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Understanding hyperinflation: courtesy of a mountain man

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July 07, 2011 – Comments (14)

There is a man in these parts, who would call me one of his perhaps 5 friends, called Monrow.  Monrow stands about 6'4, weighs near as krikies 300 pounds, has an unkempt beard and a black pony tail down the middle of his back.  He owns a small handful of businesses, recently leaving these parts to start another in a town a couple hours away.   He is easily one of the most memorable characters I have come across, and thats saying something as i've met some pretty interesting people. 

Beyond looking like a mountain man, Monrow is flatly antisocial.  You'd assume he was some kind of hillbilly and steer clear of him at a convenience store except for one thing.  He is almost surreally charismatic when it suits him.  He was a body builder and beach dude in a former life, and seems generally disinterested in fitness these days (although he is on a perpetual diet).  He can seem shy, out of place when he's out of his element - say if you catch him on a date at a nice restaurant - but in his element he drips charm and authority and people flock to his place of business to hang out, to flirt with him, to listen to him weave a story with a flair matched by few.  The man could tell a story about changing a tire on his car after he got a flat and keep an audience in rapture for half an hour doing it.  When Monrow tells a story, thats the one and only thing going on in the room. For all that charm, he struggles constantly to interact with people, he gets frustrated with people when they don't see things his way and can sort of blow up and make a room very uncomfortable.  He is frequently short with customers, who he often views as clueless and unworthy of recieving his products and services.  A typical alpha type very talented male, a walking bundle of contradictions, talents and flaws.  Add to all this an intense conspiracy-theorist side and you have something thats simply not understandable.  The man will panic over mind control devices the government owns, AND MUCH MORE, frequently, and he means it.  

I know htat he's a high school grad, because he played a couple years of college football before quitting over an injury, but you'd never know it.  He leaves little evidence of what must be a perfectly capable mind outside of that (occasional) wall of charm and the fact that he owns 3 successful businesses.  

The last time I saw Monrow was at the lounge at my pal Doug's hotel, which is the finest lounge in our area.  He was on a date with his now girlfriend, a girl some 15 years his junior (23 to 38).  Feminine, dignified, and plain beautiful, there she sat with a mountain man nonetheless.  Monrows legs were twitching, he couldn't relax, he kept looking around the room as if scoping it for combat.  This, afterall, wasn't his environment.  So I did the only thing I could think of, I argued with him until I won over him sitting down, with his lovely date, to enjoy a bottle of champagne with the girl I was seeing at the time and I.  

He must htink of me now and again, because almost always when I see him he has something to say to me.  Sometimes its just ridiculous, sometimes its a skirt-chasing story, sometimes its about cars, sometimes its a conspiracy theory, and sometimes its something plainly profound.  On this particular evening, Monrow says:

"Check, you remember when I told you to go buy a bunch of gold and bury it?  Thats retarded, I realize now thats stupid."

"why?", said I.  Monrow, you see, mroe or less hates money.  He keeps $30k in his checking account at all times, saving if he goes below, and spending it immediately if he goes above.  He likes htings, he hates money.  He's the perfect template for a true gold bug. 

"Well think about it", he says, as if I was stupid to have ever considered his suggestion in the first place, which I hadn't, but this is part of that storytelling ability...  "if society collapses and the dollar is worthless, and lets be realistic, if the dollar becomes worthless its because society collapsed.  I mean, if society is still there and functioning the simple factthat we have to pay our taxes in dollars will keep it having value.  And if society collapses, it doesn't make any difference what stuff you have, what food, what gold, what shelter."

"why is that?" I asked.  There is no way to deny that this mans mind is an interesting place to explore

"think about it", he says confidently, even as he is so visibly nervous to be at this high end lounge that its amazing, "the only thing thats going to matter if society collapses is firepower.  Guns.  And organized guns at that"

"i get what you are say....."

"check, listen, don't talk, just listen", back to that remarkable tendency to seek social authority, it can be hard to beat him in that contest sometimes, "look, if society collapses we're going straight medieval.  its going to be organized packs of armed people that carry all of the power.  rogue generals with troops still loyal, a police precinct turned predatory.  You have all that gold, you won't be able to spend it because they'll just take it.  If society collapses the only asset that will have any actual value is military power or equivalent."

Now he had gotten interesting enough to actually make me want to listen.  He has a habit of doing that.  He continued

"and all that farmland you bought?  all that crop you have planted?  you know what thats worth?"

"tell me monrow"

"nothing unless you are the one with enough hired guns to defend it.  if society collapses it just won't be yours anymore unless you can shoot everybody who is trying to take it from you, and there will be someone trying to take it from you.  because, check, you gotta realize, those cops, those soldiers, they are gettin gpaid in dollars, and they have all the guns.  if their dollars aren't worth anything anymore, guess what?  they use the guns to get what they need and want"

From there the conversation carried on through a few comments, and then we drank our champagne, and Monrow finally got to leave, which is all he wanted to do in the first place.  

But you know what?  He is EXACTLY right.  What is gold worth in a true dollar-collapse scenario?  Nothing, because it will simply be taken from you when you need to use it most.  What is my farmland worth?  Nothing, once I've run out of bullets and someone simply takes it from me.  

Truly, in those "canned food and ammunition, hyperinflation, dollar collapse, china won't buy our bonds, end of days" panicfest stories, what actually has value?  Affiliation with an organized group of armed men.  And thats it.

Think about it.  You are running around, chest out, pimping and proud, because you were long gold to some extreme level when society collapsed...  If things get that bad.  That ugly. We will have a society that is simply run by the law of the gun.  And all you can shoot at one time is 2 guns, and you'll never fend off an organized group of armed men.  If society collapses so gold goes to a million bucks a gram, everybody loses.  Except Navy Seal Team Six.  Or, rather, the general that they are still loyal too.  And the pack of Army Rangers they make a territorial truce with, etc.  

Now, don't stop reading until you read my next post as well.  

 

14 Comments – Post Your Own

#1) On July 07, 2011 at 3:30 AM, checklist34 (99.73) wrote:

Now, big Monrow may be sitting somewhere right now, reading through his highly encrypted secure tunnel internet connection, terrifying stories about gigantic antennae array in Alaska meant to control our minds and keep is peacible, while wearing a tinfoil hat. 

And he may truly believe that a hyperinflation collapse-of-the-dollar scenario is likely.  

But he does have a grea tpoint:  ALL of us Americans (and maybe Europeans and Japanese folk) have an extremely well developed sense of property rights.  Whats mine is mine.  But if the dollar collapses, truly, as the doomsdayers like to tell us it will, so will society.  So will law.  So will property rights.  Whats yours won't be yours anymore.

But how likely is that?  We just need to look into the words of this otherworldly (in both good and bad ways) mountain man to realize how unlikely hyperinflation in the US really is.  It doesn't take any great leap of intellect, or even a great deal of thinking, to get a handle on this.  Just observe a few basic points

1.  Hyperinflation has never before happened in a country that issues its own currency and which owes no debt in anything but that currency, and which has not experienced a government collapse (backing source would be pragcap.com)

2.  The worlds foremost economy, largest manufacturer, and wealthiest nation has to pay its taxes in dollars.  We cannot pay them in gold, we cannot pay them in food, we cannot pay them in farmland or durum wheat.  That fact ALONE ensures that every American INCLUDING ALL THE PANICMONGERING CROWD, desires dollars.  Think about it.

3.  We possess the worlds foremost military, by a margin so wide as to be laughable, and I sincerely doubt that the currency of a country in such a position every experienced hyeprinflation. 

Now moving beyond that into a more complex series of points

4.  Every dollar of debt the government needs to issue (which it doesn't, by the way, have to issue ta tall.  it has no need to issue debt before it spends) is paid for by government deficit spending.  Literally the dollars needed to buy gov't debt are created when the gov't deficit spends.  Think about it, if the government deficit spends $1 billion, that results in $1 billion of extra dollars floating around to buy that $1 billion.  

5.  If there was even any validity to the "hyperinflation, china buying our bonds, dependent on china, if they don't buy our bonds the world will end, we could wake up one day and 6 days later just like glenn beck said we are doomed, dead, society over, hyperinflation, food lines, riots" theories were true.  WHY IS OUR NATIONAL DEBT AT AN ALL TIME HIGH AT THE EXACT SAME TIME THAT OUR INTERSET RATES ON DEBT ARE AT AN ALL TIME LOW.

Its not going to happen folks.  And there really isn't a rational basis to argue that hyperinflation int he US, today, could happen.  Beyond that, there is no reason for the debt ceiling to exist, it shoudl be voted out of existence.  

And I would urge everybody to read a bit about Modern Monetary Theory.  And I would then urge the MMT guys to sit back and think a little deeper, and quit calling the US national debt "debt", which it really isn't, and call it what it is "stock of dollars created by the government".

thanks for reading, all.  I will elaborate, in detail, on these last several paragraphs at a future date.  

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#2) On July 07, 2011 at 7:10 AM, dbjella (< 20) wrote:

I'm still going to hold onto my gold :)

Also, you kind of imply that gov't debt doesn't matter did I get that right?

I don't know if I am going Glenn Beck on you, but I see more and more people taking from the gov't then there are people paying into the system.  We talk about raising taxes on rich, but I don't see us cut spending.  Spending just goes up year after year like money doesn't matter.  

I will keep reading and try to understand. 

 

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#3) On July 07, 2011 at 8:12 AM, devoish (99.07) wrote:

Seriously dbella?

Do you not read Alstry's "Government layoff blog" listing the daily progress of increasing unemployment and cutting spending through Government layoffs?

I would say we are "cutting spending" every day.

When people say "we live in interesting times" I would say it has certainly been interesting to watch as America falls to capitalism and its marketing. It has never really been taxes and Democratic Government that is your biggest risk. It has aways been the other guy.

Personally I am still looking for that "small government" success story that seems so elusive to find.

Best wishes,

Steven

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#4) On July 07, 2011 at 8:54 AM, Jbay76 (< 20) wrote:

I'll say one thing, this Monrow guy seems interesting....it's a good thing I keep training

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#5) On July 07, 2011 at 8:58 AM, jwebbzor (< 20) wrote:

#4. If the government deficit spends $1 billion, that results in $1 billion of extra dollars floating around to buy that $1 billion.

However, in doing so the government has still inflated the money supply. Even if that $1 billion comes back into government bonds, that doesn't decrease the money supply. From my understanding the hyperinflation argument is based around uncontrollable deficit spending. That is, uncontrollable expansion of the money supply.

 I'll be the first to admit though that I haven't studied any MMT, so my knowledge is fundamental at best.

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#6) On July 07, 2011 at 10:41 AM, chk999 (99.98) wrote:

Excellent blog checklist!

Monrow has seen the fatal flaw in anarchism. It won't be a world of prosperous small holders, it will be a world of warlords.

 

Devoish: If socialist government is so effective, why are North Korea, Cuba and Venezuela all struggling? 

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#7) On July 07, 2011 at 11:43 AM, smartmuffin (< 20) wrote:

Well, he's obviously right to an extent, although I would argue that a limited barter system might still exist.  Presumably, depending on the strength and severity of the various warlords, some of them might just go into the protection racket, and leave you alone in exchange for some of your gold, or some of your crops, or what have you.

But yes, there's a reason that a lot of the doomsday scenario people advocate guns AND gold!

 devoish - I believe the "small government success story" you are looking for is America prior to the 20th century.

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#8) On July 07, 2011 at 1:09 PM, Valyooo (99.63) wrote:

He seems like a cool dude, but he is misunderstanding two things:

1) The main concern is a currency crisis, not a total world warfare.  If we experience some form of hyperinflation or default or people just get sick of the dollar, G20 will meet and make gold either 1) the reserve currency 2) a big part of a currency basket.  In either case, the world keeps turning, Americans still use dollars, but gold becomes a lot more valuable, and the value of guns stays the same. 

I am sure of 1),  My next point is just my own though

2) If the world collapsed or whatever, why do you think everybody would go around killing each other?  Why would somebody who is anti-violent become a killer because of a governmental collapse?  The military has power right now, more than any rogue gang ever would.  Why dont they go around killing people for no reason and stealing property?  Oh, that's right, they do.  Yet, societies still exist, and things, besides guns, still hold value.

The only scenario in which guns have the most value is a zombie apocalypse and that is largely to do with the fact that there would not be enough market participants surviving to place value on material possession.

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#9) On July 07, 2011 at 1:58 PM, jwebbzor (< 20) wrote:

I totally agree with you Valyooo.

Hyperinflation does not automatically lead to an apocalyptic scenario.

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#10) On July 07, 2011 at 6:00 PM, rfaramir (29.57) wrote:

"3.  We possess the worlds foremost military, by a margin so wide as to be laughable, and I sincerely doubt that the currency of a country in such a position every experienced hyeprinflation."


Rome. Military supremacy. Brought down by debasement (arguably).


"Every dollar of debt the government needs to issue (which it doesn't, by the way, have to issue ta tall.  it has no need to issue debt before it spends) is paid for by government deficit spending."


It’s thinking like this that gets people into trouble. If I could spend my way out of debt I’d have no problems.


Selling debt for new dollars only papers over the problem, putting it off for future leaders to deal with. The government has nothing that it does not first take from us. Except borrowing hides the ‘first’ in that statement, so they spend first and take later. The government either taxes or inflates to spend; if it borrows to spend, it just taxes or inflates later to retire the debt, but it WILL tax and/or inflate.


"WHY IS OUR NATIONAL DEBT AT AN ALL TIME HIGH AT THE EXACT SAME TIME THAT OUR INTERSET RATES ON DEBT ARE AT AN ALL TIME LOW."


You know why. You know how the Fed ‘sets’ interest rates. It doesn’t set them by law, by just declaring let them be such-and-such a percent. They ‘target’ a rate and print money to buy bonds until the market rate of those bonds hits their target. The huge debt is causing huge money printing which is keeping rates low. Until they can’t keep it up anymore, people start doubting that they can keep it up, then interest rates skyrocket. No one knows when that will happen, at what point the bond buyers will say “No more” to buying ever-more-worthless bonds, but if the supply keeps on inflating, they eventually will.

 

devoish: “as America falls to capitalism”


Yeah, right. Actually, we are losing capitalism by the day. Each freedom we lose, each dollar the State takes, reduces the reach of capitalism, and impoverishes us a little more.

 

smart muffin: “But yes, there's a reason that a lot of the doomsday scenario people advocate guns AND gold!”

Exactly! We still have a concept of private property, but in the chaos, we will have to fight for it, literally at the street level. If you can’t or won’t defend your property, then Monrow is right, why save for someone else? But he’s wrong (and WAS right) about gold: save in gold. Saved fiats result in a negative savings rate, even in a bank, but certainly in a hole in the ground.

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#11) On July 08, 2011 at 1:04 AM, awallejr (82.72) wrote:

Well actually the Germanic barbarians kicked  that Roman military's butt.

I do like this quote, however:

The only scenario in which guns have the most value is a zombie apocalypse and that is largely to do with the fact that there would not be enough market participants surviving to place value on material possession

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#12) On July 08, 2011 at 8:52 AM, devoish (99.07) wrote:

chk999,

Its good you left China off the list time, soon you may also drop Venezuela. But lets not keep forgetting to include Norway, Germany, Canada for its healthcare, France, Iceland, Switzerland, Brazil for its protectionist trade policys, Peru for its Social security, when we call me a "socialist".

smartmuffin,

You are choosing as a small gov't success story the time in America's history that included the freedom to have slaves, a very low level of respect for the property rights of the Sioux nation, among others, and a quality of life that taught people to unionise for a living wage and safe working conditions.

rfaramir,

Each freedom we lose, each dollar the State takes.

I am a lot more concerned about the dollars taken by the financial industry for which I get little in return besides "promises", than the tax dollars taken by the "state" which buy everyone the freedom to travel. I am a lot more concerned by the "efficiencys" promised by privatisation which have come to mean lower quality at higher cost whether it is our healthcare, or our water.

Best wishes,

Steven

 

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#13) On July 08, 2011 at 10:39 AM, rfaramir (29.57) wrote:

Steven,

If you don't like the promised returns of the financial industry, take your business elsewhere. That's why we're on the Motley Fool, isn't it? To learn to invest for ourselves. They can't take anything we don't give them.

Try not letting the State take from you. Maybe someone will send you a card in jail, assuming you don't resist their takings with force, and they kill you in response.

There's a fundamental difference between the two. One serves to receive in return if you are pleased (and receives nothing if you are not pleased), the other takes whether you are pleased or not. Jeffrey A. Tucker recently wrote a brilliant plea to be kind to merchants because of this comparison:

http://mises.org/daily/5426/Show-Love-to-the-Merchant-Class 

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#14) On July 08, 2011 at 11:25 PM, devoish (99.07) wrote:

rfarimir,

If you think that todays financial wizards receive nothing from me if I am not pleased with their service, you are dreadfully mistaken and it is because of "small government" theory dropping the ball.

I have read David's links to mises.org. They are a marketing firm selling an ideology that promises freedom and whose closest reality is slavery. Smartmuffin's pre 20th century America was not the Libertarian wonder world that mises would have him believe it was. Neither is Qatar. Reality based thinking, not marketing BS, tells me this small Gov thing usually sucks for most of the people living in one, and the Founding Fathers of this great Nation knew that when they made the biggest government they could and made everybody part of government.

Best wishes,

Steven

 

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