T Nation

''How Hyperinflation Will Happen''

Extremely interesting piece. Good analysis? Science fiction? What do you guys think?


http://seekingalpha.com/article/221974-how-hyperinflation-will-happen

Study Zimbabwe and Weimar Deutschland and then recompute.

All that is required for hyperinflation to occur is for all the outstanding US “IOUs” to be used to consume dollar priced goods.

China has already slowed down buying US debt it is only a matter of time before they will want to be paid back.

They want oil and other “necessary” resources – watch out.

Here’s an interesting distinction…

The author does not even posses knowledge of proper English grammar and we are supposed to accept his definition of inflation?

Inflation is an expansion of the money supply

Hyperinflation happens when that inflated money is used to consume in excess of what is produced at a very fast rate.

[quote]LIFTICVSMAXIMVS wrote:
The author does not even posses knowledge of proper English grammar and we are supposed to accept his definition of inflation?

Inflation is an expansion of the money supply

Hyperinflation happens when that inflated money is used to consume in excess of what is produced at a very fast rate.[/quote]

I understand that you believe inflation to be a monetary phenomenon. That’s fine and you aren’t alone in believing this.

However, I think you might try reading the article before summarily dismissing it. Moreover, dismissing him on the basis of his (alleged) poor grammar is pretty lame; I’m betting I could slaughter you on that basis alone; in fact, I know I can. But I don’t. Not out of charity or laziness, mind you; but simply because I’m more interested in what you have to say.

I did read it – twice: once to impart the words on my brain and a second time to decipher it.

Right, your point about grammar is noted. I am just saying it is hard to accept a “scholarly” explanation from someone who is not careful enough with written language. Posting here in an open, dynamic forum is a little different than posting an article on one’s blog. That would be like if T-whatever-its-called-now allowed spelling and grammar mistakes into its articles.

Its not that I believe inflation to be a monetary phenomenon but rather it is that that explanation is the only one that makes sense when carried forward to its logical conclusion.

The author is tricked by the myth of the “animal spirits” – which ironically is the classic Keynesianism he is supposedly arguing against – in stead of the correct explanation of given by an understanding of supply and demand:

When circulating money is in larger supply than the goods they represent it will cause higher prices.

It’s not rocket science.

Serious countries almost never have hyperinflation. The government will accept a deflationary collapse because they’ll still have functioning money. Hyperinflation is basically the end of money in that country.

[quote]Headhunter wrote:
Serious countries almost never have hyperinflation. The government will accept a deflationary collapse because they’ll still have functioning money. Hyperinflation is basically the end of money in that country.

[/quote]

While the feddy govt. might “accept” a deflationary collapse, he’s arguing that hyper-inflation is well-neigh inevitable at this point, whatever the feddy gubbamint chooses to do, or not do. It’s kind of built into the “system” at this point. About halfway down the article he goes into this.

[quote]katzenjammer wrote:

[quote]Headhunter wrote:
Serious countries almost never have hyperinflation. The government will accept a deflationary collapse because they’ll still have functioning money. Hyperinflation is basically the end of money in that country.

[/quote]

While the feddy govt. might “accept” a deflationary collapse, he’s arguing that hyper-inflation is well-neigh inevitable at this point, whatever the feddy gubbamint chooses to do, or not do. It’s kind of built into the “system” at this point. About halfway down the article he goes into this. [/quote]

I don’t want to beat a dead horse, but search my posts for “deflation.”

This is what we will see way before any strong inflation, much less hyper-inflation can occur.

[quote]JEATON wrote:

[quote]katzenjammer wrote:

[quote]Headhunter wrote:
Serious countries almost never have hyperinflation. The government will accept a deflationary collapse because they’ll still have functioning money. Hyperinflation is basically the end of money in that country.

[/quote]

While the feddy govt. might “accept” a deflationary collapse, he’s arguing that hyper-inflation is well-neigh inevitable at this point, whatever the feddy gubbamint chooses to do, or not do. It’s kind of built into the “system” at this point. About halfway down the article he goes into this. [/quote]

I don’t want to beat a dead horse, but search my posts for “deflation.”

This is what we will see way before any strong inflation, much less hyper-inflation can occur. [/quote]

We’re already in a period of deflation. Yes, it’s going to last a while. The question is, will deflation lead inexorably to hyperinflation. Please will posters read the actual article? LOL.

[quote]katzenjammer wrote:

[quote]JEATON wrote:

[quote]katzenjammer wrote:

[quote]Headhunter wrote:
Serious countries almost never have hyperinflation. The government will accept a deflationary collapse because they’ll still have functioning money. Hyperinflation is basically the end of money in that country.

[/quote]

While the feddy govt. might “accept” a deflationary collapse, he’s arguing that hyper-inflation is well-neigh inevitable at this point, whatever the feddy gubbamint chooses to do, or not do. It’s kind of built into the “system” at this point. About halfway down the article he goes into this. [/quote]

I don’t want to beat a dead horse, but search my posts for “deflation.”

This is what we will see way before any strong inflation, much less hyper-inflation can occur. [/quote]

We’re already in a period of deflation. Yes, it’s going to last a while. The question is, will deflation lead inexorably to hyperinflation. Please will posters read the actual article? LOL. [/quote]

Ok first off you cited an article by a novelist and not an economist. While he paints an interesting story of how all hell could break loose he does not offer an option for it to not happen either. As cited by others he fails to understand what the true definition is. So it is hard to actually accept his article as something worth the time to discuss. Since we would not be talking about the true definition, but his definition which no one really accepts, on a possible situation which may not happen, but he is certain it will.

I am with Jeaton that deflation is the next step and I assume it will be a deep deflation.

[quote]haney1 wrote:

[quote]katzenjammer wrote:

[quote]JEATON wrote:

[quote]katzenjammer wrote:

[quote]Headhunter wrote:
Serious countries almost never have hyperinflation. The government will accept a deflationary collapse because they’ll still have functioning money. Hyperinflation is basically the end of money in that country.

[/quote]

While the feddy govt. might “accept” a deflationary collapse, he’s arguing that hyper-inflation is well-neigh inevitable at this point, whatever the feddy gubbamint chooses to do, or not do. It’s kind of built into the “system” at this point. About halfway down the article he goes into this. [/quote]

I don’t want to beat a dead horse, but search my posts for “deflation.”

This is what we will see way before any strong inflation, much less hyper-inflation can occur. [/quote]

We’re already in a period of deflation. Yes, it’s going to last a while. The question is, will deflation lead inexorably to hyperinflation. Please will posters read the actual article? LOL. [/quote]

Ok first off you cited an article by a novelist and not an economist. While he paints an interesting story of how all hell could break loose he does not offer an option for it to not happen either. As cited by others he fails to understand what the true definition is. So it is hard to actually accept his article as something worth the time to discuss. Since we would not be talking about the true definition, but his definition which no one really accepts, on a possible situation which may not happen, but he is certain it will.

I am with Jeaton that deflation is the next step and I assume it will be a deep deflation.[/quote]

He doesn’t “provide an option for it not to happen.” THAT is your criticism? LOL. Are you actually trying to sound bizarre, or does it come naturally?

“As cited by others he fails to understand what the true defiintion is…” LOL! I assume you’re refering to “inflation.”

This^ is hilarious - one thing it points out is that you really haven’t read all that much in the field have you?

If you had, you would realize how silly that sounds. It’s one thing to argue for inflation being a monetary phenomenon - I think the arguments are fairly respectable. To profer this as the only definition that “anyone accepts” is full-out risible.

Finally, you might want to check the date - we’re already in deflation. The question is, what is coming next.

This thread is chock full of absolute hilarity.

Here’s why I posted this article…

Yesterday morning I attended a monthly breakfast that I have with 4 hedge fund managers here in Boston. We meet in part for social reasons and in part to bounce ideas off of me and a number of other investors/friends.

They manage nearly a half a Billion dollars and have a stellar track record. Each of them is a Phd or an MBA from Harvard or MIT; each has at least a quarter of a century of investment experience. Two of them are very close friends. The fund has been closed for a long time - they don’t need or want any more investment - even now in this environment, however, they could easily rasise more $$$.

Before we meet they often send us articles - from the scholarly to the more cursory, from the serious to the hilarous.

That is when I first saw this piece about hyperinflation. The piece about hyperinflation is mostly what we spoke about. And they found the piece fascinating, intriguing, and apparently well-worth talking about. Did they have criticisms? Absolutely. Are they going to run off and make decisions in their fund solely on the basis of this article? Of course not.

What’s most interesting is that no one at the table dismissed the piece out of hand - which tells you a number of things, among which: that they are not monomanically and theologically committed to a single point of view the way many in this thread are regarding the nature of inflation.

Which is interesting because this allows them a flexibility of mind and action to create and sustain a huge amount of value. As far as I know, none of you manage money professionally - and almost certainly not with 25 years of experience under your belts.

I respect and like many of you. However, I’m afraid that all-too-often you’ve read a few theorists and a few websites and concluded that this (Austrian model, etc.) is the only way of looking at the world, which is a shame for many reasons.

Finally, it’s interesting that none of you actually seemed to understand - much less counter - the guy’s argument. I suppose it’s because you feel you’re “above it” somehow. Given the paucity of your experience in this field - not to mention your lack of real-world responsibility of having to actually manage massive amounts of someone else’s money - your dismissing of the supposition and narrative within the piece barely passes the giggle factor.

[quote]katzenjammer wrote:

This thread is chock full of absolute hilarity.

Here’s why I posted this article…

Yesterday morning I attended a monthly breakfast that I have with 4 hedge fund managers here in Boston. We meet in part for social reasons and in part to bounce ideas off of me and a number of other investors/friends.

They manage nearly a half a Billion dollars and have a stellar track record. Each of them is a Phd or an MBA from Harvard or MIT; each has at least a quarter of a century of investment experience. Two of them are very close friends. The fund has been closed for a long time - they don’t need or want any more investment - even now in this environment, however, they could easily rasise more $$$.

Before we meet they often send us articles - from the scholarly to the more cursory, from the serious to the hilarous.

That is when I first saw this piece about hyperinflation. The piece about hyperinflation is mostly what we spoke about. And they found the piece fascinating, intriguing, and apparently well-worth talking about. Did they have criticisms? Absolutely. Are they going to run off and make decisions in their fund solely on the basis of this article? Of course not.

What’s most interesting is that no one at the table dismissed the piece out of hand - which tells you a number of things, among which: that they are not monomanically and theologically committed to a single point of view the way many in this thread are regarding the nature of inflation.

Which is interesting because this allows them a flexibility of mind and action to create and sustain a huge amount of value. As far as I know, none of you manage money professionally - and almost certainly not with 25 years of experience under your belts.

I respect and like many of you. However, I’m afraid that all-too-often you’ve read a few theorists and a few websites and concluded that this (Austrian model, etc.) is the only way of looking at the world, which is a shame for many reasons.

Finally, it’s interesting that none of you actually seemed to understand - much less counter - the guy’s argument. I suppose it’s because you feel you’re “above it” somehow. Given the paucity of your experience in this field - not to mention your lack of real-world responsibility of having to actually manage massive amounts of someone else’s money - your dismissing of the supposition and narrative within the piece barely passes the giggle factor.

[/quote]

Why slum it with us here on a body building forum then? It is clear from your post that the only accepted view is to agree with you and the author. So why waste your effort on us?

Please go live it up with your Hedge fund managers and Phd friends and leave the rest of us to wallow in our ignorance of the subject.

[quote]haney1 wrote:

Why slum it with us here on a body building forum then? It is clear from your post that the only accepted view is to agree with you and the author. So why waste your effort on us?

Please go live it up with your Hedge fund managers and Phd friends and leave the rest of us to wallow in our ignorance of the subject.
[/quote]

Now that’s hardly fair.

  1. I am and was genuinely interested in what anyone has to say on this forum about virtually any topic. Please show me evidence to the contrary.

  2. I never said that “we” or “they” agreed with the author. Please show me where I did.

  3. Ironically, it was you and others who reacted to the piece with a theological dogma about inflation, claiming that any other opinion is rot.

  4. And most ironically, it was you and others who dismissed the guy out of hand for his allegedly “bad” grammar, for his career choice, and on the basis that he’s not a professional economist…none of which are actualy arguments undermining the credibility of his thesis. On the contary, I try to listen to people and what they have to say; and could care less about those other things.

Deflation can only happen if there are massive loan defaults and a tightening of credit.

If the Fed actually wanted price stability they would allow interest rates to fluctuate with the market. This includes not only consumer credit which is more or less free floating but rather inter-banking rates at which banks can borrow and lend to each other. The overnight window has essentially been zero since December 2008.

[quote]katzenjammer wrote:

[quote]haney1 wrote:

Why slum it with us here on a body building forum then? It is clear from your post that the only accepted view is to agree with you and the author. So why waste your effort on us?

Please go live it up with your Hedge fund managers and Phd friends and leave the rest of us to wallow in our ignorance of the subject.
[/quote]

Now that’s hardly fair.

  1. I am and was genuinely interested in what anyone has to say on this forum about virtually any topic. Please show me evidence to the contrary.

  2. I never said that “we” or “they” agreed with the author. Please show me where I did.

  3. Ironically, it was you and others who reacted to the piece with a theological dogma about inflation, claiming that any other opinion is rot.

  4. And most ironically, it was you and others who dismissed the guy out of hand for his allegedly “bad” grammar, for his career choice, and on the basis that he’s not a professional economist…none of which are actualy arguments undermining the credibility of his thesis. On the contary, I try to listen to people and what they have to say; and could care less about those other things.

[/quote]

It was very fair considering the condescending stance your posts in this thread have taken towards all of the posters.

What theological dogma did I cite? I stated that I donâ??t think he understand what he is talking about. I am not theological about it at all.

His credentials count if we are to take his opinion seriously. Just a few post before you threw around your breakfast clubs credentials in an attempt to show that we should now take a serious look at this.

Which piece of the article do you want to discuss? The idea that it will happen due to a run on treasuries is only one possibility and he presents it as the only possibility.

You asked a question in the first post, and I have dismissed it as science fiction. Everyone for the most part has and then you insult us by saying things like this.

â??This thread is chock full of absolute hilarity.â??

â??Finally, it’s interesting that none of you actually seemed to understand - much less counter - the guy’s argument. I suppose it’s because you feel you’re “above it” somehow. Given the paucity of your experience in this field - not to mention your lack of real-world responsibility of having to actually manage massive amounts of someone else’s money - your dismissing of the supposition and narrative within the piece barely passes the giggle factor.â??

Apparently our opinion is beneath you and your stance on the article.

This is from David Rosenberg
"
It amazes us as to how clueless many people are over the bond market
Finally, it amazes us as to how clued out so many people are over the bond market. I even fielded an email today from a reader demanding a retraction from my comment that bonds are not in a bubble. Maybe the day I stop receiving these letters is the day I will switch my views around. But, I maintain that it is a completely nutty notion that bonds are in some sort of bubble. Where exactly is the excess leverage? Is 73% positive sentiment on Market Vane really overly bullish?

There is no sign of speculative interest coming out of the Commitment of Traders report â?? all the non-commercial accounts have done in recent months is close out their short positions. Oh yes â?? the investing public. They are ploughing funds into bond funds and since they have no idea what they are doing it must be a bubble. The latest weekly ICI data did indeed show another $7.9 billion net inflow into the fixed-income market and net redemptions of $2.8 billion from equity funds. We can certainly understand how frustrating this must be for the throngs that have been saying for months now that this is a contrary positive development for equities. But in fact, it is a deliberate attempt on the part of households to correct their dramatic fixed-income under-representation in their overall asset mix.

As an aside, the amount that the Fed is buying is a drop in the bucket when you look at the size of the Treasury market and the daily turnover. The overall impact is a handful of basis points at best and the reality is that the 10-year yield had already rallied 80 basis points before the Fed ever issued its press release a few weeks ago. The bond market is responding to the growing reality that the Fed is not going to take the â??carryâ?? away any time soon, which is a major green light for a

Moreover, the bond market is responding to downgraded earnings and GDP projections, which began in April when both bond yields and equity prices peaked. It makes perfect sense. The yield on the 10-year note spiked from 2% to 4% during the era of green shoots a year ago, and it has retraced much, but not all, of the runup in this new era of brown shoots, as far as the incoming economic data are concerned. It is not complicated, and it is not a bubble.

It is completely normal for bond yields to rise, as was the case last year when the data come in strong, deflation expectations swing to inflation expectations and risk aversion switches to risk appetite. We are now on the other side of that mountain and until something reverses the recent trends, the overall path â?? spasms notwithstanding â?? will be to the downside, as far as the yield on the 10-year note and especially the long bond will be. A retest or break of the 1940 low of 2% on the long bond is not out of the question at all before this bond bull market is terminated.

As for â??inflationâ?? â?? if you donâ??t like the data, then look at the real world. For example, see Consumers Dodging Jump in Food Costsâ?? on page A3 of the WSJ (food retailers are â??leery of passing along their higher costs to the public for fear they might shop elsewhereâ??) and Luring Shoppers to Stores on page B8 (discounts via scanners with the Web). And, if you do have a modicum of respect for the data, look at all the sectors that deflated in July â?? restaurants, toys, furniture, appliances, drugs, medical care services, groceries, jewellery, menâ??s clothing, delivery services, audio/video equipment, books, IT services, air fares, home improvement, and the list doesnâ??t stop there.

Admittedly, the last time the yield on the 10-year T-note approached 2% in late 2008 it was a bit of head fake â?? coming right after the Lehman collapse and the Fedâ??s first bond-buying announcement. Back then, the rubber-band effect came in as the government bailed out the banks and prompted the largest short covering rally ever in financials and the White House announced an $800 billion gorilla of a fiscal stimulus package. Look at what investors had to look forward to â?¦ a V-shaped recovery and after that, the widespread expectation of sustainable, if moderate, growth.

Well, we didnâ??t get a V, but instead a rather lacklustre 3% rebound in GDP (1% excluding the inventory contribution) and now that the economy hit stall speed in Q2, and on the precipice of outright contraction in Q3, we donâ??t even have the sustainability.

In addition, in contrast to late 2008, the Fed can no longer cut rates, even its QE options are more constrained than they were back then, and there is now a public backlash as opposed to support for more fiscal largesse with the deficit relative to GDP almost double what FDR every tried to run during the Great Depression. So, this run at 2% on the 10-year note may well end up having more durability than the very brief slide in yields to that level nearly two-years ago.

In a nutshell, we have more evidence now than we did back in 2008 that we are in a secular credit contraction, a deflationary backdrop and a liquidity trap. After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression.

That, my friends, is exactly what the Treasury market is signalling. The last time that bond yields were rallying to the levels they are at today, core inflation was running at 1.8% (versus 0.9% now) and the unemployment rate was sitting at 7.4% (versus 9.5% today). So, the output gap and the deflation backdrop are actually offering much more fertile soil for the bond market today than was the case back then. Those are facts, by the way, not mere opinions".

I read the article, and my first impression is that it sounds plausible. The mechanism he lays out makes sense.

I don’t have time to really dive in and take it apart, so I don’t have an opinion on the likelihood of his scenario playing out. Major flaws in his argument might become apparent with closer inspection.

But his argument is detailed and isn’t straight-out nutty. I did cringe when I read he was a novelist or something, but his arguments shouldn’t be dismissed out-of-hand, IMO.

The biggest thing to me was how he touched on automated trading can create situations far faster than the Fed can react to them. That’s a relatively new phenomenon; it only started having major impact on the markets in the last 10 years or so.

There have already been a few spectacular market explosions that happened in large part because of automated trading. It is entirely possible that automated trading could knock down the house of cards before the Fed could even blink.

[quote]LIFTICVSMAXIMVS wrote:
The author does not even posses knowledge of proper English grammar and we are supposed to accept his definition of inflation?

Inflation is an expansion of the money supply

Hyperinflation happens when that inflated money is used to consume in excess of what is produced at a very fast rate.[/quote]

He is Chilean. Hyperinflation is not usually lots of inflation, it is loss of confidence in a currency. Inflation is fiat chasing goods.