16-Apr-13 World View -- Forced selling hits gold, stocks

[vincecate]

I've looked at your model and read your fiatdies page. It's clear
that you put a lot of work into this. I looked at some of the
formulas, but it's not intuitively obvious where the numbers in those
formulas are coming from.

Well, some of them I just made up. They are not really tuned to match history, yet. They are based on the right inputs and sort of slope the right way, but not in any exact sense. But the model does illustrate how feedback loops and linear formulas can result in non-linear price increases. This is the key insight into understanding hyperinflation. It shows how you can get it without anyone deciding to have it. It shows that debt and deficit are the key, which has been shown empirically by others.

I sympathize with what you're trying to do, because I've been trying
to understand the complementary question: How come trillions of
dollars is being poured out by central banks, but it's NOT causing any
serious inflation. So when I asked you why your simulation has been
wrong for the last ten years, it was a serious question that needs to
be understood, because it's the same question that I've been focusing
on.

The serious answer is that debt and deficit are only recently at the danger levels. There is a human factor and human panic that probably makes the delay very hard to predict.

I think the reason that all this new money is not causing inflation yet is that the vast majority of it is held as excess reserves at the Fed. So the Fed made it but it did not really leave the Fed. It is almost like they did not make it, except for when it does leave the Fed.

http://howfiatdies.blogspot.com/2013/02 ... -debt.html

So one thing you might wish to consider in your simulation is to
insert some generational concepts, in particular to illuminate the
differences between the 1970s and the 2000s.

Part of the issue for the 1970s was that the dollar lost its gold backing. This alone makes inflation expectations go way up, and reduces demand for dollars.

I guess I am not sure how I would add generational concepts to this model, or what is really different between 1970s and 2000s. Something to think about.