Inflation, deflation, gold and currencies

[Higgenbotham]

I think this deflation vs inflation is about the most important debate today and also the most important area where people disagree with you, so I think it is still worth more of your time.

I think it was an important debate two years ago, but since the system was backstopped by government rather than letting deflation take hold, the important debate is whether the entire worldwide financial system will collapse in a heap, similar to the collapses of the Roman Empire or the Middle Ages (the collapse of the Bardi in 1346 three years after the City of Florence backstopped it, which led to the complete collapse and depopulation of Europe). Trouble is, today our delivery systems have no means to facilitate exchange in anything other than electronic currencies and if US government finances suddenly blow up, then how will that be inflation or deflation? What we are more likely looking at here is the end of the Modern world, similar but yet different to how the Ancient and Medieval worlds ended. A prerequisite to that happening is that few can identify the possibility and thus no measures are taken to prevent it.

PS - I did some digging to see if anyone has articulated the above in more detail and found this article: http://www.larouchepac.com/news/2008/09 ... age.html-0

ECHOES OF THE FALL OF THE HOUSE OF BARDI: Wall Street's New Dark Age

To be honest, I'm flabbergasted that anyone has written such an article. I only read about the first 20% of this article, but he nails it. There's nothing substantial I can disagree with, except that it's been my opinion that the collapse scenario was only inevitable once the government backstopped the banks. Maybe I'm wrong to think that.

[vincecate]

Trouble is, today our delivery systems have no means to facilitate exchange in anything other than electronic currencies and if US government finances suddenly blow up, then how will that be inflation or deflation?

If the US government is in trouble it means people have lost confidence in the dollar. As long as the world accepts newly printed dollars, the US government will be fine. So hyperinflation is the US government failure case.

It is easy enough to keep wealth in SLV or GLD and then sell some to pay bills at the end of the month. So it is already easy to basically have electronic currency simplicity while keeping wealth in gold. I would not be surprised if there were brokers or bankers that would let you have a visa debit card where your account balance was in GLD and they automatically sold some as you spent money in dollars.

Given the danger of the US government confiscating GLD if things get really bad, this has risk. But it is not hard technically.

[Higgenbotham]

Trouble is, today our delivery systems have no means to facilitate exchange in anything other than electronic currencies and if US government finances suddenly blow up, then how will that be inflation or deflation?

If the US government is in trouble it means people have lost confidence in the dollar. As long as the world accepts newly printed dollars, the US government will be fine. So hyperinflation is the US government failure case.

It is easy enough to keep wealth in SLV or GLD and then sell some to pay bills at the end of the month. So it is already easy to basically have electronic currency simplicity while keeping wealth in gold. I would not be surprised if there were brokers or bankers that would let you have a visa debit card where your account balance was in GLD and they automatically sold some as you spent money in dollars.

Given the danger of the US government confiscating GLD if things get really bad, this has risk. But it is not hard technically.

If US government finances suddenly blow up, there will be no means to facilitate your exchange of GLD or SLV because it is electronic dollar dependent. There will be virtually no means to buy anything at the retail level because Wal-Mart, etc., do not accept payment in anything other than electronic or paper dollars. World trade will grind to a complete halt because the only way to facilitate world trade is through electronic currency exchange. So the result will be complete economic collapse, not hyperinflation. Hyperinflation has already occurred, as LaRouche pointed out, and reached its natural end point in 2007. The choices at this point are either deflation or collapse. By backstopping the banks, our government has risked the route of collapse, as the economy has been unable to get off its butt and generate enough profits to keep everything afloat.

[vincecate]

If US government finances suddenly blow up, there will be no means to facilitate your exchange of GLD or SLV because it is electronic dollar dependent. There will be virtually no means to buy anything at the retail level because Wal-Mart, etc., do not accept payment in anything other than electronic or paper dollars. World trade will grind to a complete halt because the only way to facilitate world trade is through electronic currency exchange. So the result will be complete economic collapse, not hyperinflation. Hyperinflation has already occurred, as LaRouche pointed out, and reached its natural end point in 2007. The choices at this point are either deflation or collapse. By backstopping the banks, our government has risked the route of collapse, as the economy has been unable to get off its butt and generate enough profits to keep everything afloat.

If hyperinflation already occurred it was the mildest case ever in history. How do you figure that?

Currency collapse in hyperinflation is still a continuous function. It just gets crazy fast, like instead of 5% per year you get 5% per month, or week, or day. But I have never heard of a currency going to zero at the start of trouble, it seems to take some time. A bank can fail in a day, but currencies failure seems to take time. In the meantime selling some GLD to get cash for shopping should work. At least in the hyperinflation cases that I have looked at. Do you know of any where the money collapsed without the really high inflation for awhile first?

Taking money from the poor taxpayers and giving it to the rich bankers does not seem like it would help any economy. Total collapse to me would be the dollar dropping by a factor of 10. Given the US does have some gold, I don't really expect the dollar to go all the way to zero. They also have assets like land or aircraft carriers that could be sold off if they needed to get some gold. And while the "information age" will make things happen faster than any previous major currency crash, I still think it will take a year or two. But maybe not, maybe people will just stop taking dollars. But I expect people will enjoy paying off their debts enough that they will get a handful of thousand dollar bills and pay them off. So there will be some demand for dollars till all debts are cleared, and that will take awhile.

[Higgenbotham]

If hyperinflation already occurred it was the mildest case ever in history. How do you figure that?

A couple interesting quotes from the article aedens linked this morning from Zero Hedge in the Financial Topics thread.

Professor Bernstein analyses the 29 known hyperinflations dating back to the Roman currency debasement in the fourth century...

It is no, coincidence then, that all hyperinflations in history (with one exception) have occurred after 1914...

You mentioned hyperinflation being a process that takes some time. If the Roman hyperinflation process is to be thought of as a currency debasement as the professor says, then it did take considerable time in that instance, as shown on this graph:

http://dieoff.org/page134.htm

One thing I find interesting about comparing the Roman debasement to our situation is that it took hundreds of years for the Romans to debase their silver currency, whereas we debased ours in (almost) one fell swoop with the Coinage Act of 1965. So by the professor's definition, the debasement of our silver currency was a hyperinflationary process and it essentially happened all at once. I'm not sure why it was mentioned to have occurred in the fourth century, but he got the professor's name wrong in the same sentence, so who knows. Or it could be that the Romans debased other forms of currency at different times, as we did. We debased the domestic dollar in one fell swoop in the 1930's and the international dollar in one fell swoop in the 1970's. So by the professor's "debasement" definition, our hyperinflation was complete on August 15, 1971 when Nixon announced the dissolution of Bretton Woods.

If we look at it in terms of prices as you are, the price increases occured more slowly and over a longer period of time than the other 28 hyperinflations since 1914 that the professor refers to. We've talked about this a lot before, as Johns mentions. Having the world reserve currency and a debt based currency, doesn't really allow for a good comparison.

[vincecate]

It is no, coincidence then, that all hyperinflations in history (with one exception) have occurred after 1914...

This is just not true. In the US alone there were 2 hyperinflations before 1914. During the revolution we got the phrase "not worth a Continental" as that currency became worthless. And during the civil war the Confederate currency became worthless.

One thing I find interesting about comparing the Roman debasement to our situation is that it took hundreds of years for the Romans to debase their silver currency, whereas we debased ours in (almost) one fell swoop with the Coinage Act of 1965. So by the professor's definition, the debasement of our silver currency was a hyperinflationary process and it essentially happened all at once.

Hyperinflation always implies debasement, but debasement does not always imply hyperinflation. Hyperinflation is when a government can not cut their budget but also can not not borrow or tax enough to pay for it and is forced to print money. It would be possible for China to debase their currency by a factor of 2 (or whatever) without having hyperinflation. If people stop loaning money to the US government the dollar will get hyperinflation.

The Coinage Act of 1965 did not really do much to the value of the dollar because foreign central banks could still turn in $35 and get 1 oz of gold. The 1971 "closing the gold window" was more of a "one fell swoop" really.

http://pair.offshore.ai/38yearcycle/#hyperinflation

[xakzen]

I think this deflation vs inflation is about the most important debate today and also the most important area where people disagree with you, so I think it is still worth more of your time.

I think it was an important debate two years ago, but since the system was backstopped by government rather than letting deflation take hold, the important debate is whether the entire worldwide financial system will collapse in a heap, similar to the collapses of the Roman Empire or the Middle Ages (the collapse of the Bardi in 1346 three years after the City of Florence backstopped it, which led to the complete collapse and depopulation of Europe). Trouble is, today our delivery systems have no means to facilitate exchange in anything other than electronic currencies and if US government finances suddenly blow up, then how will that be inflation or deflation? What we are more likely looking at here is the end of the Modern world, similar but yet different to how the Ancient and Medieval worlds ended. A prerequisite to that happening is that few can identify the possibility and thus no measures are taken to prevent it.

PS - I did some digging to see if anyone has articulated the above in more detail and found this article: http://www.larouchepac.com/news/2008/09 ... age.html-0

ECHOES OF THE FALL OF THE HOUSE OF BARDI: Wall Street's New Dark Age

To be honest, I'm flabbergasted that anyone has written such an article. I only read about the first 20% of this article, but he nails it. There's nothing substantial I can disagree with, except that it's been my opinion that the collapse scenario was only inevitable once the government backstopped the banks. Maybe I'm wrong to think that.

Lyndon Larouche could hardly be characterized as mainstream. Although interesting that he mentions the Bardi banking concerns collapse, he does not elaborate on it or how it relates to today's events in this piece. In fact the only reference to it outside this article I could find (http://en.wikipedia.org/wiki/Republic_o ... the_Medici) is that it collapsed not under it's own weight (or misdeeds), but rather because Edward III defaulted on 400k florin loan. The ensuing 1/3 pop decrease was do to the plague, not fiduciary malfeasance by the Florentines.

I found this article like most cult literature to be largely unintelligible as a whole. Using lots of large words struck together along with choice references to actual historical figures to give the appearance of intellectual rigger without actually saying anything meaningful. The intent, as I understand it, is to confuse the inductee into breaking down their internal "truth detector" such that the brainwashing can begin unhindered by the natural mental defenses. Although I found it entertaining in its mental gymnastics, I ultimately found little value outside of my own research into the obscure references in the article. This included Larouche himself which I have not heard about since high school when I was first approached by his "Movement" members in Virginia over twenty years ago. Stranger still is that you are not the only person to make reference to one of his articles to me in the last week. (http://en.wikipedia.org/wiki/Lyndon_Larouche). I usually find your posts much more informative, but at least it generated an interesting stream of conscientiousness.

[Higgenbotham]

One thing I find interesting about comparing the Roman debasement to our situation is that it took hundreds of years for the Romans to debase their silver currency, whereas we debased ours in (almost) one fell swoop with the Coinage Act of 1965. So by the professor's definition, the debasement of our silver currency was a hyperinflationary process and it essentially happened all at once.

Hyperinflation always implies debasement, but debasement does not always imply hyperinflation. Hyperinflation is when a government can not cut their budget but also can not not borrow or tax enough to pay for it and is forced to print money.

I agree with this, which is the reason I mentioned a couple times that it was the professor's definition. I don't agree with what the professor wrote on most of this subject, including what would be defined as a hyperinflation and what wouldn't, as you also mentioned. A minor idea being that we can look over at another thread contemporaneously and find an authority on the subject who can't agree with us on what hyperinflation is.

One of my main ideas is that the speed at which such a process can occur today, by anyone's definition how ever they want to define it, can be orders of magnitude faster than it occurred historically. If a hyperinflationary process can occur with a speed on the order of, say, the flash crash that occurred on May 6, it really won't be measurable in historic terms. It might be more appropriate to call it a collapse or a blowup.

Another thing that's been mentioned in previous threads is that, historically, the leading country in the world that has the world's reserve currency does not typically undergo a hyperinflation in similar circumstances. The exception would be Rome, which resulted in a worldwide collapse and Dark Age. The professor calls that a hyperinflation but I would tend to think of it primarily as a collapse.

[thomasglee]

[Using lots of large words struck together along with choice references to actual historical figures to give the appearance of intellectual rigger without actually saying anything meaningful.

I couldn't resist...

Have you fallen into your own trap?

[Higgenbotham]

I found this article like most cult literature to be largely unintelligible as a whole. Using lots of large words struck together along with choice references to actual historical figures to give the appearance of intellectual rigger without actually saying anything meaningful. The intent, as I understand it, is to confuse the inductee into breaking down their internal "truth detector" such that the brainwashing can begin unhindered by the natural mental defenses. Although I found it entertaining in its mental gymnastics, I ultimately found little value outside of my own research into the obscure references in the article. This included Larouche himself which I have not heard about since high school when I was first approached by his "Movement" members in Virginia over twenty years ago. Stranger still is that you are not the only person to make reference to one of his articles to me in the last week. (http://en.wikipedia.org/wiki/Lyndon_Larouche). I usually find your posts much more informative, but at least it generated an interesting stream of conscientiousness.

We all probably know that LaRouche is a cultist. I was aware of that when I posted this, but my thought at the time was that I don't care if Aunt Jemima said it, it's true in my opinion, so who cares (again, I'm only talking about the first 20% or so of the article - I didn't read the rest of it). He could have been more concise.

If you want to delve more deeply into this subject, here are some of the references I have used:

The Venetian Money Market: Banks, Panics, and the Public Debt, 1200-1500 (Money and Banking in Medieval and Renaissance Venice, Vol 2)
Reinhold C. Mueller

The Medieval Super-Companies: A Study of the Peruzzi Company of Florence
Edwin S. Hunt

Piety and charity in late medieval Florence
John Henderson

I believe LaRouche mentioned the second reference, so I have to give him credit. I just can't disagree with anything he said in using the fall of the Bardi as the best historical precedent to what we are facing today with our banking system (now the government has backstopped it).

http://www.amazon.com/gp/sitbv3/reader? ... /yPMOjesY=

The above should link to a section of Hunt's book where he summarizes the contributing factors to the fall of the Bardi and notes that Edward III was not a major factor, as most believe. It may be necessary to sign in to Amazon or create an account to use this reader.