, TAE team is as well, for good reasons.
But if we are wrong about inflation, HOW are we wrong?
I see a lot of truth in this post…but then after awhile,we all get somewhat “ho-hum”about the increase in danger to the world financial system.The brinkmanship of all parties involved has made me understand that there will be no really radical change until something so massive happens that it cannot be talked away…and HURTS J.Q.Public,here in the USA bad,bad, bad.
The mortgage crisis has been played to keep it a “individual”bad luck story,instead of massive Fraud by the banksters…which would require action by the administration and TPTB.
It has occurred to me that the actions against the attorney general might be the first shots,and start of some real fireworks by the administrations who have quietly built some airtight cases against the”lower” “powers that be” for political benefit this election year.{yes,is my conspiracy theory heart beating overtime,….but I can dream;) }It is also a fact that any one who spends substantial time paying attention to…what we see coming…will get “collapse fatigue”eventually,as we see the society we each live in take blow-after-blow from the economic shocks that have/are occurring.
Its like watching a fighter,bleeding and weary take kicks and punches that should drop him..but training and will keep him on his feet.In our case however,the fighters “will”is the same as a heavy drug dose[Injections of funny money]that keep him moving despite damage that could/can/will kill him.When he goes down,the damage done may/will be terminal.And everyone,deep-down,[in power], knows this.
This is why we have many,many people doing their dead-level best to stitch,glue, bailing wire,duct-tape this weird “economy”together….at least past the elections.I think that whatever is going to happen here will be postpone past Nov.unless events in Europe basically cause the fall/destruction of the trading houses here in such a way that precludes papering over their losses [at least from the public]…for a while.Who know what happens then.I have a very sharp brother who thinks/is of the opinion, that while we will have some bad shocks,the system as a whole should/will rattle along for the next few years,for this same reason
………………………………………………………………………….A big article in the local paper…a soon-to-be decommissioned aircraft carrier is now going to be parked here in Oregon,in the middle of no-where[Why put a aircraft carrier in Troutdale Ore?]…were I wearing my conspiratorial obligatory tinfoil….I would wonder why is a mountain of firepower…still fully functional…is here…forever.I guess I will file that under things that make you go Hmmmm.
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I wonder if Romney “job”,is what he did at Bain capital…cutting up the USA “productive assets”..SSN,the military industrial complex,National Park land ,federal land, ,ect.and selling them to the highest bidder buddies of his…Just a thought.
Its warm,and my bees need attention…
Bee good,or
Bee carefulsnuffy
I like that thought experiment where every adult receives $50.000 in greenbacks from the treasury and people decide to just pay down their debts with it, servicing credit card debt and mortgage payments. This causes commercial deflation to lessen somewhat, and whatever people splurge on recieves price support, but it would not add so much to credit expansion or monetary velocity to result in general inflation, there’s too much debt to service first.
A traditional inflationary wage-price spiral wont start up so easily. If the cost of living were to somehow double overnight, then people still wouldn’t be able to demand much of a wage raise in this labor market, and if they did get one, they’d have to spend it in such a velocitized way with maximal multipliers as to cause further price rises, increasing aggregate demand or so, for it to become inflationary.
There’s clearly different inflationary pathways influencing monetary aggregates in something called cost-push and demand-pull inflation which I dont fully understand, I think one’s concerned with the price of oil and the other with the demand for debt.
https://en.wikipedia.org/wiki/Cost-push_inflation
https://en.wikipedia.org/wiki/Demand-pull_inflationI’ve noticed another effect. I get about half way through reading a TAE or other similar post, even a news story such as the Barclay’s corruption and then I stop and get up and go do something practical towards the transition. It might be cut some more firewood, or bake some bread or clean up my garage or stand in my orchard and think about what needs pruning, what needs comfrey planting, where the compost should go etc.
I seem to have a built-in confirmatory bias alarm that says, OK, nothing actually new here, time to get to work.
The only thing that really exercises me these days is the hyperinflation talk because if that happens I have a plan that is spectacularly wrong and I need to get a handle on the signs that it will happen so i can adjust. Hence my plaintive cry for explanation
rlmrdl,
If you want to simultaneously exercise your brain and get exposure to the single best argument for HI out there, I suggest you visit FOFOA’s blog and familiarize yourself with Freegold theory. Obviously I don’t agree with it, but it’s hands down the best argument for HI you will find, and it is somewhat creative in how it makes the argument.
Its an experiment that wont be permitted of course, again, why Steve Keen’s plan can’t happen either.
There was an interesting example a few years ago when an Australian pol wanted to make it a law that people did not save or pay down debt with their tax refunds but spent them somehow to goose the economy.
This would be prior to 2007 when I lived there and showed even then that TPTB knew what was coming and some, at least, however corruptly, were trying to get out of jail.
If we are looking for a catalyst it would seem Greece will be it. It is not implementing the MOU it signed and it is going to be politically impossible for Germany and the IMF to continue funding this bunch of deadbeats and a lesson must be made to the other PIIGS that failure to abide by the loan covenants has consequences.
Therefore Greece is almost certain to be cut off and default probably by the end of the month. That will likely end Spanish and Italian access to private market funding and start a wave of bank runs and collapses.
It’s not that something’s gotta give so much as it is that somebody’s gotta be had. Enough real wealth remains to be stolen that there are many reasons to create a crisis to justify the theft, and I think the powers that be have demonstrated enough control over the situation that they can delay that crisis until after the US presidential election.
After what we’ve seen unfolding over the last nine months or so, I can’t imagine that the CBs will lose control over when the next crisis hits.
Gee thanks Ashvin. I have tried hard to follow but it is so full of self congratulation that its giving me nausea.
My issue is always that people like FOFOA refer to “the printer” and that they will somehow create money enough to substitute for the falling credibility of fiat currency at a rate sufficient to hold up the relative value of the debts etc.
But 2 problems present themselves.
The first is that money is no longer printed, in any form, by the state, it is printed by the banks in the form of debt and can only be circulated encumbered with interest.
I heard even today, someone on the BBC talking about the BoE cutting its rate to “encourage people to borrow and spend” as a way to get the country out of its recession.
That is not printing money for a start, but in any case nobody has the creditworthiness to borrow any more and those that do are already deleveraging as fast as the can, not releveraging.
The other point is that it is the banks who must print the money and who hold the debts. It is manifestly not in their interest to create the money that will dilute their assets. Wont happen.
FOFOA also talks about “stuff” becoming the currency when people get hungry, selling their iPad to a “government stooge” for example.
In what dystopian fantasy does that happen? Who are these stooges, why will they buy used iPads at any price from starving people? What will they do with said iPads then?
He talks about the ever increasing velocity of money in hyperinflation but that is only part of the process, the other is that, as the value collapses there needs to be someone, somewhere, authorised to print ever more zeroes on the money and, here’s the rub, get it into circulation.
In a world where the vast majority of money is electronic there is nothing on which to print the zeroes and no mechanism to put it into circulation. Unless, of course, legislation is passed to adjust the value of electronic accounts every hour in line with the falling value of the currency. But if that is so you can bet your ass that the banks will demand that the value of loans will be treated similarly, and they will get their way.
No path, no mechanism and dependent on “Government Stooges” buying iPads, black helicopters next. No Sale
The Bank of England had already created 325 billion pounds of new money before Thursday’s addition. In doing so, it has successfully driven borrowing costs to all-time lows, yet the UK economy is languishing in recession.
This is because + UK£325 billions or so have vanished into the deflationary abyss without anyone paying the slightest attention. The focus is always upon what the central bank does, nothing at all what takes place elsewhere, like a cheap magician’s trick.
The central bank balance sheet expands b/c the private sector balance sheet contracts a like amount. There are no free lunches, anywhere, even in banking.
UK carries £trillions in debt that would be replaced with fiat currency if it existed, but is replaced with more debt under current circumstances. The central banks in our frightful regime can only fill a hole by digging new ones. In our mental stasis, there is no escaping debt only delaying it and the consequence of default(s).
The Keen reference is to the issue of Treasury fiat (greenbacks) used to retire debt: the extinguishment of both debt and greenback in equal amounts insures there is no inflation.
Inflation is the consequence of unsecured lending (against re-pledged or non-existent collateral) and is the consequence of ordinary business activity. Hyperinflation is currency arbitrage and is usually consequent to wars or other severe social disturbances such as revolutions and military governments. There is an ‘official’ currency and another, black market variety (dollars) or gold.
America has endured inflation … since 1948 there has been continuous inflation: it’s called ‘economic growth’. Currently, the conventional hedges against inflation have broken down. Among these has been the taking on of debt to buy non-financial assets such as real estate.
The thrust of TAE arguments is that shadow banking racketeers using debt derivatives financialized hard asset purchases that had heretofore existed outside the ambit of Wall Street. The associated (and inevitable) breakdown of that financial process is what forms the basis of our current crisis.
While this is partially true, the central issue is the success of the American-style economy which undermines itself. Finance is a part but the entirety is bankrupt, from top to bottom.
rlmrdl – “I have tried hard to follow but it is so full of self congratulation that its giving me nausea.”
This isn’t just a condition found at FOFOA. It resides many places in the blogosphere. I think it is a side-effect of someone being so sure about something that nothing can possibly shake their faith in the eventual outcome. Out of that comes such a strong sense of “being right” it borders on the insufferable.
Thats one reason I like Chris Martenson. He states often that he reserves the right to change his mind if new facts appear – and THEN proceeds to give his current thoughts on how he thinks things are currently unfolding.
Humility in the face of the unknown future is a rare thing indeed.
Ashvin Quote” On top of that, the critical June date for the Fed to announce impressive plans for QE3, perhaps the last viable date before elections, has come and gone without so much as a tepid squirt from the liquidity faucet. So if the central authorities are waiting for anything to really get their hands dirty (and bloody) again, they are waiting for the markets to crash a solid 10-20%, at the very least. And by the time that happens, we know for a fact that the Eurozone will be in much more dire straits than they are now. What will the Fed or the PBoC be able to do for the imploding economies of Spain and Italy?”
This is most unlikely to happen. They found out all to well what happened when they dilly dallied last time.
Something will definitely give. The inflation they are trying to create will finally take hold, and their success in this endeavor will be mind boggling to most. The spike in interest rates resulting from this sudden appearance of rapid inflation will resemble a volcanic eruption. This will lead to a violent, sudden, total collapse of the US banking system and the bankruptcy of all Sovereigns. The place where are all are hiding, US Treasuries, will turn out to be the place that implodes and brings the entire edifice down.
What happens after that should be the topic to concern ourselves with now. My view is Gold and Silver will become part of the financial solution. Your view that it won’t be pretty is an understatement of epic proportion.https://www.oftwominds.com/blogjuly12/snapback-stockton7-12.html
Snapback: Stockton, Calif. and All the Cities to Follow (July 6, 2012)
“Government promises to public employees have created “zero-risk” Wonderlands protected from the market forces of risk and consequence. These islands of privilege are snapping back to join the real economy.
Every government entity that reckoned it was moated from the market economy will be snapped back to “discover” risk and consequence. Let’s lay out the dynamic:”Everyone will have to get real.
Way back when … When bush meat was no longer available you had to rely on agricultural surplus to put food on YOUR table.
If you are not involved in the pipeline to make surplus food, you are a NON PRODUCTIVE mouth to feed.
Get real. Your functions might not be as essential as you think.
You are probably a non productive mouth to feed.
===I share rlmrdl’s frustration and then some.
I am not an economist and I don’t understand exactly what is happening in the economies around the world. It appears to me that central bank types have been pretty adept at fending off deflation by adding just enough fiat money to offset deflation but not trigger inflation. IMO they are as adroit as the Great Walenda.I guess if I were in their shoes I would do the same thing; create enough money to keep drawing things out (i.e., kicking the can down the road) and hoping the economy picks up. On the other hand, maybe they aren’t hoping the economy picks up, Bernanke and the owners of the FED have made a fortune buying T-Bonds during the past couple of years….not a bad strategy at all….if they sell out at the correct time (which I’m sure they will) they’ll be able to purchase a lot of assets during the coming deflationary period. But I’m just guessing…..I don’t know what is really going on.
sangell “If we are looking for a catalyst it would seem Greece will be it. It is not implementing the MOU it signed and it is going to be politically impossible for Germany and the IMF to continue funding this bunch of deadbeats and a lesson must be made to the other PIIGS that failure to abide by the loan covenants has consequences. “
Excuse me! “bunch of deadbeats” you’re obviously soaking up the MSM and TPTB line, hook line and sinker! Germany has had a lot to do with putting Greece in the situation it’s in. For example: under the bailout terms Greece must fulfill it’s contract with Germany to buy tanks, subs and other military goodies, the cost of which pretty much equal the bailout money. Germany has benefited mightily from having a currency which has been kept artificially low by the inclusion of the southern tier of countries, thus adding power to their (German) exports.
Harummmph!@Patrick, Your comment about Germany selling hardware to Greece resonates big time. Germany is also selling tanks to the loathsome Wahabi gov’t in Saudi AND raking in fees for the training. One does wonder if the sovereign debt crisis is a MIC creation.That’s one way to create a market.
The Greeks, per capita, work more hours a week than Germans. Greece does not however have a high-tech industrial base and is no where near as efficient, per capita per hour as Germany, hence the Germans don’t need to work as many hours per week.
https://www.guardian.co.uk/news/datablog/2011/dec/08/europe-working-hours
“…New data published this morning shows that Greek workers actually put in longer hours than anyone else in Europe — 42.2 per week, compared to just 35.6 in Germany…”
I guess those phucking dead-beat unionized slacker Germans are goof-offs relying on robots to man their industrial machine compared to Greece.
Hi rlm,
Let me share my understanding and you can determine if it resonates for you.
1. Coins are debt free money – so it isn’t true that governments don’t issue debt free money, they just don’t issue much of it relative to debt paper receipts (FRNs) and debt based bank credit.
2. I believe Ilargi has answered your questioned. If I undersatand him correctly, he’s stated that we will go into a deflationary spike pit based on the dynamics that you currently understand. Interests rates will eventually collapse the bond market and then debt will become disassociated with money and all money will become debt free – which would easily allow for the mechanics of hyperinflation.
3. This scenario IS NOT a mechanical scenario. There are human predators and they essentially run the financial system and have incredible influence on all major establishment organizations.
They use the monetary system in order to wage asymmetrical warfare on the citizenry that they hold in utter contempt.
They will orchestrate the scenario that will enrich themselves the most at the expense of everyone else. It really is that simple. We have debt based money because these predators set it up that way. They will not allow hyperinflation until it benefits themselves.
4. The typical direct to hyperinflation response, which was posted on this thread, is that hyperinflation is a loss of confidence in the money… which is equivalent to claiming that hyperinflation is a “loss in confidence of the debt behind the money.”
Go ahead and try and “lose confidence” in your mortgage debt, your car loan debt and all your other debt… It’s absurd on its face.
5. The typical hyper narrative doesn’t ever seem to square that the money power behind JP Morgan both controls the money supply, and therefore hyper or deflation, and is giving out 30 year mortgages for 3.6%.
The only way to reconcile those two facts is… 1) they aren’t going to hyperinflate, 2) the money power behind JP Morgan, etc… will lose control of the money supply or 3) the money power behind JP Morgan are complete and utter morons on the brink of zeroing out their trillions in debt holdings and trillions in cash while bailing out the average debtor.
The depth of this kind of thought is exceptionally shallow. It doesn’t take into account WHO controls the money supply, WHAT their interests are and basic Economics 101 cost / benefit / self interest theory.
As Nicole says, though, humans are not rational creatures, we are rationalizing creatures – and a debt saturated society has rationalized their own bailout out just ahead of being gutted and filleted.
Of note is that this hyper idea is often promoted by libertarian minded folks who rely on Mises.
Rockefeller brought Mises to America and funded his work. The same crowd that set up Debt Money Tyranny to systematically rob society blind.
Which brings to mind the quote of one Vladimir Lenin:
“The best way to control the opposition is to lead it (or at least fund someone with an idea you want to be considered “the opposition”)”
~Vladimir LeninThese people play 3 dimensional chess, not checkers.
The Ultimate History Lesson:
https://www.youtube.com/playlist?list=PL463AA90FD04EC7A2
The Ultimate history Lesson Commentary:
https://www.tragedyandhope.com/th-films/the-ultimate-history-lesson/commentary-and-analysis/
“Rockefeller brought Mises to America and funded his work. The same crowd that set up Debt Money Tyranny to systematically rob society blind.”
Nice catch. Very few people realize this fact. I wrote about it a couple of years ago:
How is it that the founders of two seemingly diametrically opposed schools of economic thought co-founded the neoliberal movement? Economics, more properly political economy, is really a political science, after all, so if their economics reflect their politics, doesn’t that mean that their politics are diametrically opposed?
Only if you believe that each school’s economics reflect its true politics. In the case of the founders of the Chicago School, that isn’t the case.
Neoliberalism was founded by Hayek, Mises, Friedman and others as a multi-generational strategy to effectively eliminate public control of democratic governments in order to ensure governments would not interfere with the banks’ creation and manipulation of boom bust cycles to their advantage. The end game is and always was to have a return of laissez-faire boom-bust cycle without governments stepping in to help their citizens during busts. As discussed previously, the neoliberals believed that classical liberalism had failed because it framed the goal of good governments and good economics as to promote the common good. Neoliberals removed the concept of the common good from their reforumulation of liberalism, recasting the concept of the market itself as an all-knowing, all-seeing god that could not be interfered without dire consequences.
Given that socialism and Keynesianism were responses to the great damage produced by laissez-faire economics had produced, there was no way to return directly to it in the form of the Austrian School of ecnomics. The Chicago School of economics was therefore created to provide an incremental move away from Keynesianism economically and an incremental move towards neoliberalism politically. The Chicago School exists to prove once and for all that government intervention into the money supply and the economy can never work and will always lead to disaster (but not until after eliminating the gains the common people reaped due to government intervention). Once the Chicago School’s economics do their work and flame out spectaculary into a truly Great Depression, the answer will be and must be the Austrian School’s economics. After all, we know from Milton Friedman’s revisionist history that the Great Depression was caused by the “government” interference of the Federal Reserve, so what’s left but to bend over for the all-knowing god of the market and hold your ankles (and never mind that man behind the curtain).
And the neoliberals will label Chicago School economics as “Keynesian.” In fact, they already are.
That’s my theory at least.
TheTrivium4TW post=4158 wrote: Hi rlm,
Let me share my understanding and you can determine if it resonates for you.
1. Coins are debt free money – so it isn’t true that governments don’t issue debt free money, they just don’t issue much of it relative to debt paper receipts (FRNs) and debt based bank credit.
I see it as the coins are issued by the state but the money that they represent is created as debt. The authority to issue is provided by the bond market which is a debt market. That, BTW is my argument against gold as a store of wealth/money. Like the internet, money is an agreement, not an external entity.
2. I believe Ilargi has answered your questioned. If I understand him correctly, he’s stated that we will go into a deflationary spike pit based on the dynamics that you currently understand. Interests rates will eventually collapse the bond market and then debt will become disassociated with money and all money will become debt free – which would easily allow for the mechanics of hyperinflation.
Although Nicole believes that the debt deflation will end the system itself, its a question of how far that deflation spike goes. The problem, in either case, will be how to get the money into circulation at all. My issue with the pathway question is what those mechanics are. The PTB have corralled all the money by closing the pathways by which it normally circulated. Unless they are dragged intro the street and shot or they permit the opening of the pathways again, it doesn’t matter whether the money is debt free or not, without circulation there is no monetary phenomenon. Again, while the debt may collapse the economy, it also has to be written off in some way, through bankruptcy or jubilee or repayment. While only one claim against an asset can eventually be satisfied, the question will also be, whose claim and how will that be negotiated? It may parallel musical chairs but its not. Possession is still 9 points of the law, possession with a gun may be more than that, especially if enough people opt for it. Especially if the police/military are themselves being dispossessed by the same system they are supposed to be enforcing on others.
When ALL of the money has been stolen under one system, it collapses entirely and we move to the physical force phase. At some point, enough people with nothing to lose decide to take down the system itself and then force becomes the currency.
3. This scenario IS NOT a mechanical scenario. There are human predators and they essentially run the financial system and have incredible influence on all major establishment organizations.
They use the monetary system in order to wage asymmetrical warfare on the citizenry that they hold in utter contempt.
Exactly. But then they “win”. Once they have sequestered all the wealth, real, financial, industrial, resource etc, they have nobody left to exploit. Since all wealth is currently expressed as money, and since there is an arbitrary, but unknowable, limit to the amount of financial concentration that is possible under any system (even the Egyptian kings had to feed the slaves till they died then feed someone who disposed of the bodies) we have no idea, until it happens, at what point the system itself collapses and we starve, freeze and die of curable illnesses.
Whatever else it is, inflation/deflation is a monetary phenomenon. When the velocity of money falls near to zero, all monetary phenomena cease to exist. We have no idea what that looks like in our global economy, but when the Romans left Britain, within a century, money disappeared as well. The economy, such as it was, became totally local and barter based. We have no idea what that might look like in the current situation, but note, the Romans were totally in control of the economy/polity until they weren’t. But they didn’t just go away, their empire collapsed and those in power were killed or dispersed. That is the end of empires. That will be the end of this one as well.
While the financial shenanigans are the key driver at the moment, the climate and energy issues are not going away and is driving its own part of the game so all of the system is at risk from multiple black swans, regardless of what those currently in power, but not control, may want.
So I’m with Nicole, I think the deflationary spike will be the entry way to the black hole of the current system. Scale will collapse and we will all be left dealing, and only dealing, with the neighbours.
They will orchestrate the scenario that will enrich themselves the most at the expense of everyone else. It really is that simple. We have debt based money because these predators set it up that way. They will not allow hyperinflation until it benefits themselves.
Completely agree. But every ecosystem has its limits and every species exploits that system to the maximum until it reaches those limits, then it collapses. The human species is doing that to its planet, just as yeast does in a vat of grape juice, and the money system. The winners take all. Then it stops for everyone.
4. The typical direct to hyperinflation response, which was posted on this thread, is that hyperinflation is a loss of confidence in the money… which is equivalent to claiming that hyperinflation is a “loss in confidence of the debt behind the money.”
Go ahead and try and “lose confidence” in your mortgage debt, your car loan debt and all your other debt… It’s absurd on its face.
True enough. Its not that we will lose confidence in our mortgages but that we will reach the point where repudiation, even debtor’s prison, will be our only option. As Nicole keeps saying, only one of the multiple claims on underlying wealth can be satisfuied, all the others are extinguished. Since all underlying wealth is expressed in money terms, there will be competition for the money by debt holders, and they will discount their debt to get the money, deflation. That’s why cash becomes king in a deflation.
5. The typical hyper narrative doesn’t ever seem to square that the money power behind JP Morgan both controls the money supply, and therefore hyper or deflation, and is giving out 30 year mortgages for 3.6%.
The only way to reconcile those two facts is… 1) they aren’t going to hyperinflate, 2) the money power behind JP Morgan, etc… will lose control of the money supply or 3) the money power behind JP Morgan are complete and utter morons on the brink of zeroing out their trillions in debt holdings and trillions in cash while bailing out the average debtor.
The depth of this kind of thought is exceptionally shallow. It doesn’t take into account WHO controls the money supply, WHAT their interests are and basic Economics 101 cost / benefit / self interest theory.
I doubt anyone controls the money supply right now. Some players are feeding it like fury to no avail while others are destroying money as fast as they can and a third lot are hoarding it and trying to keep the fraud going a bit longer (LIBOR scandal etc). But actual control will, pretty much by definition, break down as the end game gets into its work. For a generation they have been able to steal wealth by conning people into taking on debt but that is now pretty much over and those still taking it on are so delusional or cynical that every transaction carries its own coffin.
As Nicole says, though, humans are not rational creatures, we are rationalizing creatures – and a debt saturated society has rationalized their own bailout out just ahead of being gutted and filleted.
Again, completely agree. But gutting and filleting is a metaphor. What does that mean in practise and how far down the road of impoverishment can you push the current model before it breaks and what will that breakage look like. We are now talking about starvation, the end of medical care for large swathes of the population, homelessness on a grand scale while millions of homes remain empty etc etc etc. And sharply higher mortality rates from all causes except car smashes, airplane accidents, and obesity.
So how does that work itself out?
/Most stimulus to date has been non-inflationary because it merely preserved income streams that already existed. Once the Depression returns with full force, the Congress will likely spend massively on Make Work programs, and this will put a lot of dollars in circulation.
Most stimulus to date has been non-inflationary because it merely preserved income streams that already existed.
Yes. If they had not preserved that income stream we would have had the reset.
B. madoff would still be operating if they had preserved his income stream.
:woohoo:
Something is bothering me here, regarding QE. And I would appreciate better minds than mine, to pick it apart.
Billions of £/$ are being manufactured (QE’d), out of thin air and given to the banks. The government say that they do this to ease pressure on the banks and expect the banks to lend more into the wider economy. The fear then is that this invented money will create massive inflation as it filters out into the wider economy.
Firstly. It is not filtering out into the wider economy.
Second. It is not causing inflation.
So the question to be asked is why do a QE2,…QE3… QE4……….?
Could it be because it was never intended to filter out into the wider economy, and therefore was guaranteed to never be a risk to inflation?
There is another way of looking at what is happening. There is much talk on various sites of the need for a Debt Jubilee. Wouldn’t it be wonderful if the government just cancelled your mortgage or car loan? Not going to happen!
But what if QE has been designed as a selective Debt Jubilee? For the banks only. What if, despite all the talk of QE pumping money into the economy, it was never really designed for that. It’s real purpose is to simply cancel out some of the bad debt on the banks balance sheets. Each QE input is a drip drip, partial Debt Jubilee for the banks. Thus, QE never was intended for, and never will, find its way into the wider economy.
If this is a selective Bank Jubilee then it begs many other follow on questions. For example, if some of those bank bad debts, have been Jubilee’d away with QE, are those (cancelled out), debts still being serviced with payments of principal and interest?Update :
So I suppose my notion that QE is really a Bank Debt Jubilee, answers rlmrdl’s question, “Where is the pathway?”, for the money to cause Hyperinflation.
QE, wasn’t designed with a pathway. It was never intended for the wider economy.But what if QE has been designed as a selective Debt Jubilee? For the banks only.
Yes, that’s right.
There are side effects beside furnishing cash flow for the service of those debts.
Leveraging of that new cash to buy stocks and keep the stock prices high and avoiding a market crash.
The winners are those people who “cashed out” of the stock market and bought assets that are producing real cash flows.
John Dunn,
I’ve read some fairly persuasive conjecture that QE was, just as you speculate, never intended to do much for the populace and was really for the banks alone. Today I came across more support for this perspective from Charles Hugh Smith’s blog Of Two Minds. Smith writes:
Longtime correspondent Harun I. recently described the leverage endgame in this deeply insightful commentary: Much has been made over the Fed’s efforts to “stimulate”, however, IMHO the Fed’s efforts are more concerned with preventing the sudden death of the monetary and banking systems. With private sector balance sheets hobbled, some entity must step in and create enough debt so that debts can be paid and, therefore, maintain the illusion that there is money (debt) in the system.
skipbreakfast, Thanks for the reply
If this is actually what is happening, then it follows that Central Banks can under various named guises manufacture money as QE 12… QE27,… QE144, until the whole of the bank’s bad debt is Jubilee’d away. (Plus NO inflation risk).
But if this bad debt is slowly being neutralised in this way, who are the losers and winners in this sleight of hand game?Without much doubt, John, the losers are the rest of us. It’s fairly black and white, in my opinion. Once the largest players (banks) have shifted their bad debts onto the taxpayers/population, deflation will suit them very well, since the strongest of them will be in a position to buy up the best assets for pennies on the dollar. We on the other hand, will be broke as a society. I don’t doubt that many large players will go under, but they in turn will be bought up by the strongest players to make them even richer (just as JP Morgan bought up the best assets of Lehman in the ’08 collapse).
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