Hyperinflation?

Finally, a Hyperinflation Argument That Persuades
by Rick Ackerman

A conversation between a hardcore inflationist and an equally hardcore deflationist might meander for hours without generating much argumentative heat. That’s because both see the financial system in smoldering ruin after the smoke has cleared; it is only on the matter of how the disaster will unfold that they disagree. I’d thought until yesterday that deflation was far more likely to do us in, turning an endless Great Recession into a Second Great Depression. My scenario called for falling prices and wages, imploding asset values and an economy drowning in bankruptcies. Hyperinflationists are expecting a quite different endgame — one in which prices soar relative to fiat money, debtors pay off loans with confetti, creditors and savers are wiped out, and hoarders of bullion live like kings. I am now convinced, after stridently arguing the case for deflation since the late 1970s, that the hyperinflationists will be right.

Stunning Insights

Why have I changed my mind? For the answer, you’ll need to read FOFOA blogspot‘s latest essay, Deflation or Hyperinflation? Nothing I had read before it even came close to making the case for hyperinflation, since the arguments seldom went beyond nebulous theories and shoot-from-the-hip speculation. This one does, though – and brilliantly: first by deconstructing my strongest arguments with great care and refuting them one by one; then by explaining how human nature itself, impelled by self-interest, will push our debt-addled financial system toward a hyperinflationary dénouement. There are some stunning insights along the way, the moreso because FOFOA is able to bring them to readers by making some heavy ideas go down like a soufflé. One of them, debated endlessly, questions whether the Powers That Be would “allow” a hyperinflation to occur, since that would render their financial assets worthless. FOFOA prepares us for his counterintuitive answer by recalling the joke about how, if you want to survive, you don’t actually need to outrun the bear that is chasing you and your friend.

His logic has extremely bullish implications for gold. I’ve always been bullish on the stuff myself regardless of whether it is hyperinflation or deflation that gets us. But I was never entirely comfortable with my own arguments, since deflation in theory would render hard cash more valuable than other assets, including bullion. Reading FOFOA’s essay, however, I had an epiphany when he cited a 2002 quote from inflationist Gary North: “I remember in 1975 hearing C. V. Myers tell attendees at a gold conference, ‘If you get this one wrong, you’ll lose everything.’ He was predicting deflation. He got it wrong. He didn’t lose everything.” The reason Myers didn’t lose everything was that he owned gold up the wazoo, even after it peaked at $850 in 1980. I know this because Myers wrote about it in his newsletter, but also because when I interviewed him at his Spokane home for a freelance article I’d pitched to Barron’s, he let me fondle the largest solid-gold nugget I’ve ever seen outside of the Smithsonian. It was sitting on his desk, along with rolls of gold coins that today would be worth as much as a house.

Read more:
http://www.rickackerman.com/2011/04/at-last-a-hyperinflation-argument-that-persuades/#more-34127