Written by Jeff Nielson Thursday, 24 October 2013 13:25
Hyperinflation is an insidious, economic killer. It inevitably (but insanely) creeps up on its Victims in plain sight, before decimating them with an always unexpected ambush. How can one of the most-obvious of all economic phenomena always end up as a “surprise”?
Because none of the Victims ever believe that hyperinflation is possible. Point out that the U.S. dollar has lost 98% of its value in the 100 years that the Federal Reserve has been responsible for preserving its value, and people will yawn – it’s old news. But then assert that it is about to lose the last 2% of that value, and (amazingly) the response will be laughter and/or derision.
Look at a chart showing a 98% decline in anything, and the expectation will be that the last 2% is also about to be lost. Or, in market vernacular; “the Trend is your friend.” It is irrational, bordering on insane to expect such a chart to reverse itself, or even stabilize. Indeed, it is charts of this nature which spawned the expression “past the point of no return.”
Yet when people look at charts of currencies, in this case worthless paper currencies; the mere suggestion that a currency could go to zero is a concept literally beyond the comprehension of nearly all of our populations. If a person finds it impossible to conceptually conceive of lions, then a lion could simply walk up and eat that person.
We will not/cannot protect ourselves from a “risk” which we do not believe to be within the realm of possibility. One does not take precautions to protect themselves from the “risk” of man-eating butterflies, or killer-bunnies. Thus is hyperinflation perceived by the masses: the Threat of the Killer-Bunnie.
In less-extreme forms; the inability to acknowledge/accept (obvious) reality could be described as “normalcy bias”. Because almost all Change (even large changes) is impossible to perceive in real-time; it is a common human intellectual flaw to expect tomorrow to be like today (or yesterday). A tomorrow which is not like either today or yesterday is not perceived to be within the realm of possibility.
However, with respect to hyperinflation we are not dealing with mere Normalcy Bias, but rather its substantially more-extreme cousin: Cultural Insanity. There are several empirical reasons for reaching this more dramatic diagnosis.
Obviously hyperinflation is not a Killer-Bunnie. There are numerous, documented historical examples of this economic killer. There is a very recent historical example (the Zimbabwe dollar), and there are several extremely obvious examples of hyperinflation currently in progress (Western, paper currencies).
It is normal/sane not to believe in the existence of Killer-Bunnies, unless one has read about people being devoured by Killer-Bunnies, has watched Killer-Bunnies devouring people, and is watching Killer-Bunnies devouring people. In such a reality; it would be insane not to believe in something which can (easily) be empirically perceived.
Regular readers have seen the chart below on the U.S. dollar on numerous occasions. It clearly and unequivocally depicts a hyperinflation-in-progress: a vertical line as supply (of U.S. dollars) goes to infinity. It is a fact of mathematics/economics that as the supply of anything goes to infinity its price must go to zero.
But readers will no longer see this chart in the future (unless one chooses to use an older version), because it no longer exists. Meet the new-and-improved version of this chart of the U.S. monetary base from the Federal Reserve.
Written by Jeff Nielson Monday, 21 October 2013 11:56
The prequel to this commentary summarized the anti-climactic ending of the U.S. Debt-Ceiling Farce, and the fraudulent non-reaction to this circus by the Western financial system in general, and Western credit-rating agencies in particular.
By its own admission; the world’s largest economy, with the world’s largest debts and largest deficits came within hours of defaulting on payments to its creditors (otherwise known as bankruptcy), and there was essentially no reaction at all from Western credit-rating agencies to this latest exercise in brinksmanship – other than mild applause.
This comes despite the fact that absolutely nothing was resolved in this episode of The Farce, and the exact same parameters have been set up by the Puppets in Washington for an exact repeat of the latest episode, in only three months time. No reaction, that is, in the West.
There was, however, reaction elsewhere in the international financial community. One (as yet) quiet Voice raised a note of discord, in contrast to the usual, expected chorus of “Don’t Worry, Be Happy” coming from the Western credit-rating agencies. A Chinese credit-rating agency, Dajong Global Credit Rating immediately cut the U.S.’s credit rating by one notch.
Naturally the (Western) Corporate Media paid minimal attention to this ratings cut, being too busy hyping the fraudulent non-reaction of Western agencies. However, this news out of China is highly significant in two respects.
First of all; the rating cut by Dajong Global did not take the U.S.’s credit rating one notch below the entirely absurd “AAA” rating bestowed upon it by the West’s charlatan-agencies. It was a reduction from “A” to “A-”, about a half-dozen notches below its lofty perch in the West. Indeed, by the time the Washington Puppets finish staging their repeat of this Farce in January/February; U.S. sovereign debt could have an international credit rating near (or at) “junk” – even if there is no default next time the Puppets play their Russian Roulette.
So first of all we see reality reflected in the credit rating of Dajong Global, and with China’s openly/official “centralized economy”; it’s widely understood that Dajong Global is speaking with the voice of China’s government.
The world’s largest debtor, with the world’s largest debts shows not the slightest inclination to even reduce its deficits (let alone reduce debt), and now it is displaying increasing and (highly-public) reticence to simply continue making payments on all that debt. Obviously a near-junk rating is the only rational rating for such a debtor.
But there is also a second, even more important facet to this melodrama which correlates to the reality/honesty reflected in the U.S. sovereign credit rating from Dajong Global (and China): increased international legitimacy (and prestige). There is an obvious agenda as Beijing slowly-but-steadily ratchets up the volume of its own international credit ratings (system) – its quest to relace the dollar as global reserve currency with the yuan.
There are three, obvious prerequisites in attempting to execute such a transition:
1) Sufficient economic mass to be able to practically supply/support a monetary base large enough to encompass most international global commerce.
2) Sufficient international financial infrastructure to regulate the flow of this currency into (and around) the global economy in a sound and orderly manner.
3) Perceived legitimacy.