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jstegma (99.66)

Inflation if a monetary phenomenon. Hyperinflation is not.

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November 02, 2009 – Comments (10)

http://www.minyanville.com/articles/recession-argentina-brazil-gdp-fed-bernanke-dollar-gold-debt-inflation-deflation-hyperinflation-recession-Mauldin-obama-currencies-treasury-economy/index/a/25221

I've heard the word "hyperinflation" batted around a lot.  The above article talks about how it actually happens.  It also talks about why it won't happen here and who will stop it.  Or at least who will stop it if they aren't stopped from stopping it.

I think this is a good article to read.  In the not too distant future, Social Security and Medicare will hit the fan.  The government will have a choice of raising taxes, shafting the old folks, or running the printing presses.  It is going to get interesting.  

There are a lot of Ron Paul fans who love to hate the Fed.  I guess the guy means well, but if he gets his way, it will end up leading to hyperinflation.  Luckily he won't.

10 Comments – Post Your Own

#1) On November 02, 2009 at 4:08 PM, bullishbabo (100.00) wrote:

Nice read.  I personally think we'll have a combination of raising taxes and printing money.  I can't see them shafting the old folks since they come out in droves to vote.

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#2) On November 02, 2009 at 4:35 PM, outoffocus (22.76) wrote:

http://www.minyanville.com/articles/recession-argentina-brazil-gdp-fed-bernanke-dollar-gold-debt-inflation-deflation-hyperinflation-recession-Mauldin-obama-currencies-treasury-economy/index/a/25221

Because I'm too lazy to copy and paste into a browser.

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#3) On November 02, 2009 at 4:40 PM, jstegma (99.66) wrote:

Thanks outoffocus.  You aren't the one that's too lazy.  I am.

bullishbabo - I'm not sure what they'll do about the problem.  I think the old folks will have to get less than promised.  The amount promised is simply too much to ever possibly pay. 

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#4) On November 02, 2009 at 4:54 PM, bullishbabo (100.00) wrote:

Well, inflation and higher taxes will still shaft old folks anyway, so I think old folks are giving something up no matter what, as are the rest of the public.  I do think, however, that it's possible political suicide to shaft the old folks directly during your watch as a politician, especially if you hope to get re-elected.  I think inflation is the path of least resistance, as long as they don't overdo it.

I anxiously (not to be confused with "eagerly") await the pain ahead, just like you.  

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#5) On November 02, 2009 at 5:03 PM, PeteysTired (23.25) wrote:

There are a lot of Ron Paul fans who love to hate the Fed.  I guess the guy means well, but if he gets his way, it will end up leading to hyperinflation.  Luckily he won't.

I don't understand how an audit of the Fed or the ending of the Fed has anything to do with hyperinflation.  Is hyperinflation the same as rapidly rising prices?  Don't you need to print money to allow prices to rise?  If there is no Fed, then who would print money?  Mr. Paul, I believe, has never asked that the Fed Gov't get in the printing business. 

(From the article)

(Yes, I’m aware of the problems of the Fed being able to decide whom to bail out and why. It’s not a perfect world. But better the Fed than Congress.)

I am growing more hesitant of what I read from Mauldon.  My question is how  is it better that the Fed make back room deals rather than Congress making those decisions (note: I am not for that either).  I would like to know who the Fed is giving our money to and why?  How do I know if the Fed isn't giving "loans" to other country's central banks, so they can use the money to buy US treasuries and therefore fund congresses spending whims?

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#6) On November 02, 2009 at 5:10 PM, outoffocus (22.76) wrote:

#5 Thats funny, I was thinking of commenting on that same excerpt.

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#7) On November 02, 2009 at 5:17 PM, outoffocus (22.76) wrote:

I'm not sure if anyone caught this but theres a very interesting comment at the end of this article. Unfortunately you have to be a Minyanville member to read the entire comment (good thing is membership is free).  I don't want to post the comment because I dont want to violate any Terms of Service but its worth a look.

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#8) On November 02, 2009 at 5:59 PM, jstegma (99.66) wrote:

bullishbabo - The reason I think old people will get a direct cut in promised benefits is that the promised benefits are inflation-adjusted.  So inflation would have to hit everyone else hard and do nothing to the old folks on SS and Medicare.  At some point that hits a limit and old people have to take a hit as well.

Pete - Someone has to print the money for our current economic system to work.  If it isn't the Fed which is relatively independent, then sooner or later the job will fall to Congress.  That means hyperinflation.  Ron Paul might not advocate having Congress print money, but once he gets rid of the Fed, the thing will take on a life of its own and Congress will get hold of the printing press.  It might not be as bad as terrorists getting a hold of some nukes, but it's the financial equivalent.  I'm counting on the Fed to prevent hyperinflation, and I think they will.  If Congress takes away their power, then I'll buy gold for $10k and ounce or whatever ridiculous price the goldbugs claim it is going to be.  Basically the dollar will collapse very rapidly just at the loss of the Fed's independence.  Luckily I think Ron Paul and friends will fail and the Fed will remain independent.

outoffocus -  At least with the Fed doing funny deals to fund Congress it is better than having Congress simply write itself a blank check.

Although I've been in the "deflation camp" and remain there, I think it's interesting to note the "verbal inflation" of the past couple of years.  If the administration had proposed a $1.6 trillion deficit a few years back, voters would have sh*t a brick.  The same for sending $700 billion to banks to bail them out.  That's a number that makes you go "WTF!!!???"  Then we get a bill for healthcare reform on top of all that, and it's something about a trillion on top of the previous mess. 

We didn't use to talk about trillions.  As far as I'm concerned it's obscene.  It ought to be referred to as the t-word or bleeped out.

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#9) On November 03, 2009 at 7:50 AM, dbjella (59.57) wrote:

jstegma

Why do you think the Fed is independent?  If what Petey states is true and the Fed is "really" buying our debt, then there really isn't any independence is there? 

 

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#10) On November 03, 2009 at 11:14 AM, jstegma (99.66) wrote:

dbjella - the Fed is independent in that they aren't subject to anywhere near as much political pressure as the legislative or executive branches.  Right now it doesn't make that much difference as the Fed wants accomodative monetary policies as do the political powers that be.  However, it will make a huge difference if inflation or the like gets going.  If that happens it will be politically unpopular, but the Fed will raise rates however much it takes to stop it.  The market knows this and that helps to keep inflation expectations in check.  If the market knew that it was up to Congress to raise rates if needed, inflation expectations would skyrocket and we'd see a major problem.  That's why I'm so adamant that Congress should not meddle with the Fed too much.

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