Sunday, October 3, 2010

How Fiat Dies

With this economic mess I have been reading lots of stuff. I have been writing up what I find interesting in http://pair.offshore.ai/38yearcycle/    I would like to get more feedback and so have started this blog.   As I put in new sections I will post here.

The latest stuff is related to MMT.  In particular Chartalism, Hyperinflation in MMT Terms, and Common Errors in MMT.

The name of this blog, "How Fiat Dies" is referring to Hyperinflation which is a big theme in my stuff.  Hyperinflation is how fiat money makes the transition from normal money to money nobody will take.

Hyperinflation seems to come after a government that can print money gets deficits to over 40% of spending for a few years.  First people move into short term bonds, then they stop buying  bonds.  At this point the government has to print money to cover both the full deficit and all bonds coming due.    The government is forced to print money fast as the short term bonds come due very rapidly.   This causes 3 things.  An increased money supply,  people spend their money faster to minimize the loss between when they get it and when they spend it, and it hurts the economy.  All 3 of these effects combine to cause prices to go up in a non-linear way.   Since a large part of the population depends on the government for support, as prices go up the government is forced to print more and more.   This all spirals out of control, as taxes can not possibly be raised enough to cover all the bonds coming due or the deficit.

We live in interesting times, the kinds of times when fiat money dies.

2 comments:

Looking for polite debate on ideas. Never attack a person. Be nice.