31 votes

Questions for the Austrians

Why hasn't hyper-inflation hit yet? We are well into QE-infinity now and although food prices have gone up, we are yet to see Weimar-type paper burning on the streets. What gives? What manipulations are going on to prevent such exponential inflation?

Thanks all.

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From Austrians everywhere - Guten Tag (nice haircut)

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Where is the inflation?

Critics of the Austrian School of economics have been throwing barbs at Austrians like Robert Murphy because there is very little inflation in the economy. Of course, these critics are speaking about the mainstream concept of the price level as measured by the Consumer Price Index (i.e., CPI).

Let us ignore the problems with the concept of the price level and all the technical problems with CPI. Let us further ignore the fact that this has little to do with the Austrian business cycle theory (ABCT), as the critics would like to suggest. The basic notion that more money, i.e., inflation, causes higher prices, i.e., price inflation, is not a uniquely Austrian view. It is a very old and commonly held view by professional economists and is presented in nearly every textbook that I have examined.

This common view is often labeled the quantity theory of money. Only economists with a Mercantilist or Keynesian ideology even challenge this view. However, only Austrians can explain the current dilemma: why hasn’t the massive money printing by the central banks of the world resulted in higher prices.

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Potential Annualized National Debt Allowance - a look back at 40 years of PANDA diplomacy next Pandaline


Hold up wait a minute let me put some Peter Schiff in here.

Price have gone way up no doubt about it. Much more than the Feds clams of 2 to 3 percent a year on their BS CPI. This Video put out by him on the January 10 gos into it. Hyper Inflation has not hit yet because other countries are buying up U.S. treasury bonds, and holding on to them. We are exporting our inflation. Till the bond buying countries what to cash them in.

This video will take care of this question.


Austrian's are misunderstood

Money is more complicated once a credit system is levered on top. The Fed just creates the equity, or the base foundation basically, which banks then lever off of. Banks create unstable money, since it really is just claims on the money the Fed made, even if they make claims in excess of what they Fed has created.

What people don't realize is banks have made so many promises and there is actually a relative scarcity of dollars to fulfill those claims. The Fed has created about $3 trillion in liabilities, accumulating a near equivalent amount of assets (see image: http://gold.net/static/images/screenshots/Fed_balance_sheet_...), while the total credit in the system is closer to $60 trillion (see image: http://gold.net/static/images/screenshots/Total_credit_marke...). This means the economy as a whole is unsoundly levered nearly 20 to 1 as there are 20 times more claims on money out there than actual money exists to satisfy those claims.

When credit contracts there is a scramble for liquid money to meet credit obligations, but remember there is 20 times more credit obligations chasing every unit of liquid money. This is why the US dollar rises during credit crunches - a poorly understood phenomenon.

Prices won't rise out of control until there is a crisis of confidence in the currency. Hyperinflation is a confidence crisis, and usually Weimar style printing is what follows. Part of the Fed's printing is trying to quell the crisis of confidence in the short run, but their actions actually increase the risk of a confidence crisis. While they help lower the leverage the consequence is that they are monetizing the debt and making that debt more spendable. The better solutions is liquidating the debts as Ron Paul suggests, not making them realizable as the Fed is doing. The Fed is showing that debts are not paid out of production but out of printing which over time will diminish confidence in the system as a whole.

In hyperinflation cases the real money supply actually falls to zero, because despite a lot of notes in existence, they are accepted for nothing and have trouble circulating. The unsound leverage of the system can eventually trigger a quasi insolvency threat which will force those with debts in USD to abandon their post, rather than bother paying their dues with money that doesn't exist, or offering so much of their assets to acquire such money which is perceived to have no value after the fact. Those offering productive good have no price of dollars which they'd accept in exchange for their goods in hyperinflation. This begets money printing to try and persuade merchants otherwise, but at this point the only way to restore value to the currency is to tie it to production once again via something of value like gold.

If the Fed does monetize all this debt though, and we get 50+ trillion in the Fed's balance sheet, there will be a lot of upward pressure on prices. Keep in mind that bank's credit only exists to the extent someone is forgoing spending at least a portion of it. Money can't be spent twice without forcing banks into bankruptcy unless the Fed monetizes the bank's credit operations. The Fed still has a ways to go in this regard.

Another major point that must be considered is a lot of US dollar credit and printing has been shipped overseas. Many central banks abroad are tied to the dollar and are importing US inflation to restrain their own currencies from rising. In doing so they have huge local inflation problems, and have saved the US part of the symptom of their money printing.

Gold.net Founder

Reprice any asset in any currency including gold.

It is a complicated equation...

It is a very complicated equation (differential equation to be specific). Printing money is a big thing but there is an array of issues that also play a role like the government manipulating the price of gold, silver and stocks, supply of goods, weather, other economies, mood of investors, political stability, etc, etc that is why it is quite hard to predict on a short term. But the market always finds its way even if it is getting manipulated so we have a good idea were is heading. It usually behaves in a sine wave meaning that it goes up and down but it has long term direction (and we happen to know which direction!). Anything tangible will go (and it is going) up in price since dollar is going down.
Hyperinflation? I don't know, what I know is that the dollars is loosing a lot of ground. Check the parity between the Mexican Peso and the Dollar. Historically the dollar has always gone up against the peso, but since a few years ago the peso has not lost much against the dollar. Is the peso getting stronger? There is no reason for it, it means that the US dollar is falling at the speed of the peso. Those are my 2 cents...

A good way to defend your freedoms: www.libertymagazine.org

The banks have to hold it. If

The banks have to hold it. If they started issuing loans wouldn't they start the inflation climb by putting that money into the system?

I think you're right.

I think I heard Mike Maloney say once that most of the newly created currency exists as numbers on the bank books and hasn't come into circulation yet. That the fed can create currency but can't control where it goes and when.

Fairly simple

The banks have excess reserves. It means they have money which they are not lending out. The money the Fed has injected has gone in these excess reserves.

I don't know why they are keeping that money there and why the Fed isn't doing anything about it (charging them money to keep it stored at the Fed), but that's the answer. The money is essentially not in circulation.

Check out LibertyHQ, where I aggregate the all best articles on libertarianism by topic! For now, the "Issues in Libertopia" section is the most developed. Find a link to it below:


Found this quote on a forum for you.

"It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound." - Paul Krugman

Lord Acton, Lord Chief Justice of England, 1875 - "The issue which has swept down the centuries and which will have to be fought sooner or later is the People v. The Banks."

Just an added note

When the coming inflation begins to set in, interest rates will rise sharply to curb that inflation. This will result in fewer investors taking out loans. Not to mention wages never rise at the same rate as inflation. Perpetual inflation makes us perpetually poorer.

The founders would be ashamed at us for what we are putting up with.

When money dies!

After reading most all the posts on here it gives me so much hope to see all the Austrians come forward…..Whoa to all the Keynesians. My I add an aspect that has yet to be made. We are all defending the fact that the inflation either hasn’t occurred yet or that it just hasn’t hurt that bad yet, so the Keynesians think that we are scare mongers. The aspect that I would like to add is that what we are witnessing is the death of the dollar. I will leave the details of the death to someone more astute then myself. Please read Doug Noland. He is worthy.


A few things...

1) Price inflation is actually around 6% right now if measured the same way we did until the 80's (see shadowstats.com)
2) Most prices have not risen higher because banks are not lending this newly created money. The Fed is paying interest to banks on their loans to them so the banks are keeping their holdings at the fed and collecting interest as opposed to making loans at only a slightly higher return but much riskier. So once lending standards lessen, and banks decide to take a bit more risk, these new dollars will begin to flood the market and price inflation will dramatically increase.
3) The reason price inflation has not occurred in as big a way as you might expect (not just at this moment, but for the past 40 years or more) is because the US dollar is the reserve currency and is being held by foreign governments because of this, meaning the dollars are not in the market. As faith in the dollar drops and dollars begin to flood into the market, the dollar will become absolutely worthless.

Someone probably already brought these points up but...

The US has the privilege of its currency being the world's reserve currency. Faith in that currency has propped up the practices of the Fed and delayed the inevitable consequences of inflationary policies.

One day, the people of other nations will catch on to the worthlessness of the fiat FRN and stop accepting it. With the existence of competing currencies available in foreign lands, this refusal of FRNs is doable and will likely precipitate the inevitable consequences.

Good Questions

Good Thread

2 Reasons

1) Co-ordinated money printing from all G20 nations creates the myth of stable currencies world wide, while in fact all are loosing value over the long term

2) The US Military / NATO - Basically the 'big stick' we have been wielding for the last 60 or so year forces people/ countries to buy and use our currencies, which artificially increases the value.

Gasoline used to be 10 cents

Gasoline used to be 10 cents a gallon. Now it is $3.80. I'm not saying we are under hyperinflation, but that is certainly a massive increase in gas prices under one currency.

Gasoline is still 10 cents

If you have a silver dime!


There are so many Austraians here :)

Do not look only at the prices. Italy was able to go for decades with thousands of lirs in a pocket while Russia could not bear inflation in 90's and had to introduce new money.

Generating more paper money will further destroy capital formation and encrease big centralized government and monopolies (gov or semi private.)

Praxeology predicts general outcome, not exact timing. Putting all your money into silver/gold, may not play out as expected (1 oz of gold and silver may have a lower "price" related to its intrinsic value compared to their potential "price" under the gold standard; and the gold standard may never come back.)

Like the people below

Its because the U.S Dollar is the OPEC dollar, other countries need it, once they don't it will all come crashing down

Our dollar is needed by other countries

It comes down to oil. We rigged the game so oil has to be bought with the dollar. This gives demand to our dollar and keeps it valuable. Once the force of our military cant keep the game rigged and countries are able to pay in their own currency, then the gig is up.

The truth!

The truth is because there is a multi-year delayed response! The inflation of the early 80's was caused by the excessive spending on the Vietnam war in the 60's and 70's! The inflation IS ALREADY in the pipeline and coming, there is no avoiding it now. There will be about 2 more years of deflation starting in the next few months, and ending near the end of 2014. That's when inflation WILL begin. There will be inflation of over 10% to 18% for 5+ years between 2014 and 2020.


thanks Nostradamus!

Banks aren't Lending

The reason is that the Federal Reserve is paying member banks interest on their reserves. This causes them to lend out much less. This lowers the reserve ratios which is normally very deflationary, but their massive money expansion is counteracting this and we're only getting relatively modest inflation instead. I'm not sure if this is an Austrian explanation, but I know for a fact that it's generally accepted monetary theory.



Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Right now we have the largest

Right now we have the largest supply of oil since the 80's and the lowest demand in 20years and gas is still over $3.00 in most places. It should be around 85cents. Inflation of the money supply is the reason. If the economy bounces back and people start driving more and demand goes back to normal gas will be $6.00 in a heart beat. That in turn will raise the cost of everything you touch. It's just a matter of time.

Live Free or Die Trying

That is easy

First, new FRNs created by the fed are issued to their member banks at near zero interest. These banks are still trying to replenish the capital that they lost in the housing crash, so they are playing it safe. Very little money is being loaned out except to the government. These banks are taking free money and loaning it to the Treasury at a low 2% interest rate that only makes real profit when the money is free. By not loaning this money out for personal or small business loans, there is not more money chasing the same amount of goods. At the moment prices are slowly rising instead of plummeting like should be happening in an economic downturn. Even flat prices should be considered inflation during this period.

Second, our trade deficit is keeping prices in check. The extra money that does trickle through to the consumer gets spent on foreign products, so the profit is not respent in America but is used to buy assets such as commodities and US bonds to sure up that country's own reserves. This keeps the cycle going as profits from US consumer spending gets loaned back to the government to distribute over and over.

Third, we are forcing, through brute force, mass killings, and bribes, oil producing countries to sell their oil in FRNs. This also helps distribute the inflation around the world while keeping up the demand for US dollars.

There will come a point when other countries will actually want their principle back on loans and decide not to roll the loans over at maturity (that would be about $5 trillion this year alone). The banks will also decide at some point that they have replenished their capital and can make a better return on their investments than they recieve from treasuries. And at some point government lies and propaganda will not be enough to get support to invade yet another country that refuses to sell their resources for FRNs. I can't help but think that this will all happen in concert. viola, hyper-inflation.

I guess I'm not alone

When Banks start loaning out

When Banks start loaning out that money, the Federal Reserve can easily raise reserve requirements or reduce the money supply...

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Hyper-inflation has already occured

What QE1,2,3 & 4 are.......is the repairing a broke banking system.....I am done thats a rap......watch the video.


Hyper-inflation has already occured


Monetary expansion IS inflation

The result of inflation (inflating the money supply) will be increased prices. Prices going up doesn't mean inflation and inflation doesn't mean prices going up immediately, but they will certainly go up.

When they go up will be when we have a real recovery and there is demand for the money and the velocity increases. A real recovery of course won't then be much of a recovery because that's when prices skyrocket.

At this point the Fed must either suck out the cash, somehow, which may or may not be feasible, but if so it will destroy the very recovery (through monetary deflation) that the inflation was intended to instigate OR allow inflation to cause prices to go ballistic as people try to dump cash. My original thought was the Fed intended to allow a perpetual slump a la Japan by doing the former. Stymieing any budding recovery to fend off HI. Forever. Now I do not know.

Delaying the pain just increases the pain later. What needed to happen was for real capital stocks to be replenished and reallocated. Without that there can be no real recovery.

The important thing to keep in mind is that monetary policy shifts either way are wealth redistribution, and mostly from the poor to the super rich who have the inside info to know when to move and the capital to take advantage of the shifts. Each QE is theft from you.

This is taxation without representation.

It is nothing else.

It is economic ignorance promoted by the state (Keynesianism) that intentionally befuddles most people from understanding this.

Just Consider

Why a house that cost $300,000 at 8% interest in 1996 now costs $600,000 at 2% interest.

What, economically, like in real life, makes that possible?

If interest rates exist, and have a purpose, what happens when you have many years of zero interest rate. What does that mean?

We know two things about interest rates: they are a product of the market, and economists basically agree that they represent time preference and affect savings and investment.

So, if you want to go about this extreme policy of forcing them down across a trillion dollar economy of 350 million people, the burden is on YOU to explain HOW IT ALL WORKS AND WHY DEVIATING FROM THE NORM WILL NOT BE A DISASTER.

They don't bother explaining.