Hyperinflation is that transition period when a paper money is clearly failing as a store of value but has not yet died as a medium of exchange. This blog is to look at this and any other interesting economic issues. Vincent Cate
Monday, November 25, 2013
Armstrong and Hanke out of touch with real world definitions
Everyone has their own definition of when exactly hyperinflation begins. Hanke wants to see very aggressive inflation before he regards it as "hyper". What these folks don't understand is that hyperinflation is something that will spring up rather suddenly and very quickly. It is not going to telegraph itself. It will be like a woman who just found out that her husband has been cheating on her. Suddenly her mood toward him changes, and everything is different. She now wants nothing to do with him and shuns him. So it will be with the masses when they finally realize that the policy of the Fed to print money ad infinitum will never end. The big money, the smart money, will be the first to realize it. Then the common man will follow the herd. It will be like nothing ever experienced before by the Western world in our time. "The Fed is planning to taper" they tell us. But they never taper. "Just a few more months and we'll taper" they say. But the months go by. "Asset purchases will conclude by the end of 2014" they say. But 2014 comes and goes without even a taper for one reason to another. Eventually, the market realizes, "they are never going to taper, because the banks and the economy can't survive without continued injections of money via QE and ZIRP." When will the market realize this? The market is quite slow to realize things that are obvious to many of us. But eventually it'll come around. Maybe in 2014. Maybe 2015. Maybe 2016. But come around it will.
Everyone has their own definition of when exactly hyperinflation begins. Hanke wants to see very aggressive inflation before he regards it as "hyper". What these folks don't understand is that hyperinflation is something that will spring up rather suddenly and very quickly. It is not going to telegraph itself. It will be like a woman who just found out that her husband has been cheating on her. Suddenly her mood toward him changes, and everything is different. She now wants nothing to do with him and shuns him. So it will be with the masses when they finally realize that the policy of the Fed to print money ad infinitum will never end. The big money, the smart money, will be the first to realize it. Then the common man will follow the herd. It will be like nothing ever experienced before by the Western world in our time. "The Fed is planning to taper" they tell us. But they never taper. "Just a few more months and we'll taper" they say. But the months go by. "Asset purchases will conclude by the end of 2014" they say. But 2014 comes and goes without even a taper for one reason to another. Eventually, the market realizes, "they are never going to taper, because the banks and the economy can't survive without continued injections of money via QE and ZIRP." When will the market realize this? The market is quite slow to realize things that are obvious to many of us. But eventually it'll come around. Maybe in 2014. Maybe 2015. Maybe 2016. But come around it will.
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