Inflation, deflation, gold and currencies

[vincecate]

Vince, you may be right when you say that not one person in a thousand can understand this but to me it's as simple as two plus two equals four.

It is that less than 1 in 1000 really understands hyperinflation at this time. People just think there is so little chance that they have not really studied it. Probably most people could understand hyperinflation if they spent an hour reading the right stuff, but few people have dedicated an hour of their life to understanding hyperinflation because so few people think it is a serious threat. After it hits there will be lots of news coverage and people will read up on it, then far more will understand hyperinflation.

[vincecate]

The theoretical reason why there's always deflation is because debt
becomes worthless, which reduces the money supply, and because no one
wants to buy anything but bare necessities and things needed for
survival - like food.

I'd also add that if you bail everyone out and don't allow any defaults and prop up all the junk asset markets, then asset quality outside the Fed balance sheet cannot deteriorate relative to the Fed balance sheet and there can't be any deflation.

This is a very good point. If the Fed buys up all the "toxic assets" or bad debt, then everyone else is fine. Only the Fed has bad debt. All the banks are insured by the government. So that is really about what is going on in the US.

[JR_in_Mass]

Regarding the slide into the Dark Ages:

During the high period of Rome, there may be a generational cycle based on a 'never again' reaction to crises that fades. Later, the tempo increases and becomes more disorderly.

Note that oppressive lending is a constant theme of Roman history up until at least the time of Caesar, and the onset of the possibly generational crises first listed are often accompanied by fiscal exhaustion - e.g., Nero's later years were marked by extortion, confiscations and forced donations and bequests, and immediately before his fall people flat refused to pay taxes. Another theme is failure to pay the troops on time and/or adequately on the one hand, compared to the prospect of windfalls from wartime looting or successfully installing their general as Emperor on the other.

Here's some 'never again' crises and periods of stability, starting with the end of the Republic -
Civil wars Caesar and Pompey - 49-45 BC and Octavian and Antony - 32-30 BC
Julio-Claudian dynasty
Year of the Four Emperors - 68-69 AD
Flavians, the Five Good Emperors, and Commodus
Year of the Five Emperors - 193 AD
Severan dynasty
Crisis of the Third Century - 235-284 AD. Note the long stability, followed by a short crisis and a short and fragile stability, followed by a terrible and very long crisis. This crisis saw sustained debasement of the coinage.
Diocletian - 284-304. Deep reorganization, hereditary occupations, and price controls.
Sporadic civil wars, eventually leaving Constantine sole emperor - 310-324
Constantinian dynasty - to 363

After this point, external events begin to overwhelm, and the tempo is no longer governed by the internal dynamics of Rome. This is, in my view, due partly to the appearance of the Huns, but much more to the progressive weakening of voluntary internal cohesion based on shared values, a process that had been going on for a long time, as a result of which a powerful, coherent response was simply no longer possible. The Goths, Vandals, and Huns had nothing on the Gauls of 387 BC - compared to the relative size of Rome at the time - or on Hannibal, or on the many and various previous waves of barbarians Rome had confronted over centuries, but accumulated corruption and bad political habits made it impossible to recover completely from disasters.

Here's something to think about - with a crisis era approaching, and with generations of taken-for-granted prosperity stretched to its limits, the overly confident young Emperor rejects peace proposals and invades Mesopotamia to put an end to the threat from the East. Following a spectacular swift campaign that brings rapid success, follow-up plans break down. Hilarity ensues.

363 - Emperor Julian defeated and killed in Mesopotamia
mid-360's - Disorder and barbarian incursions in Britain and Gaul
376-384 - Gothic Wars; Emperor Valens defeated and killed - 378
395 - Emperor Theodosius dies; empire divided into East and West for the final time
406 - Several German tribes cross the Rhine
407-411 - Britain abandoned; Gaul and Spain separate
408-410 - Visigoths besiege Rome three times, then sack it; city temporarily abandoned.
439 - Vandals capture Carthage
440-448 - Huns devastate the Danube provinces and the Balkans
451-452 - Huns invade Gaul, then Italy
455 - Vandals sack Rome.

[vincecate]

Gonzalo Lira says that the next president of France likes to print money as much a Paul Krugman, so the Euro is doomed.

http://gonzalolira.blogspot.com/2012/03 ... -euro.html

[John]

Ben Bernanke Just Murdered The Gold Standard

http://www.businessinsider.com/ben-bern ... ard-2012-3

Ben Bernanke Explains Why The World Will Never See Another Gold
Standard


http://www.businessinsider.com/ben-bern ... ard-2012-3

[Marc]

Thanks, John, for the valuable article/presentation posting regarding the Fed/Bernanke's arguments regarding lack-of-feasibility issues relating to the gold standard, including price-volatility issues. The arguments strike me as valid ones. I do see, however, a "Scylla and Charybdis" tension within the Fed and its central-bank counterparts — namely, the financial-services community's desire to avoid collapse versus the public's demands to avoid austerity — that could cause, say, a loss of faith not necessarily in our money as a store of value, but as a unit of account if we print too much of it (occurring after much of it is destroyed by deflation due to defaults and demand collapse). If this "post-deflationary volatility crisis" were to occur, I could possibly see a temporary return to something such as a gold standard; however, this late Fourth Turning/early First Turning event, if it were to occur, would surely be attacked by many forces and it would likely unravel shortly thereafter, I feel.

Thanks again for the valuable information. —Best regards, Marc

[Trevor]

I think what may put a stop to the bailouts could very well be public anger. Our public is furious that we bailed all these people out from their own mistakes and now some in Congress are suggesting that we use Fannie Mae and Freddie Mac to give out more loans. Isn't that what got us into this damn mess? They're stupid, corrupt, or both.

We see something similar in Europe, especially Germany. I can't really blame them at this point.

[OLD1953]

It's always much the same before watershed events, there are immense wasted efforts trying to keep things as they were. The reason watershed events occur is because the old way of doing things is running off a cliff. Admitted, absolute persistence in keeping things as they are will eventually destroy money, and it doesn't matter if it is backed or not, but this doesn't happen very often. Suppose the USA had decided to stay on the gold standard in 1933, what would have happened? The projections at the time indicated that by the end of the year, there would be no gold in US vaults, it would all have gone to Europe. What happens to gold money when there is no gold? VIrtually the same events would have occured as did occur, just on a slightly different timeline. You cannot declare "the tide will stop here" and expect the tide to obey. Politicians take a while to realize this, because they are trying to make everyone happy and buy votes, but even they know they can't command the tide.

[Trevor]

I know people like to talk about going back to the Gold Standard, but I really don't think that's going to happen. Considering the size of the bubble, I don't see it making a whole lot of difference in the crisis.

[thomasglee]

I know people like to talk about going back to the Gold Standard, but I really don't think that's going to happen. Considering the size of the bubble, I don't see it making a whole lot of difference in the crisis.

We will never go back to a gold standard. The thought of don't so is a pipe dream by so many. But, physical gold and silver will be good to have during the transition from what we currently have, to what's coming next (whatever that may be).