What is the United States true exposure to Hyperinflation?

[Apotheosis]

snippet from wikipedia...


Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.





Anyway... With the Fed pumping, oh, what, 2 trillion in new currency, what is the United States facing in terms of hyperinflation? I know it's a complicated subject, but it seems that I remember in History courses (grade school through College) that, after WWII, the German currency's value was soooo low that they had to basically carry wagons of cash... I even have "ein million mark" or whatever, in my childhood coin collection..


In other words: when we print more money, basic economics kicks in and says that since the supply of the dollar has expanded, it isn't worth as much as it used to...


this can't be good, but I don't think it's a doomsday scenario.. someone convince me it is, so I can feel better when I make a tinfoil hat.

[Parkbandit]

http://www.istockphoto.com/file_thumbview_approve/6278830/2/istockphoto_6278830-wheel-barrel-full-of-money.jpg

[Keller]

Not only are we printing money, but every intelligent investor has bundles of cash on the sidelines just waiting to be utilized.

As we continue to increase the inflationary pressure via monetary policy, those investors are going to feel increased pressure to exchange their dollars for tangible assets, which will exacerbate any poor-policy out of Washington.

[Apotheosis]

so, tangible asssets such as gold, commodities, anything that has real utility vs. paper $$

[Keller]

so, tangible asssets such as gold, commodities, anything that has real utility vs. paper $$

Anything that has intrinsic value. For instance, I've got a considerable amount of debt from school loans. I'm not paying those off because I'm counting on inflation outpacing the very low interest rate. I'll invest in tangible assets before I pay off paper-debt. Now, if I owed the bank a tractor -- I might pay that off. But I just owe them $XX.

[Anne Boleyn]

U.S. CPI numbers came out just last Wednesday. The Americans are not really at risk of inflation, on the contrary, they are at greater risk for deflation. The extra trillion or so being siphoned into the economy is really to shore up demand spending which has evaported along with housing prices and savings. Another words, the trillion is meant to simulate demand which would have been there if the U.S. economy was healthy.

[Keller]

U.S. CPI numbers came out just last Wednesday. The Americans are not really at risk of inflation, on the contrary, they are at greater risk for deflation. The extra trillion or so being siphoned into the economy is really to shore up demand spending which has evaported along with housing prices and savings. Another words, the trillion is meant to simulate demand which would have been there if the U.S. economy was healthy.

Okayy

Let's do a thought experiment.

Let's say you have $1000. You decide there is a bad economy on the horizon, and instead of spending that $1000, you'll save it.

Now, similar to you, many others intend to do the same. In the aggregate, this reduces demand. Firms no longer can sell their widgets. Firms compete to lower the price of widgets. Some firms fail, others barely make it. But in the end, there are less widgets and less people buying widgets.

But now, a time later, you still have $1000. But now there are less widgets. You say to yourself -- wow, this money is worthless if there is nothing to buy with it. So you, and everyone else, goes out and buys widgets. An interesting thing happens when money supply stays the same and goods supply decreases. That money can no longer buy as many goods. That is called inflation.

[Clove]

Next Week: Keller explains time-value of money.

[Bobmuhthol]

Thanks for posting that so I didn't have to, Keller. Also, there is no real risk of hyperinflation in the United States. In post-WWII Germany, the prices of goods were literally increasing multiple times per day to the point where the amount of time you spend standing in line to buy something would yield a price increase. Fiat money became valueless and it encouraged sellers to stop selling -- their goods were much more valuable than the piles of paper they'd get in exchange, since they couldn't use that money to buy what they needed as a result of the hyperinflation.

[Clove]

Thanks for posting that so I didn't have to, Keller.Yeah thanks Keller for eliminating the necessity of Bob's posts.

[Rocktar]

Sicne the overall money supply of US dollars is something like 30-50 trillion, there are not exact numbers since a huge amount of real cash is overseas and so on, adding 1-2 trillion to the supply in short term loans is not that huge of a deal. Remember, when the FED increases the money supply like this, it is expecting to contract the money supply in the near future, in this case, by getting repayment of 30-180 day treasury securities and bank lending instruments used to stimulate liquidity. They key term here is LOAN.

Anyways, we are going to see some deflation, particularly in artificially inflated labor markets (auto labor) and so on, the over all price index will drop some, and then stabalize somewhere and then we will be back on track. As someone pointed out, I want some good inflation, it would pay off my student loans and hell, we could retire a huge amount of the national debt with it. How do you think they managed in the 70's? They overspent like mad men, blew tons on pork right and left, paid for a war and so on, all on the back of inflation. The only real damage is if you have savings or investments in non-inflation indexed instruments. That means things that won't rise in price along with the inflation, like cash dollars.

[Gan]

I'd be more worried about stagflation than hyperinflation. Were lightyears (or one nuclear winter) away from hyperinflation.

[Clove]

I'd be more worried about stagflation than hyperinflation. Were lightyears (or one nuclear winter) away from hyperinflation.http://greenerpastures.responsiblepersonalfinance.com/wp-content/uploads/2008/06/stagflation004caution600-1.png

[Gan]

LOL

[Clove]

Bob could you come in here and explain cost-push inflation to us?

[Gan]

:lol:

Edit:
Fuck you clove. 2 lol's in a row; makes me sound like your damn cheerleader.

Fucker.

[Clove]

I think we need the picture...

[Kranar]

adding 1-2 trillion to the supply in short term loans is not that huge of a deal.


What you fail to realize is that when the fed increases the money supply by 1-2 trillion dollars, banks then have the power to re-increase the money supply even further through the process of fractional reserve banking.

That 1 trillion dollars becomes 10 trillion dollars.

[Clove]

Kill the fractional reserve and bring back the gold standard!!!!

[Gan]

Oh god, not another Bretton-Woods debate...

[Kranar]

Kill the fractional reserve and bring back the gold standard!!!!


It's not one or the other.

[Bobmuhthol]

<<Bob could you come in here and explain cost-push inflation to us?>>

I don't understand the humor in this?

[Stanley Burrell]

I don't know about labeling "hyperinflation" as (e.g.) increased food prices at the supermarket, that we've seen, that don't immediately go back down when gas prices allow less pricey shipping.

All I know, is that I've been to second-world countries that have had what I've seen as hyperinflation on basic food, clothing and medicine. And I'm talking about leaving for work and a gallon of milk going from half a dollar to ten dollars in one day.

I would never want to see, here, the hyperinflation in WTO/IMF-beaten countries, in particular, Jamaica and especially Argentina. We would definitely have something to complain about.

Not that I should say to myself that because The U.S. is the foremost first-world economic superpower, that tipping the scales here has to be a perfectly-scaled analogy to hyperinflation in other parts of the world. I also think concern should logically depend on what commodities are being hyperinflated.

Much ado about nothing,

- S.B.

[Latrinsorm]

LOL GRADUATE HI SKOOL N00B!!!!

Wait...

LOL GRADUATE COLLIJ N00B!!!!

p.s: BOB

[Bobmuhthol]

lol. Those were the days.

[Clove]

<<Bob could you come in here and explain cost-push inflation to us?>>

I don't understand the humor in this?You also don't understand how to quote, but we're comforted that you're ready to explain stuff to people here and junk.

[Hulkein]

Don't confuse rebellion with a lack of understanding! It's his calling card.

[Parkbandit]

Yeah thanks Keller for eliminating the necessity of Bob's posts.

http://mypage.direct.ca/d/dsimmer/Jerry-L.jpg

[Bobmuhthol]

The only reason I said anything was I facepalmed when I saw that post and was going to make the same argument until I saw that Keller had already done it.

[Miscast]

http://mypage.direct.ca/d/dsimmer/Jerry-L.jpg
Shit that's scary.

[Anne Boleyn]

Okayy

Let's do a thought experiment.

Let's say you have $1000. You decide there is a bad economy on the horizon, and instead of spending that $1000, you'll save it.

Now, similar to you, many others intend to do the same. In the aggregate, this reduces demand. Firms no longer can sell their widgets. Firms compete to lower the price of widgets. Some firms fail, others barely make it. But in the end, there are less widgets and less people buying widgets.

But now, a time later, you still have $1000. But now there are less widgets. You say to yourself -- wow, this money is worthless if there is nothing to buy with it. So you, and everyone else, goes out and buys widgets. An interesting thing happens when money supply stays the same and goods supply decreases. That money can no longer buy as many goods. That is called inflation.

This is too simplistic a view of whats currently going on,although, in a elementary case it's correct.But this situation is far more complex.I'll go deeper.

First, what the Fed is trying to do is to stop a cyclical collapse of the economy. Certainly, if your economy consists of widgets and your widget factory goes into bankruptcy, you won't have a job. If you don't have a job this will further deteriorate the demand above and beyond any gloomy economic outlook. Therefore, for the interim, the government steps in and starts purchasing widgets, letting you retain your job and giving the company a brighter economic outlook. But,ultimately, this is for the short term.

Due to massive "paper losses" with the stock market and home values, people are feeling less confident because they believe they have lost 1250$ when they actually lost 195$. This generates a unnatural disincentive ,like you said, for people to spend and a massive unwarranted incentive for people to save. This leads to company's closing and people losing jobs etc. etc. Especially, since those savings can't even be utilized now by the banks. On the outside, this seems like the main problem. But, in this instance, this is just the symptom and not the root cause. The cause of this goes back to where it all started. The banks and these damned things called CDOs or otherwise now known as toxic assets.

The tarp money and other funds are being pumped into key sectors of the economy, almost entirely the financial side. The main reason for this is to mop up any toxic assets and give banks breathing room on their bad bets.

Bernanke and Geithner seem to have a three pronged approach. Simultaneously, in accordance with the massive increased capital to banks they are proposing a dual private/public buy up of these so called toxic assets. The reasoning here is the government will step in and staunch any losses on these assets giving them a sort of floor in terms of value.

What Geithner and Bernanke understand is that in order to truly turn these toxic assets into working assets the private sector needs to come in and actually give these things a market and therefore an approximate value. This in turn will allow banks to responsibly account for the losses on their books. This further in turn will give banks confidence to lend with each other and to the general public in large.

The ultimate goal is the last bit to get banks to normal lending mode. Once this occurs, the economy can get back to normal.

[Parkbandit]

Shit that's scary.

I thought he was the father from Family Ties when I first saw the thumbnail.

[Apotheosis]

I remember reading somewhere in "the wealth of nations", along with other historical sources, that the aristocracy or "ruling class" would, every so often, change the measure of currency in some way so as to end up reducing the amount of debt they actually owed..

in other words "10 shekels = 1 oz. of gold", aristocracy borrows 1,000,000 shekels, then decides to determine that "20 shekels=1 oz. of gold" thereby reducing their liability in gold..

terrible analogy, but is something akin to that taking place? and if so, how can we the people take advantage of it?

[Farquar]

There is something akin to that taking place, and you (we as a people rather) are taking advantage of it.

Let's take a closer look at two 64 year periods for comparison (CPI):

The value of $1,000 1880 US dollars was $1,775.98 in 1944.
The value of $1,000 1944 US dollars was $12,233.13 in 2008.

A nation can tax its subjects, and as a corollary, empires possess the right (or the means) to extract tribute from the states that benefit from their hegemony . The Romans, for example, extracted tribute directly in the form of gold, slaves, and trade goods from its vassal states.

Similarly, the United States extracts tribute directly (in revenue) in the form of seigniorage and indirectly (through reduction in real value of debt) in the form of inflation. Because crucial commodities (oil primarily) are denominated in dollars, the worldwide demand for greenbacks remains at a constantly high level. We essentially force any nation that wants to play the game of industrialization to play by our rules. The mechanism that permitted this grew through several steps, but the major ones were the imposition of the dollar as a reserve currency in 1944-45, and the removal of the "gold standard" in the 1970's under Nixon.

To address hyperinflation specifically, I do not think the U.S., as it currently stands, is particularly susceptible to it. The hallmark characteristic of past hyperinflationary occurrences is the disproportionate response of prices with respect to normal inflation.

For example, if we had a fiat currency with a nominal value of $1, and a real value of $1, and we doubled the money supply, the nominal value would still be one, but the real value would be .5. The prices respond accordingly and proportionally: it now takes a nominal value of $2 to receive $1 in real goods. This is the situation the U.S. is in. The dollar is subject to (more or less) proportional decreases in real value relative to increases the money supply. The world's faith in the U.S. derives not from its knowledge that the U.S. will NEVER inflate, but in its belief that it will do so in an orderly, predictable manner.

But in a hyperinflationary state, the prices grow disproportionately to--and independent of--any adjustment in the money supply. The root cause of the disproportionality is uncertainty about the survival of a state. There's a saying about how one knows a dollar issued by a particular Government is worth a dollar: the answer is whether that dollar can be used to offset a dollar's worth of tax that the Government imposes on its citizens. And if you believe that the ability of a particular currency to offset an amount in tax liability (in a new Government that replaces a collapsed one) is something just slightly above zero, then you will begin to ask for more and more of that currency if you are forced to hold it.

[Clove]

Nixon got rid of the International Gold Standard which is slightly different and distinct from the Gold Standard.

[Keller]

This is too simplistic a view of whats currently going on,although, in a elementary case it's correct.But this situation is far more complex.I'll go deeper.

First, what the Fed is trying to do is to stop a cyclical collapse of the economy. Certainly, if your economy consists of widgets and your widget factory goes into bankruptcy, you won't have a job. If you don't have a job this will further deteriorate the demand above and beyond any gloomy economic outlook. Therefore, for the interim, the government steps in and starts purchasing widgets, letting you retain your job and giving the company a brighter economic outlook. But,ultimately, this is for the short term.

Due to massive "paper losses" with the stock market and home values, people are feeling less confident because they believe they have lost 1250$ when they actually lost 195$. This generates a unnatural disincentive ,like you said, for people to spend and a massive unwarranted incentive for people to save. This leads to company's closing and people losing jobs etc. etc. Especially, since those savings can't even be utilized now by the banks. On the outside, this seems like the main problem. But, in this instance, this is just the symptom and not the root cause. The cause of this goes back to where it all started. The banks and these damned things called CDOs or otherwise now known as toxic assets.

The tarp money and other funds are being pumped into key sectors of the economy, almost entirely the financial side. The main reason for this is to mop up any toxic assets and give banks breathing room on their bad bets.

Bernanke and Geithner seem to have a three pronged approach. Simultaneously, in accordance with the massive increased capital to banks they are proposing a dual private/public buy up of these so called toxic assets. The reasoning here is the government will step in and staunch any losses on these assets giving them a sort of floor in terms of value.

What Geithner and Bernanke understand is that in order to truly turn these toxic assets into working assets the private sector needs to come in and actually give these things a market and therefore an approximate value. This in turn will allow banks to responsibly account for the losses on their books. This further in turn will give banks confidence to lend with each other and to the general public in large.

The ultimate goal is the last bit to get banks to normal lending mode. Once this occurs, the economy can get back to normal.

I am not an economist. I do not claim to be one. In fact, I've not taken an econ class since my senior year of high school in 1999.

But it appears to me that your description is not so complex. It is just a regurgitation of about 3 NYT stories. You don't even need to crack open a WSJ or Economist to get that kind of trivial understanding of the current crisis.

How does what you said contradict what I said? How does it imply some greater risk of deflation? I don't need a current events report, I'd like some sort of analysis.

[Anne Boleyn]

There is something akin to that taking place, and you (we as a people rather) are taking advantage of it.

Let's take a closer look at two 64 year periods for comparison (CPI):

The value of $1,000 1880 US dollars was $1,775.98 in 1944.
The value of $1,000 1944 US dollars was $12,233.13 in 2008.

A nation can tax its subjects, and as a corollary, empires possess the right (or the means) to extract tribute from the states that benefit from their hegemony . The Romans, for example, extracted tribute directly in the form of gold, slaves, and trade goods from its vassal states.

Similarly, the United States extracts tribute directly (in revenue) in the form of seigniorage and indirectly (through reduction in real value of debt) in the form of inflation. Because crucial commodities (oil primarily) are denominated in dollars, the worldwide demand for greenbacks remains at a constantly high level. We essentially force any nation that wants to play the game of industrialization to play by our rules. The mechanism that permitted this grew through several steps, but the major ones were the imposition of the dollar as a reserve currency in 1944-45, and the removal of the "gold standard" in the 1970's under Nixon.

To address hyperinflation specifically, I do not think the U.S., as it currently stands, is particularly susceptible to it. The hallmark characteristic of past hyperinflationary occurrences is the disproportionate response of prices with respect to normal inflation.

For example, if we had a fiat currency with a nominal value of $1, and a real value of $1, and we doubled the money supply, the nominal value would still be one, but the real value would be .5. The prices respond accordingly and proportionally: it now takes a nominal value of $2 to receive $1 in real goods. This is the situation the U.S. is in. The dollar is subject to (more or less) proportional decreases in real value relative to increases the money supply. The world's faith in the U.S. derives not from its knowledge that the U.S. will NEVER inflate, but in its belief that it will do so in an orderly, predictable manner.

But in a hyperinflationary state, the prices grow disproportionately to--and independent of--any adjustment in the money supply. The root cause of the disproportionality is uncertainty about the survival of a state. There's a saying about how one knows a dollar issued by a particular Government is worth a dollar: the answer is whether that dollar can be used to offset a dollar's worth of tax that the Government imposes on its citizens. And if you believe that the ability of a particular currency to offset an amount in tax liability (in a new Government that replaces a collapsed one) is something just slightly above zero, then you will begin to ask for more and more of that currency if you are forced to hold it.

This is spot on. One of the reasons they say the Americans went to war with Iraq is because the Iraqis (second largest reserves of Oil only to Saudi Arabia) were trying to sell their oil against the dollar standard and through Euros.

Anyhow, surprisingly the Russians are calling for a universal super currency to replace the Greenback, thereby, letting poorer underdeveloped countries and even developed countries to avoid catching a financial crisis whenever the Americans cough.

[Clove]

This is spot on. One of the reasons they say the Americans went to war with Iraq is because the Iraqis (second largest reserves of Oil only to Saudi Arabia) were trying to sell their oil against the dollar standard and through Euros.

Anyhow, surprisingly the Russians are calling for a universal super currency to replace the Greenback, thereby, letting poorer underdeveloped countries and even developed countries to avoid catching a financial crisis whenever the Americans cough.Considering the world's cash reserves are split between the US Dollar and the Euro presently (and by all predictions will likely stay that way) I find this statement a bit deceptive. Glaringly so, considering your initial statement about Iraq pitting its resources against the dollar through the Euro.

Hi Ashliana!

[Clove]

How does what you said contradict what I said? How does it imply some greater risk of deflation? I don't need a current events report, I'd like some sort of analysis.It doesn't and it doesn't address the real potential problem (as Gan pointed out). Stagflation resulting from cost-driven inflation.

[Deathravin]

Part1 (http://www.youtube.com/watch?v=ThXpjmfyiMQ) Part2 (http://www.youtube.com/watch?v=LgkYjFYr2QI) Part3 (http://www.youtube.com/watch?v=qTu4kGkQOvE) Part4 (http://www.youtube.com/watch?v=CPmZBfBx53Q) Part5 (http://www.youtube.com/watch?v=-IdpkvLdKLQ)

[Gan]

It doesn't and it doesn't address the real potential problem (as Gan pointed out). Stagflation resulting from cost-driven inflation.

:)

Crude supply/prices, something to keep a close eye on as we roll into the summer travel season.

If OPEC wanted to cut our throats, that's how I'd attempt it.

[Apotheosis]

eh, I work with an energy company, and from what I've been gathering, wholesale prices for consumer fuel is going up slowly, on a weekly basis.... but that fluctuates weekly.. OPEC hasn't cut their output yet, and I don't think they're going to change their tune anytime soon..

[Clove]

:)

Crude supply/prices, something to keep a close eye on as we roll into the summer travel season.

If OPEC wanted to cut our throats, that's how I'd attempt it.It's 1977 all over again.

[Stanley Burrell]

http://mypage.direct.ca/d/dsimmer/Jerry-L.jpg
Shit that's scary.


What is not fucking the awesomest thing in the world about that guy?

[Gan]

It's 1977 all over again.

Whats really scary is that even Paul Volker is still in the picture in some form or fashion.

De ja vu?

[Gan]

eh, I work with an energy company, and from what I've been gathering, wholesale prices for consumer fuel is going up slowly, on a weekly basis.... but that fluctuates weekly.. OPEC hasn't cut their output yet, and I don't think they're going to change their tune anytime soon..

We're not in the summer season yet.

Chess is a great game, and it takes lots of patience.

[Apotheosis]

Shit, gas prices are gonna suck during the summer, and sadly, there's nothing guv'ment can do about it.

[Faent]

http://mypage.direct.ca/d/dsimmer/Jerry-L.jpg

PB has finally posted a pic of himself.

[Parkbandit]

PB has finally posted a pic of himself.

I still have that naked picture you sent to me of yourself if anyone wants it.

4 people have already asked.. that's 4 people who've lost their lunch on their computers.

[Kembal]

Don't think oil will go up anywhere close to where it did last year. A lot of businesses are going to fail in the next few months, and their failures will cause a significant decrease in demand for petroleum in general.

I also hope the administration will possibly waive or consolidate summer gasoline blend standards, which is part of the contribution to high gas prices in the summer.

[Faent]

I still have that naked picture you sent to me of yourself...

I figured you'd keep it. Do me a favor though and stop PM'ing me every time you masturbate to it.

[Parkbandit]

I figured you'd keep it. Do me a favor though and stop PM'ing me every time you masturbate to it.

I kept it because when someone says "Hey, have you ever seen something more hideous that this?" I have proof that I have.

[Gan]

I bet its right up there with the Emislity pics...

(which I have seen neither, on purpose...)

:help:

[Faent]

I bet its right up there with the Emislity pics...

Because only an idiot would believe that I sent PB a pic of my penis.