So, if it comes to hyper-inflation....
Submitted by raisputin on Tue, 09/16/2008 - 18:01
Would an employer end up paying more to the employees so they could manage to buy things like gas and food at the hyper-inflated rates?
If so, what does that do to say a mortgage that is $2k/mo at a 6% fixed interest rate? Now suddenly the house payment is significantly less % of income than it previously was? Or will the bank try to adjust it or what?
Just a question, because I dunno the answer
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Creditors Cease to Lend the US Money?
Won't there eventually come a day when our creditors get wise and refuse to loans us the billions a day needed just to keep the game afloat leaving the only alternative....the printing press and hyper-inflation?
I can't believe they would trim expenses like the Military for example.
My question is
with so much money being destroyed in the last several month, with commodities and ALL assets in sharp decline over the last 2 1/2 months, with the US using one credit card to pay off another-ie. bailouts (which does nothing to stimulate inflation as it does not filter into the economy), with all these Deflationary pressures, why the worry of hyperinflation?
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"Ehhh, What's ups Doc?" B.Bunny "Scwewy Wabbit!"E. Fudd
People's Awareness Coalition: Deprogramming Sequence
What money was destroyed? I
What money was destroyed?
I keep seeing people mentioning that money is destroyed when their investments go bad. Commodities, stocks, etc going down does not equate to money being destroyed. Even if the stock in a company like AIG becomes worth nothing, that does not mean federal reserve notes have been destroyed.
When someone owns a stock, or a commodity, and the value of it goes down - yes, that individual did lose money. BUT, that money still exists. It is still in the system.
The reason is because the investor traded their money in return for the stock or commodity. The money still exists, it is just somewhere else.
Example: An investor buys 1000 shares of stock for $10k. That means the seller now has $10k in his/her pocket and the buyer/investor has 1000 shares of stock in his pocket. One has the $10k and the other has the 1000 shares. So, let's say the business burns down and the company goes bankrupt - the 1000 shares are now worth nothing. Does the $10k still exist? Yes, the party that sold the 1000 shares still has it. No money was destroyed.
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I was referring to defaults
I was referring to defaults as money destruction, it is being reflected in prices of the other things I mentioned.
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"Ehhh, What's ups Doc?" B.Bunny "Scwewy Wabbit!"E. Fudd
People's Awareness Coalition: Deprogramming Sequence
Prices being deflated is not
Prices being deflated is not because of defaults, it is because the down-grade of the economy and depressed demand. No money has been destroyed through defaults only future repayments. The debt "asset" paper has been "destroyed", but not the money that was originally placed into circulation through the act of lending in the first place, besides that these investment houses and banks bought these MBSs, CDSs, etc. as future income.
“Men do not willingly read unpalatable truths of themselves. The people like those best who fool them most by pandering to their vices and flattering their foibles”—Admiral Raphael Semmes.
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
Still not money destruction
When someone defaults on a loan, the money that was created by the loan STAYS in circulation instead of being paid back. That is not deflationary. Nor is the downward trend in asset prices. Now when the bank goes under and stops making loans, that is deflationary. But when the Fed or the Treasury pours money into such an institution with, as you say, its credit card, that CREATES money.
All of these bailouts are creating new money.
The only deflationary forces are the downturn in willingness for people and businesses to borrow more money and that is not going to offset the government's massive influx of fresh debt money.
I agree, the money that was
I agree, the money that was created by loans is already in circulation, only the paper contracts that were back by those loans are worthless, that is future money being repaid, not the money that was actually created at the time the loan was made.
“Men do not willingly read unpalatable truths of themselves. The people like those best who fool them most by pandering to their vices and flattering their foibles”—Admiral Raphael Semmes.
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
Because, the primary thing
Because, the primary thing the FED has been used for, the actual sole purpose of the FED is to "stablize" prices, it sees deflation as a much more dangerous threat than it does inflation because it is in the inflation business, the "money" creation business. Besides that, the entire Fiat Economy is completely built upon the expansion of credit/debt creation. IT WILL INFLATE! That is all it knows how to do, that is the only trick it has in its magic hat. On top of that, the FED fears another deflationary depression, seemingly they don't realize that an inflationary depression is far worse.
“Men do not willingly read unpalatable truths of themselves. The people like those best who fool them most by pandering to their vices and flattering their foibles”—Admiral Raphael Semmes.
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
One Of The Things I Have Read About Hyper-Inflation
Everything I have read state that hyperinflation allows for current debts to paid off quickly; however, it is hard to stay on top of necessities such as food, enery, and the sort. Your mortgage cannot increase in times of hyperinflation if you have a fixed mortgage. During the German hyperinlation in the 1920's two oz of gold could buy a whole farm. So a good idea would be to spend the $2,000 and put away a couple oz of gold. It could be the greatest investment of your life. Gold bullion in the form of the Canadian Maple Leaf is a good way to have actual gold on hand.
One more trick - thanks to Tricky-Dick Nixon!
During violent price increase phases the government can enact laws which fix prices. Rents, Milk, Gas. This happened in the early 1970's and is a (supposedly) one of the primary causes for the formation of the Libertarian Party who realized the GOP was CCCP.
They can use that trick again. They will use this old trick once things get that bad.
A lot of people view our economy as a "bubble" while I view it as "under water". We are in deep...
The entire key to this problem is whether or not 'they' can control the dramatic changes so we an all cope with them. They must control our ascent into reality.
Avoid the Benz, re-surface slowly to Freedom.
Ron Paul for Peace!
I am glaI am glad to see
I am glaI am glad to see this thread alive and it appears that what I thought *could* happen, is the scenario that most people are speaking of here. Thanks to all for the answers :)
It took hundreds of years for Rome to eventually fall...
Just a theory here;
The whole question is how much control does the US really have over the de-valuation of our currency?
Rome took hundreds of years to fall with the currency ultimately de-valued. Weimar republic was due to the treaty after WW1 and may not be the example that the USA follows. The supremacy of the US dollar (hegemony) is certainly unravelling, however it may be a very long time before it is "down and out" for the count. There will be a lot of "fight" left in the US Dollar before we need a wheel barrel to buy a loaf of bread and we adopt the Amero.
If the US Policy-makers are successful in actually controlling the eventual de-valuation (and avoid a Peter Schiff type total monetary collapse) we may muddle through this recession/depression. It could be our granchildren who are forced to deal with the eventual "collapse". Certainly the debt holders who must repay their debtors in US dollars will benefit. Paying back loans with dollars that may become half or one third as valuable in terms of purchasing power, however home prices will fall and prices for all else will go up, so we may all be in a struggle no matter what.
Holders of silver/gold will benefit, however the demand from China and industry may take a large hit in an international recession so those holding on to such assets may need to hold them for a long time as people may prefer to spend their money on things such as heat and food and gas and the high taxation that shall be required to cover all of these recent events. ;)
Ron Paul for Peace!
Rome didn't have paper money
Rome issued coins of gold, silver and bronze, not paper, and therein lies all the difference. Inflation began in Rome when the gold coins were diluted with silver and copper. Actually the period of inflation in Rome was relatively short and led pretty quickly to severe problems. Constantine corrected the problem by issuing the gold Solidus. It was too late to save the Western empire, but the Eastern Roman Empire had learned the lesson of inflation and the Gold Solidus, or Byzant, was issued continuously at a constant weight of gold for something like 800 years and became acceptable currency from China to the British Isles.
With gold coinage, even a government dedicated to inflating the money supply by diluting the metal content and shrinking the size of the coins is severely limited as to how much they can inflate. With paper money there is no limitation whatsoever. The government could start printing trillion dollar bills tomorrow, call them legal tender, and use them to pay off all its debts just like that. The inflationary impact would be horrendous and swift. They won't do anything that radical, but the result will be the same - before this is done, they will need to borrow many trillions of dollars into existence to pay for bailouts etc. The effect will be inflation far beyond anything the Romans ever saw.
Paper money Vs dilution of coinage
That's a good point, however there are additional facts such as: Rome lost it's ability to collect taxes from the people of Italy as a result of their 'dilution' of the coinage across the 'Empire'.
The US Dollar is now backed by the 'good faith' of the people of this country. This is related to the Federal Government's ability to collect taxes and our Gross Domestic Product.
I do not believe that the people of the USA are as free & independent as the people during the fall of Rome so as to stop paying the IRS and risk the loss of their home and their freedoms.
Therefore, one possible future for this nation is a diluted dollar, and not a "dollar collapse" as Peter Schiff purports on his website EuroPac.Net (an excellent site which is one of five I read daily, including this one, I might add).
I can envision the day when we no longer use pennies & nickels, dollars are coins and not paper, and a candy bar costs a couple of bucks.
It is much harder to imagine that we would not go to war, socialize the means of production, tax our people 90% of their incomes, charge real estate tax upon churches, sell off national parks & assets of the government, and try many other desperate measures... before we would allow the total and complete destruction of our currency.
These things usually take lifetimes to unwind, not years. The United States of America has many many many resources (including Alaska and our provinces) which we may need to exploit before the dollar goes to Zero.
I'm open to the other arguments but I do not see enough of my own on opinion on these forums and gold-bug websites... thanks for hearing me out :)
Ron Paul for Peace!
Almost overnight
Inflation is not a function of good faith and credit. It is not a function of resources to exploit. It is not a function of ability to tax. Inflation is a function of monetary policy. Create more money and the value of the money is diluted. Create truckloads of new money like we are now and the value of the money will be massively diluted.
Inflation takes one to two years to result in a general increase in prices under non-hyper conditions. The massive increases in money supply now will be felt as price increases next year. It doesn't take a lifetime. It doesn't even take five years. And when inflation REALLY takes off, it happens very quickly. The Weimar inflation didn't take a lifetime to destroy the Mark. The American Colonial inflation didn't take a lifetime to destroy the Continental. These disasters unfolded in a matter of a four or five years.
None of the "desperate measures" you list will counter inflation. In fact, most will aggravate it. There is only ONE way to stop the inflation train - stop creating new money. Simple as that. But for there to be an end to the rampant creation of new money, the very nature of government must change and soon. But it is showing no signs of change. Rather, it is charging down the road of inflation just as has been predicted.
Inflation is like crack for politicians and the special interests that control them. At this stage they KNOW it is destroying the system, but they can't stop. They talk about stopping. But when it comes time to hit the pipe, they do. And they won't stop until the crack runs out and they have no way to get more. And the once great Federal government will be on its knees.
And that is when we break away into some new republics and try to start over.
Forget Thee Not...
The $62,000,000,000,000.00 in unfunded entitlements to be paid out over the next twenty years. Given we bring in $1.8 Trillion and spend $3 Trillion, methinks that they will either default or turn on the presses. So, which will it be?
**“The man who does not read good books has no advantage over the man who cannot read them.” ~ Mark Twain **
"...there is no doubt that it (socialism) could not possibly have affected us so widely and so deeply as it has, had it not been heavily financed". - B. Carroll Reece
A delicate balance with our creditors...
We must be very careful how we dilute this massive debt.
As Ron Paul pointed out to Ben Bernanke, the loss of the value of the US Dollar results in a sort of "theft" from pensioners on fixed incomes. The creditors who loaned people money long-term at low rates are paid back a fraction of the real value of the dollars they receive.
Should our US Dollar collapse we would likely go to war. Stop wishing for this just because you (as I) hold some small amount of silver or a couple gold coins in the hopes they will double or triple when the "dollar collapse" comes. Jesus may come before that happens.... or, more optimistically, aliens from another planet may come before that happens.
The problem with "turning on the printing presses" is that there must be a means for these dollars to get to the people, then the people must do something with these dollars instead of hoard them or drive up prices on everything. There is a better alterative if you are the powers currently in control... you will not like this next part.
The baby-boomer generation is a bunch of aging former hippies who may witness their life savings go from ten to one by the time they need the money. They are the largest voting block. Welcome to Democracy!
I envision government-run hospices, elderly services, old-age homes, Medicare (oh, we already have that). They will vote themselves the creature comforts and means to extend their own life while other generations see taxes rise and benefits of government decline.
The good thing is that there we can avoid a big war because these other nations are getting something back from us rather than nothing, plus they will own the rights to many of our resources thru the issuance of bonds backed by say - the rights to the Grand Canyon. We can pay back our debts with the reduced dollars or else we loose it all - everything.
Will the future 'slaves' revolt? It's always a question of how comfortable we are with the situation. I predict the passage of legislation which allows the recreational use of marijuana...
"The relatively few remaining American taxpayers will gladly welcome their daily ration of soma, the ultimate happiness drug in Brave New World." http://www.strike-the-root.com/3/blow/blow3.html
Ron Paul for Peace!
I've often wondered
When do you know it's time to raise your prices? Wait until your suppliers raise theirs or be proactive? How did they know?
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The employer would have no
The employer would have no choice but to pay more. If hyperinflation does happen and let's say someone's gas expense goes from 400 per month to 4000 per month, but they only previously earned 3000 monthly - what could they do? It is either pay more wages or have no employees.
At the same time, the employer would have no choice but to become part of the cycle by increasing their prices enough to be able to pay their own bills.
Nothing would happen to that $2k mortgage payment. It would remain the same (unless there's some funky small print in the contract). Hyperinflation helps those who are in debt by the value of their debt shrinking.
100 years ago, during hyperinflation in Germany there were stories of farmers paying off all their debt for the sale price of a single egg...
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Wages lag everything else...
They are the last thing to show the effect since the trickle-down from commercial transactions must cause the employer to feel the effect (thereby intellectually understanding it) before it can therefore affect its changes on operations and pay scales. After all, how can they pay more when their cost of doing business is rising just as rapidly and just as unpredictably.
**“The man who does not read good books has no advantage over the man who cannot read them.” ~ Mark Twain **
"...there is no doubt that it (socialism) could not possibly have affected us so widely and so deeply as it has, had it not been heavily financed". - B. Carroll Reece
Last I checked, eggs were going for Z$500,000 each in
Zimbabwe which was the smallest note at the time. I think they have a new currency now and have shaved off a few zeros.
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Lisa C.
**This space is available.**
Ron Paul "Sign Wave Across the USA" -- November 5th!
That's a pretty good example I think. It brings to mind the
German housewife who found it more economical to burn Mark notes rather than use them to buy wood to burn in her stove during the 20s. I recall the recent report of Zimbabwe beginning to circulate $10 Billion or $100 Billion Notes? I don't recall the amount. It's like living inside a slow motion train wreck. The Fed will continue to use various odd ruses and stratagems and the sheeple, for the most part, will welcome (and finally clamor for) further and more draconian laws and controls on their individual lives.
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"An economy built on fiat money is a society on its way to ashes."
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"An economy built on fiat money is a society on its way to ashes."
Welcome raisputin.
We've been wondering what happened to you.
___________
Lisa C.
**This space is available.**
Ron Paul "Sign Wave Across the USA" -- November 5th!
Just busy working and
Just busy working and prognosticating :)
hyperinflation on Wikipedia
I learned a lot here: http://en.wikipedia.org/wiki/Hyperinflation
In this case....
The owners of debt lose out. The contract was for a "sum certain" and as long as you are able to pay it, and as long as the loan is not called in before circumstances allow, it will be fine. The problem arises with the general economic conditions in which wages are the last thing to react to the inflationary rise...and in which most will lose their jobs under the massive failure rate that also accompanies such an environment.
The solution is found in the holding of inflation proof assets, those that rise in value right along with the rate of inflation or better. This is why gold and silver are getting scarce and hard to find. People see this coming.
In the Wiemar Republic of Germany, in January of 1919 and towards the end of WWI, one ounce of silver sold for 12 marks. Due to the punitive Treaty of Versailles in June of that year, Germany had been forced into a surrender that included massive fines and recompense to her former adversaries. Within 4 years, by January of 1923, as they did what we are about to do now...printing the money to meet their obligations, silver went to 23,277 Marks per ounce and one year later in January of 1924, the price of one ounce of silver rose to 543,750,000,000 Marks per ounce!
Hmmm...at those exchange rates, I could pay off my mortgage with four silver quarters! Boy, am I glad have them!
**“The man who does not read good books has no advantage over the man who cannot read them.” ~ Mark Twain **
"...there is no doubt that it (socialism) could not possibly have affected us so widely and so deeply as it has, had it not been heavily financed". - B. Carroll Reece
see Zimbabwe! I am more
see Zimbabwe!
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
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Hyperinflation wipes out all
Hyperinflation wipes out all savings(in money) in all areas of the economy - i.e. we're all fucked. Wage rates usually cannot keep up with the rate of devaluation of the the currency. In hyperinflation, a bus ride could cost more at the end of the day than it was at the beginning - how could an employer possibly adjust wage rates that fast?
In the case of the mortgage, I can see a few possibilities. The banks could honor their contracts and allow mortgage owners to essentially pay the loan for practically nothing(although there are likely to be caveats/provisions in the contract for such an eventuality - read the fine print!). Or the banks could claim that the economic situation makes current mortgages obsolete and through government could forcibly change contracts(governments can do as they please... although they'd have a tough time getting anyone to enforce their laws at this stage of the game).
"My theories explain, but cannot slow the decline of a great civilization. I set out to be a reformer, but only became the historian of decline."
- Ludwig Von Mises
with a fixed loan rate
inflation works against the lender, because the loan is payed back with dollars of lower buying power.
There is no requirement for your wage to be increased if inflation erodes the buying power of your take-home pay. You'll have to do with less buying power, or get another job, if your employer doen't have a COLA policy. Most gov't jobs do have COLA.
Where I live, government
Where I live, government COLA and their contract negotiations resulted in township employee compensations literally doubling from 2002 through 2007 - all the while the average annual earnings per worker in that township barely budged at all.
So now the township doesn't have enough money to hire new workers and they put in the newspaper that we'll be less safe because a few retiring police offers (out of many dozens) will not be replaced because they don't have the money.
...