I know that many deflationists believe that we cannot experience hyperinflation in the US due to our obscene debt levels. The belief here is that all the money thrown into the US financial system will be swallowed by another round of debt deflation.
The problem with this belief is that it doesn’t understand how currency crises work. Inflation occurs when a currency falls in value relative to other currencies. And as noted by other astute commentators, hyperinflation occurs when a currency is abandoned all together.
On that note, I would like to refer some extraordinary research from Bill King of RamseyKing Securities. King recently presented a portion of Niall Ferguson’s book, “The Ascent of Money” regarding what REALLY happened in Weimar Germany (King’s emphasis added in bold).
Yet it would be wrong to see the hyperinflation of 1923 as a simple consequence of the Versailles Treaty. That was how the Germans liked to see it, of course…All of this was to overlook the domestic political roots of the monetary crisis. The Weimar tax system was feeble, not least because the new regime lacked legitimacy among higher income groups who declined to pay the taxes imposed on them.
At the same time, public money was spent recklessly, particularly on generous wage settlements for public sector unions. The combination of insufficient taxation and excessive spending created enormous deficits in 1919 and 1920 (in excess of 10 per cent of net national product), before the victors had even presented their reparations bill… Moreover, those in charge of Weimar economic policy in the early 1920s felt they had little incentive to stabilize German fiscal and monetary policy, even when an opportunity presented itself in the middle of 1920.
A common calculation among Germany’s financial elites was that runaway currency depreciation would force the Allied powers into revision the reparations settlement, since the effect would be to cheapen German exports.
What the Germans overlooked was that the inflation induced boom of 1920-22, at a time when the US and UK economies were in the depths of a post-war recession, caused an even bigger surge in imports, thus negating the economic pressure they had hoped to exert. At the heart of the German hyperinflation was a miscalculation.
So Weimar was really the product of the financial elite engaging in insane monetary policies using public funds without care and trying to devalue the currency in order to inflate away the debts.
Gee… what major country is engaging in similar practices today?
Speaking of which, the US Dollar is imploding.
Read more:
http://beforeitsnews.com/story/508/536/Can_HyperInflation_REALLY_Hit_the_US.html
when will the dollar implode completely? Today(8th of april 2011) the dollar was falling down (bear) against almost all other currencies, and it has being like this for a week. but the dollar has being bearish before for a long time without collapsing.
ReplyDeleteI think the rising demand for and the rising price of silver is a pretty good indicator that the collapse is coming sooner than one thinks. Folks are looking to exchange their useless fiat currency for precious metals which have true value. US currency will soon be like monopoly money. Get out of it while you can would be my advice. But I'm basing this from what I've been reading. Not from any expertise.
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