Thursday, May 21, 2009
Speculators are the real cause hyperinflation - not just the money printing
Market Oracle: Could the Weimar Hyperinflation Happen Again in America?
If Britain is already meeting a larger percentage of its budget deficit by seigniorage (money printing) than Germany did at the height of its hyperinflation in 1923, why is the pound now worth about as much on foreign exchange markets as it was nine years ago, under circumstances said to have driven the mark to a trillionth of its former value in the same period (1914-1923), and most of this in only two years? This author argues very well that speculators and private central banks are at the root of ALL hyperinflation
Posted by sold 2 rent 1 @ 10:19 AM (1246 views) Add Comment
32 Comments
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1. sold 2 rent 1 said...
Germany used money printing twice in the inter-war period; 1919-1923 and 1933-1937.
The first time (1919-1923) hyperinflation was created because the money printing was to fund speculators who were short selling.
The second time (1933-1937) the economy was completely rebuilt in 4 years because the money was used in a public works programme
This article is bound to annoy the traders out there, but give it a read and come back with sensible replies
2. crunchy said...
sold to rent it doesn't annoy me. My working day is done already, and without effecting the markets!
I have stood firmly to the hyperinflation/depression believe for some time on here now and some people are starting to see how this senario is very feasible. Hey, the perks of being a conspiraloon.
Agree with the artical. We do need another system and the answers are all here on this site if only someone was clever enough to piece it all together.
The system needs to be changed top down that's all I know.
3. sold 2 rent 1 said...
The solution:
"The $12.9 billion in bailout funds funneled through AIG to pay Goldman Sachs for its highly speculative credit default swaps is just one egregious example.10 To the extent that the money generated by “quantitative easing” is being sucked into the black hole of paying off these speculative derivative bets, we could indeed be on the Weimar road and there is real cause for alarm. We have been led to believe that we must prop up a zombie Wall Street banking behemoth because without it we would have no credit system, but that is not true. There is another viable alternative, and it may prove to be our only viable alternative. We can beat Wall Street at its own game, by forming publicly-owned banks that issue the full faith and credit of the United States not for private speculative profit but as a public service, for the benefit of the United States and its people"
4. sold 2 rent 1 said...
The solution:
"The $12.9 billion in bailout funds funneled through AIG to pay Goldman Sachs for its highly speculative credit default swaps is just one egregious example.10 To the extent that the money generated by “quantitative easing” is being sucked into the black hole of paying off these speculative derivative bets, we could indeed be on the Weimar road and there is real cause for alarm. We have been led to believe that we must prop up a zombie Wall Street banking behemoth because without it we would have no credit system, but that is not true. There is another viable alternative, and it may prove to be our only viable alternative. We can beat Wall Street at its own game, by forming publicly-owned banks that issue the full faith and credit of the United States not for private speculative profit but as a public service, for the benefit of the United States and its people"
5. inbreda said...
If we did not import as much I guess it would be harder to frig the system. Most inflation in the future will come from "imported" inflation. IMO Weimar just saw the results quicker. Because we import, inflation will not occur until the GBP value drops. That's easier to rig. But when it goes, I think it will be far faster and more devastating, as it will become a feedback loop.
Also - this money is being printed to bail out the banks - as a result of their failed speculation. So according to the article this should lead to massive hyperinflation - particularly considering the level of public and private debt in the uk.
I also do not fully buy into the demand (money) Vs Supply argument as a cause of inflation. For the alst decade people have been able to borrow increasing amounts of their future earnings. This has not forced up the price of cars too much, as although many people have been buying new cars on credit, if the price went up more manufacturers would compete and bring the price down cometitively. That's not to say that more cars would be produecd or bought/sold, just that in a competitive free market it is only the ability to increase supply that controls prices, not the actual increase in supply. With houses the same is not true given that it boils down to land area - hence the speculative increase in prices. I cannot see any way for house prices but down as a result.
6. uncle tom said...
One has to slay a few sacred cows regarding what is money and wealth to get one's head round this one, and look at the fundamentals.
The Weimar hyperinflation destroyed a lot of illusory, idle wealth, leaving the field clear for the Third Reich to indulge something similar without adverse consequences.
It is too easy and conveniant to heap all the blame on speculators; the Weimar hyperflation was triggered by ruinous war reparation demands - that was the root of the problem.
The money printing we are seeing today will not on it's own immediately trigger inflation, but it does further de-stabilise the economy and make it vulnerable to external shocks. A run on the pound, Yen, or even the US dollar, could easily be triggered, leading to inflationary meltdown.
7. nubbers said...
Very interesting article. If true, then its easy to see why our 'leaders' and mainstream economists might not be aware of it. For that generation, anything that Nazi Germany might have done right would get ignored. It would just be too politically bad to discuss it. Off we go to hell in the handcart of political correctness.
8. crunchy said...
6. uncle tom
The money printing we are seeing today will not on it's own immediately trigger inflation, but it does further de-stabilise the economy and make it vulnerable to external shocks. A run on the pound, Yen, or even the US dollar, could easily be triggered, leading to inflationary meltdown
That's the best contradiction I have seen on here for some time. lol No offense.
9. 51ck-6-51x said...
uncle tom
- I see no contradiction there, and agree with the logic... more money in the entire system does not necessarily lead to inflation - the new money must also go into circulation for that to occur which may require a catalyst.
10. stillthinking said...
So the conclusion would be that currency controls prevent inflationary spirals. Also, the UK government has not yet printed to support speculators losses, but instead to support public spending while guaranteeing protection against bank losses. For this article a guarantee is very different from the guarantee being called in.
This is the idea that interest rates are not the only way to control inflation, you can instead directly introduce loan controls, restrict lending directly as opposed to making them more costly to service. Which has suggested already by the FSA.
But in the 70s currency controls and restrictions on moving wealth abroad did not control inflation. Viewed through this article the explanation would be that the unionised public sector was so inefficient, that one pound of spending did not equal one pound of production, providing the inflationary excess. I am pretty sure that the same situation exists today for the public sector.
Also, the yen carry trade existed for decades without triggering inflation in Japan. Which looks very similar to the speculative moves against Germany, in that yen savings are leveraged to purchase foreign currency. But nothing.
Also, the conditions of the time external to Germany must have been suitable. Anticipating inflation within Germany forced a move to non-inflating currencies outside. But for the UK and the US where are the suitable external currencies? Perhaps if the yuan was floated and easily available then our currencies would collapse as described. After all, given the situation, who would not speculate against the yuans appreciation relative to the dollar. This must have occurred to the Chinese, truly floating might have catastrophic consequences.
We have, really, just had a year when borrowing in Sterling to purchase foreign currencies would have been very profitable, but no inflation. Perhaps the answer is that the global situation is different from then.
11. sold 2 rent 1 said...
It seems there are 3 common elements with Zimbabwe and Weimar Repuplic 1923
1. Enslavement into perpetual debt (Zimbabwe with IMF) (Weimar with war reparation demands)
2. Reckless central banks/government policies (possibly controlled by private banks interests)
3. Money printed used for speculation and not useful production of goods and services
If these are the necessary requirements, it appears that the UK, US, and Japan are all set up for hyperinflation in the near future.
12. crunchy said...
9. 51ck-6-51x
Tell me that in 6 months time. I am suprised you see it that way!
13. crunchy said...
11. sold 2 rent 1
Spot on mate. It is that simple. Let's not beat about the bush here.
14. crunchy said...
If the extra money will not be put into circulation/use, there is no point in printing it.
15. sold 2 rent 1 said...
Probably the main difference with 1919-1923 and 1933-1937 in Germany was the debt levels
Printing money after the debt bubble has collapsed and been destroyed means that the increase in supply of money matches the increase in goods and services as people return to work.
Printing money to support the debt bubble is what causes the hyperinflation
This is exactly what UK, US and Japan are doing now
16. crunchy said...
Agree, there is a race to inflate whether you like it or not.
17. stillthinking said...
This article states that the inflation came from foreign speculators. Who exactly are the foreign speculators against the UK,US, Japan, and the Euro(now printing)? Only China, dictatorship China. Maybe internally there is a source for speculative attacks, but considering China has a lot to lose being a major holder already, they probably aren't so into that.
There is currently no sight of end to deflation.
18. sold 2 rent 1 said...
stillthinking,
"Who exactly are the foreign speculators against the UK,US, Japan, and the Euro(now printing)? "
I am sure George Soros and his filthy mates are planning their attacks as we speak.
They have no problem bringing any economy to its knees
These guys will be backed up by the big banks too - ooops another conspiracy - step away from the keyboard
19. mountain goat said...
If the UK has to pay back debts in USD then this is similar to the Zimbabwe problem where they had to pay the IMF in USD.
20. 51ck-6-51x said...
crunchy
- money was printed to boost bank capital - like an accounting fiddle. The banks want to sit on this cash, keeping it in their central bank account, to maintain their funding levels, they will draw it down if it becomes necessary - i.e. when an external shock forces them too.
I did not say never, it's just that the time is not now - as you say 6 months, I feel it may be a little longer, once things seem to be "back on track", that seems to be the way things work. But I maintain that the logic is correct we are going to see more disinflation until there is a catalyst (i.e. we already have he ingredients - but some heat will get the cake to rise).
21. crunchy said...
20. 51ck-6-51x said..."The banks want to sit on this cash, keeping it in their central bank account, to maintain their funding levels,"
That still releases their funding levels which up untill now have been controlled. This alone without a catalyst gives the banks extra muscle and they will use it to get themselves out of the hole.
22. stillthinking said...
The article suggests that the collapse was from the internal -german- banks, who expanded credit to supply the speculative attack against the mark. And historically Hitler certainly believed that the financiers were responsible for the collapse of Germany, and seems like they were.
Where though, are the capital reserves to allow UK banks to create credit to topple sterling? They can't lend and neither can the US banks, quite aside from government oversight(!). So Soros, or whomever, ultimately has no access to funding, and also would face Chinese opposition to actions specifically with the goal of revaluing the yuan dramatically upwards.
This kind of currency attack could occur at -anytime- because the only required ingredient is a huge expanse of credit by the internal banking system, fifth-columnist style, hence regulations about lending, capital reserves etc. Also, you require at least some healthy countries outside the target zone. These ideas seem very similar to what occurred during the Asian crisis.
So at the moment I don't believe this is a realistic danger for the UK at least. However, in the future, should we be the last to recover, whenever that happens in ten years or whatever, then something to bear in mind. I also don't see that we are placed last in the queue for a recovery though, because we are under-producers, we need to make more stuff not less. Germany, Japan, China have over-production problems. One way or another they have to produce relatively less.
I don't see the problems of the UK as imminent collapse, just that we need to realise that we are much poorer than we have been led to believe.
23. debtfree said...
@15. sold 2 rent 1
"Printing money to support the debt bubble is what causes the hyperinflation"
I disagree with this. Printing money does causes inflation, but Hyperinflation is caused by a loss of confidence in the currency which then plummets in value.
24. debtfree said...
Found this from another forum.
The Iceland example
As a result of the global deflationary debt unwind, Iceland's three biggest banks, Kaupthing Bank, Landsbanki Island and Glitnir Bank have collapsed under the weight of about $61 billion in debts, and its stock market fell has fallen 81% so far this year. Meanwhile, employment has also plummeted as the collapse of the financial sector and large layoffs since October have resulted in a complete standstill in the construction industry. Most importantly, the deflationary collapse has caused the Krona, Iceland's currency, to crash which leading to hoarding of goods at supermarkets and an inflation of 16%. The financial crisis has left Icelanders in a state of shock .
The Iceland example shows how a nation can experience deflation (crashing stock, bond, and real estate markets) while also experiencing high inflation due to a currency collapse (soon to be hyperinflation when it allows its currency to float again).
You need10 times as many Krona to buy one ounce of gold as you needed before the currency crisis.
25. crunchy said...
The banks have more "margin" now. That's enough to convince me that all is not well. Period!
26. sold 2 rent 1 said...
debtfree,
"Printing money does causes inflation, but Hyperinflation is caused by a loss of confidence in the currency which then plummets in value"
But how do you get a loss of confidence?
From governments/central banks printing money to buy more debt as the economy still continmues to crash.
There is a massive difference between printing money to invest in production and printing money to buy more debt.
Printing money does NOT cause the hyperinflation
Printing money to support the debt bubble causes the hyperinflation.
27. crunchy said...
That's the end of that one. High five str.
Time to buy more canned food, rice, oil, wheat, and....and.... and the strongest currencies.
These £££££$$$$$ men ain't done yet!
28. mander said...
They are diging their own grave. Inflation will create massive job loses. Do they want to save the indebted rich by making them pay as little as 10% of what they borrowed ?
The only way out is to accept that they are not that rich. They are still rich but in real vlaue not speculated value. It is like people still owning the same house why do they want it to be double than what it should be?
29. uncle tom said...
If the USA wasn't doing much the same thing as the UK, and didn't have similar problems, it is likely that Sterling would have been thrown to the wolves already.
As it is, Sterling rose to $2 while the world thought we were more or less OK and the big problem was Stateside. Now they realise we are in the same boat, Sterling has fallen to a level that puts it close to spending power parity with the Greenback
Next up will be genuine green shoots in the US, while the UK resembles a barren desert.
..that's when it gets dangerous..
30. crunchy said...
29. uncle tom said...Next up will be genuine green shoots in the US, while the UK resembles a barren desert.
I have to disagree with you again UT. That's where the inflation will start. No time to press the point , but all will be revealed in the future!
31. sold 2 rent 1 said...
Read this. Fantastic
The Fiat Currencies Death March, Got Gold?
http://www.marketoracle.co.uk/Article10792.html
UK, US and Japan are all going down together
"Last month, M-2, the monetary aggregate in Japan increased at a rate even greater than 100 % annually. The printing presses are now being run as never before in the US, the UK and Japan in the desperate hope that it will save them from the overwhelming gravitational pull of deflation, an economic black hole of immense inertia. "
"Banks and governments—especially the US, the UK and Japan—have reached the end of the line; indeed, we have all reached the end of an era. The bankers’ game of debt-based capital masquerading as money in order to indebt and profit from the productivity of others is now in its final stage"
32. sold 2 rent 1 said...
UT,
"Next up will be genuine green shoots in the US"
You make me laugh.
In 2010
UK, US and Japan to hit the print button and hyperinflate
Germany to lead the Eurozone into a deflationary crash and Euro breakup.
This is 300 years of history coming to an end.