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Hyperinflation will not work here

I disagree. I know that the common statement is that you can't have hyperinflation without wage increases. Many take that to mean that wages need to rise first. I think that you can easily have hyperinflation with wages lagging.
If the world loses confidence in the US and there is a run on the dollar, the price of imports will skyrocket. Retailers which import nearly everything they sell, like Wal-mart, will pass on the rising costs or go out of business. Just because wages remain stagnant doesn't mean hyperinflation isn't possible. The government will have to step in raise soc sec/welfare payments monthly then weekly then daily.
I do not rule out hyperinflation in the US and I think it's a huge mistake for one to assume it can't happen here.

Where hyperinflation gets going is when we move from liquidity trap and near zero velocity of money to complete loss of confidence in the currency and velocity of money goes parabolic as no one wants to hold physical or digital dollars. Wages can lag this and I would expect that to happen.

ifly,

i think you need to separate hyperinflation from other types of inflation.

you simply can't have hyperinflation without rising wages.

after a certain amount of inflation, people just wouldn't buy things anymore and the economy would tank, people would be destitute. Velocity would grind to a halt and credit would collapse thus reducing the monetary base, debt would most likely default as people spend everything they had on necessities.

You'd only need to get to 12$ a gallon gas and 10$ a gallon milk to get to that point.

hyperinflation = 1,000,000$ a gallon milk, you'll never get there without a wage spiral and competition for that milk.

adding to the above..

i view what happened in Argentina as very different from what happened in Weimar Germany.

Argentina was a pure currency collapse that never resulted in wage increases.

Argentina is said to have hyperinflation, but it never spiraled in everything the way Weimar did.

In Argentina, you wouldn't have been able to pay off your house, because real wages fell. You just simply would have lost your house period. They had a new currency, piled up too much debt and defaulted.

Can what happened in Argentina happen here? Maybe.. but doubtful.. its more likely the world would be willing to restructure the debt in the US following some Austerity plan, than us actually defaulting and destroying the dollar. There's just too much dollar based assets around the globe.

CJ, thanks for the posts. I'll contemplate those thoughts. But after what we've seen, I'm not ruling out any endgame.

Guys, Ifyy & Cj.

Zimbabwe.

As their currency ran away they started using $. Stuff in $ didn't go ****ing nuts. It stayed relatively sane.

Maybe US will adapt that euro thing. maybe gold. I don't know....maybe CDN$.

As Gen said earlier, it won't work. Housing will not be fixed by anything but lower prices and plenty of time.

Zimbabwe is a third world country, can't really make any comparison to it.

And it did work in Weimar, and I use the term "work" lightly,.. free houses and wiping of all debt is pretty much the only good thing that happened in Weimar. Otherwise everyones life savings was reduced to the price of a sandwhich. Actually one crumb of a sandwhich by the end. If you were at the end of life.. like retired/grandparent whatever.. you were decimated. The rest of your life was ruined, your estate to pass to your children worth nothing.

But Weimar had spiraling wages.

There really isn't a modern comparison to what we as a major power are doing.

Each case in history seems fairly unique in and of itself. In every case though, inflation within the country was running 10-20% per year before it really spiked. Our non-core rate is running about 6% annually right now, including food and energy. If we get inside that 10-20% annually in non-core per year.. so non-core running .08-1% a month or more. Then we could be approaching some type of end game.

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In every case though, inflation within the country was running 10-20% per year before it really spiked. Our non-core rate is running about 6% annually right now, including food and energy. If we get inside that 10-20% annually in non-core per year.. so non-core running .08-1% a month or more. Then we could be approaching some type of end game.

CJ, you must have missed this thread: http://tickerforum.org/akcs-www?post=184....
We're pretty much at double digit inflation.

the problem with that article is that it took one of the worst non-core prints we've had in the last year and annualized it.

if you add up non core for the last 12 months prints.. it's about 6%..

I'd like to see more explanation of how they calculated the near 10%.

if we were to start running 1% every single month in non core, it would be time to become very concerned.

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Zimbabwe is a third world country, can't really make any comparison

partly my point. when they were rhodesia 40 some years ago all was good. well, it was ok. 3rd world yes but with 1st world components.

40 some odd years ago all was well in the US.....and dare I say the US had 3rd world rural areas without running water and stuff? parts of appalachia?

just musing here

I just want to ask, was there ever a historical event in which the world's reserve currency country experienced hyperinflation? This is very important, because I think there was only one precedent, which was UK, and UK never had hyperinflation as the empire fell apart. Did Roman Empire have a hyperinflation?

US is a modern day empire, so we will need more relevant comparables like UK or the Roman Empire and study how they fell apart. Argentina, therefore, is an irrelevant example.

If I am not mistaken Rice there was never a time where there was a single world reserve currency before the USD.

rice,

oddly enough I was reading the wiki stuff on Rome yesterday and yes, the empire had a wicked inflation problem at one point. IIRC that was the start of bread and circuses to pacify the unwashed masses.

We already had hyperinflation. You just didn't notice.

See the bear flag?



http://www.bis.org/publ/otc_hy1011.pdf

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I just want to ask, was there ever a historical event in which the world's reserve currency country experienced hyperinflation?

What we have is unlimited mass printing of fiat currency. Let's use that as the basis of our discussion. Find previous examples of rapidly increasing the supply of fiat currency; there's your examples.
Eventually the people lose confidence in the currency and spend it as fast as they get it because they see no value in the currency. The velocity of money accelerates rapidly combined with a rapidly growing money supply.

Let me explain further. Using Fisher's Equation of exchange:
MV = PQ

M= money supply
V= velocity of money
P= price level (inflation)
Q= real GDP

If the world loses faith in the USD, we will go from liquidity trap to no one wanting to hold a dollar overnight. That would result in both variables in the left side of the equation increasing parabolically.

Owning houses with long term loans on them as i do, I agree with Ifly that they are a good inflation hedge.

Re hyperinflation. I read somewhere that in the case of Weimer and Zimbabwe, the inflation was a result of a significant portion of the country's productive capability being destroyed. Weimer by the occupation of Rhineland and the Ruhr and and Zimbabwe by the destruction of the agricultural economy. This combined with government monetization led to the inflation.

Even in the case of persistent high inflation but not hyperinflation, I think housing is a good bet.

How about Italy?

IIRC it went inflation ape**** in the 70's or so. Was it the political climate, did they default, too many leech****s? what?

I always thought the EC was formed (and before knowing about finance) to keep member countries currency from running away and ****ing neighbour countries with flights of safety. Domino effect.

Anyway, thinking some more I remember Italians needing mn's of lire to buy cars and stuff. Also think their inflation ruined their export markets. Fiat disappeared overnight as a car choice in Canada.

Let's really look at history and see if housing is a good hedge against hyperinflation:

1. Homeowners in Weimar Germany -> hyperinflation hits -> paid off houses with 1 oz of gold -> society collapses -> Nazi Party takes over everything -> My ancestors haul ass to the US because your life and freedom is more important than houses. We were Protestant and still could not stand to live under that criminal regime, you know of course what happened to the Jews.

2. Homeowners in Zimbabwe ->hyperinflation hits -> no money for food -> society collapses -> Mugabe takes more control over everything -> Most too poor to leave -> thugs rob,******, pillage

3.Homeowners in Argentina ->hyperinflation hits -> can pay off houses with a few oz of gold or even a fair amount of US dollars-> society collapses -> Most too poor to leave -> The rich leave and the wealthy of other countries by land on the cheap -> The wives and daughters of a fair number of inhabitants left would gladly give blow jobs to but food on the table.

4.Homeowners in Brazil ->hyperinflation(really devaluation, not true hyper) hits -> can pay off houses with a few oz of gold or even a fair amount of US dollars-> society collapses -> Most too poor to leave -> The rich leave and the wealthy of other countries by land on the cheap -> The wives and daughters of a fair number of inhabitants left would gladly give blow jobs to but food on the table and still do. See City of God.

See a pattern?

If this does happen we are all ****ed. The best defense against hyperinflation is health, intelligence, mobility, skills, adaptability, and portable wealth and food of some sort, and of course guns. Who wants to be a homeowner in a **** hole? It's a big world out there.

God gave us legs and not roots for a reason.

That is just my opinion.

Dorian, while I agree with you that mobiility's important - I've already looked at being an expat. But I have to call you out on government takeover of private property in Germany and Zimbabwe. Please cite credible sources because I don't think you can make that kind of blanket statement.
Also, from my readings on Argentina and Brazil, the homeowners are the ones who survived the best among those that stayed. Both of those countries reinforce my thesis. Same can be said of Russia.

I find it interesting that very few on this entire board mention Russia's collapse in 1999; that is probably the best parallel to our current situation.

Dorian,

if US really falls into hyperinflation, there is pretty much no place to hide. Because hyperinflation means the government loses control, and when government loses control and the existing political system collapses, extremist idealism will fill the void - which is the case for Weimar Republic, Russia (and then USSR), Republic of China to People's Republic of China, etc. If the militarily most powerful country on earth goes Nazi, there is really nothing you can do except to eat and drink as much as you can. In these situations, Russia and China did confiscate personal property on a massive scale, and if you look at how Jews were treated under the Nazis, they pretty much had everything taken away from them by force.

That is why I never take US hyperinflationary scenario into my planning, because if we get there, all bets are off, and planning adds no value. What one should plan for, is a sustained period of high inflation, barely bearable to keep the society limping as a whole.

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In these situations, Russia and China did confiscate personal property on a massive scale

Not in Russia. Confiscation of personal property on the scale you're discussing hasn't taken place since the Russian Revolution back in the 1920s.

That's why I want to see specific links from anyone that cites confiscation of private property in Germany and Zimbabwe.
Sure, confiscation of Jewish property occurred in Germany. But I must say that if I were a Jew in Germany in the 30s, I'd be running out of there as fast as I could.

But in USSR collapse, there was really no personal property, everything was "collectively owned". However, state workers' pension were inflated to become worthless.

Riceball, I hate to break it to you but that's not correct. Article 13, USSR Constitution of 1977 specifically spelled out private home ownership rights and there was private home ownership before that date.

http://www.friends-partners.org/oldfrien....

" Article 13. Earned income forms the basis of the personal property of
Soviet citizens. THe personal property of citizens of the USSR may include
articles of everyday use, personal consumption and convenience, the implements
and other objects of a small-holding, a house, and earned savings. The
personal property of citizens and the right to inherit it are protected by the
state.
Citizens may be granted the use of plots of land, in the manner
prescribed by law, for a subsidiary small-holding (including the keeping of
livestock and poultry), for fruit and vegetable growing or for building an
individual dwelling. Citizens are required to make rational use of the land
allotted to them. THe state, and collective farms provide assistance to
citizens in working their small-holdings.
Property owned or used by citizens shall not serve as a means of deriving
unearned income or be employed to the detriment of the interests of society."


Edit: As to hyperinflation, that is not a worldwide event. It is specific to a country. Possibly several countries simultaneously. Perhaps high inflation is a more fitting description, as I could see 50% annual inflation rates hitting the US.

Ifly -

Housing collapsed during Weimar hyperinflation. Food, clothing, and other necessities went through the roof.

WEIMAR - Living Costs, Family of Four

Weekly Cost : Total in Marks : - - - - Percentages - - - -
========== . . . . . . . . . . . : Food / Housing / Clothing
1914 (prewar) : ............ 21.5 : 46.5%/. 25.6% / .. 27.9%
January 1920 : .............. 164 : 52.4%/. 04.9% / .. 42.7%
January 1921 : .............. 218 : 63.8%/. 04.1% / .. 32.1%
January 1922 : .............. 396 : 64.8%/. 02.8% / .. 32.3%
July...... 1922 : ............ 1232 : 56.8%/. 01.1% / .. 42.0%
January 1923 : .......... 25,123 : 52.1%/. 01.2% / .. 46.7%
July...... 1923 : ........ 654,608 : 59.8%/. 00.4% / .. 39.8%
Nov. ..... 1923 : ... 14.408 Bn. : 64.9%/ 00.26% / .. 34.8%

Oh - and the smart people who did manage to pay off their mortgages somehow during the collapse? How about the government retroactively reinstating the debt in the new currency? -

"Eventually, some debts were reinstated to partially compensate those who had been creditors. A decree of 1925 reinstated some mortgages at 25% of face value in the new Reichsmark (effectively 25,000,000,000 times their value in old marks) if they had been held 5 years or more. Similarly some government bonds were reinstated at 2-1/2% of face - to be paid after reparations were paid. [20] Mortgage debt was reinstated at much higher percentages than government bonds. Reinstatement of some debts, combined with a resumption of effective taxation in a still-devastated economy, triggered a wave of corporate bankruptcies."

Dorian, that's not government takeover of private property. While reinstating 25% of what was previously owed on a mortgage is BS, it's still not seizing private property.
And your graph illustrates exactly why it would be wise to own indebted property prior to hyperinflation if you think that it's a likely possibility.


Here's a two part question:
With current US deficit spending, what is to stop the USD from falling further against other currencies
and
if there is nothing to stop the USD from falling further, at what point does the rest of the world totally lose faith in the USD and dump all USD in favor of other currencies?

What we're watching right now is a prisoner's dilemma. Foreign central banks hold a lot of USD. Each of them is trying to slowly diversify out of USD. There may come a point where there's a stampede to the door. I don't think it'll occur at 70 on the DXY but I wouldn't be surprised if the selling pressure intensifies at 60 on DXY.
What's 60 on DXY going to do to import and commodity prices? Think of it as 20% inflation with respect to a DXY of 75. And from 60, 30 on DXY isn't that far away if no one wants to hold a USD. Hell, I don't want to hold USD; how does the rest of the world feel about holding them?