Wednesday, November 20, 2013
Hyperinflation is a market revolt not a political choice
Again and again I see people saying that hyperinflation is a "political event" or a "political choice". There are political events and bad choices leading up to hyperinflation but really hyperinflation is a market revolt against government debt and and deficit spending. Hyperinflation is a market response to bad politics, not the bad politics themselves. Never do politicians explicitly choose hyperinflation, they just keep trying to kick the can down the road further with deficit spending and then the market revolts.
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When is a con game over? It's when the mark figures out he has been duped. We have a rotating con game; where the mark never wakes up. He has been indoctrinated to dismiss what is in front of his nose. His concerns are lost in the noise.
ReplyDeleteThe real trigger is not an external event; it's when enough people start to take evasive action. If only a few people are trying to protect their assets, they can be dismissed a irrational. Their effects on the markets are small. The banks can have trillions in excess reserves held off the market, so there is little price movement.
But, when enough people start to stock up or buy goods which they think they can trade during a coming crisis, you start to get a noticeable price rise. Eventually, that rise is enough to betray the government's statistics as frauds.
Expectations change. Investing for an illusionary profit goes out the window and a person starts to conserve his wealth. Wealth is not currency; it's what you can use to keep yourself alive in turbulent times. When times are placid, then it is foolish to buy emergency food, precious metals, guns and ammo or a place out in the country where you can sustain yourself.
The trigger event is that you suddenly lost confidence that the authorities can keep the con game going. That there are no more 'greater fools' to buy your last investment. When you realize that you are holding the bag.
I like that. A con game is over when the mark figures out he has been duped. With the Yen down 4% in the last 4 weeks and more than 20% since its peak, when will these marks figure out that 0.19% per year interest on 5 year JGBs is a con?
DeleteYou are correct in my view. Any policy enacted by a government or its central bank is a political choice they and undertaking.
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