It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
–Charles Dickens, 1859, regarding the 1775 French adventure with hyperinflation that lead to the Revolution
From the Roman empire, pre-French Revolution, pre-World War II Germany, whenever governments get a taste for printing free money, they send their citizens on an exciting ride called hyperinflation. But of course, that won’t happen this time…
http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=BASE
The above chart was published by the St. Louis Federal Reserve. Wow, that’s a lot of printing in just two years. To put that in historical perspective, here is the money supply for the past hundred years. That fun little jump at the end, oh let us not concern ourselves with that. We’re only getting started.
St. Louis Federal Reserve Monetary Base 1917-2011
http://www.chartingstocks.net/2009/03/chart-of-the-us-money-supply-1917-2009/
Soon after 1971, when all governments of the world used fiat currency, the temptation to print debt-backed paper money would not be resisted. We are told that inflation today is under control. It is only certain goods whose value is increasing, not the devaluation of the currency. Certain goods like food, energy, housing, and metals. What’s left?
http://crs.org/emergency/global-food-crisis-faq.cfm
The pattern seems to be the same, whether just before the fall of the Roman Empire, pre-French Revolution and seventy years earlier, the Weimar Republic in the 20s before Hitler, Hungary in the 40′s, Chile in the 70s before and during Pinochet’s coup, neighboring Argentina and Peru a decade later, Angola, Yugoslavia, Belarus, and Zimbabwe today, or Greece, Portugal, Ireland, and the United States tomorrow. In the past, governments set price controls. Today we set ‘inflation targets’, print more money to grant loans and bail out banks. We inflate at consistent rates until the debt becomes greater than domestic production and deflation sets in, then devalue fiat currency. Maybe we’ll learn from Iceland and let the banks and their backers fail, but recent history on both sides of the Atlantic tell a tired old story.
Notice, if you will, the 80% drops around 2008, the year the housing bubbles collapsed, M3 money (no longer published in the United States) contracted, and M0 money printing reached over 350% in the United States. In other words, bad money (debt backed fiat) deflated, prices dropped, and the central banks began printing money to bring prices back up. While looking at the identical patterns of these commodity prices, ask yourself, did they all become less valuable, or is the value of fiat (dollars and euros) money itself manipulated?
http://www.mongabay.com/images/commodities/charts/crude_oil.html
Platinum ten year price (notice the exact same 2008 drop)
Palladium 10 years
Rhodium (rare precious noble metal)
Whether because of dwindling supply, higher demand, instability in the middle east, you can’t deny that the price of oil suspiciously matches ‘real money’ namely gold. We are told that the dollar, yen, and euro are not loosing value, only that food, oil, and gold are improving. I suspect Gold did not take as large a hit as other commodities because bankers have be buying up gold as a hedge against fiat collapse.
http://www.goldprice.org/spot-gold.html
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.”
–Thomas Jefferson
http://www.calculatedriskblog.com/2011/06/update-real-house-prices-and-price-to.html
The US housing prices increased 900% since the seventies and increased 100% before crashing almost as low in the past ten years.
Quantitative easing (money printing) is used to avoid deflation or when inflation is below target. Japan has been in a deflationary gridlock for decades. With a 0% interest rate, the central bank can not give money away! The United States has reached the peak of credit. Considering there is more debt (M1, Principal + Interest) than money (Principal), then without producing more debt, the money supply will necessarily collapse. Since the central fractional reserve banking system (Federal Reserve) can not loan more money to people (or countries like China) who don’t want it, the US Fed has recently tripled the amount of dollars in circulation to devalue the currency. Since the Fed can not force producers to create goods that consumers know they can obtain at lower prices later (price deflation), the Fed attempts instead to create a situation whereby consumers accept more debt and recklessly spend in fear that their savings will evaporate (70% devaluation – or 30% of the value tomorrow for money earned today).
Wages are not going up, indeed some people are losing their jobs, record high numbers can not find new jobs and are foreclosing on their homes (deflation) while the prices of basic requirements (food and energy) are going up (inflation).
Since the terms inflation and deflation no longer refer to monetary inflation (printing money) and since necessities such as energy, food, and metal are excluded from official price inflation calculation, one must assume that inflation and deflation today refers to wages. For why else would the Fed announce concerns over deflation, when clearly prices are going up! …at least in markets not propped up by toxic debt (housing).
The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand — a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending–namely, recession, rising unemployment, and financial stress…
The U.S. government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost… Under a paper-money system, a determined government can always generate higher spending and, hence, positive inflation… a central bank should always be able to generate inflation, even when the short-term nominal interest rate is zero…
The Fed has the authority to buy foreign government debt … this class of assets offers huge scope for Fed operations because the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt…
–Ben Shalom Bernanke, 2002 (Chairman of the Board of Governors of the United States Federal Reserve as of 2006)
http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm
Germany 1923 Deutsche Mark 1 Billion
Hungary 10 million Pengo
Nicaragua 10 Million
Turkey 5 Million
Yugoslavia 10 Billion
