Saturday, November 16, 2013

Real life success in hyperinflation detection?

I am wondering if any readers have lived through hyperinflation and what was their first clue that hyperinflation was coming?    Or if people have read any real life examples someplace on the net if they can say how people first became aware hyperinflation was coming (links if you have them).    Like did foreign exchange rates change first?   Did food go up first?  

One place I read that stock markets in Germany, Zimbabwe, and Venezuala went up early on.   I note that Japan's stock market is well up.   It seems that when people get worried about money one of the first things they do is buy stocks.  So this seems a good clue.

Another early way is when the government robs the central bank of its foreign reserves.   Using the "backing view" in my many explanations of hyperinflation we can tell this will cause hyperinflation.

People rushing to get out of bonds while the central bank is buying also seems a good warning.

It would be nice if there were people who had already had success in detecting hyperinflation ahead of time and we could find how they did it.   I don't mean predicting that sometime there will be hyperinflation but I mean in telling when something has already started but before the prices are going up fast.

Thanks for any help anyone can provide.

11 comments:

  1. Try taking a look at Argentina. They've got a major inflation problem right now with the government manipulating the data. The only problem with using developing countries is that their threshold is (much) lower since developed countries can borrow at lower rates. One of the former central bank Chairman (Martin Regrado) called the government out and ended up being forced to quit.

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  2. Hi Vincent, you may wish to reach out to @Aquilus_sum who has commented a number of times over at FOFOA regarding his hyperinflation experience, eg, http://fofoa.blogspot.com.au/2013/11/advance-warning.html?showComment=1384051966224#c7079264736456455121

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  3. How fiat dies.. Ask Larry Summers and Paul Krugman

    http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/?_r=0
    One way to get there would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits.

    "One way to get there would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.

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  4. Are there any fiat currencies today not in any danger of rapid devaluation? I'm thinking of the Loonie and Norwegian/Swedish Krona?

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    Replies
    1. Chinese YUAN, the presumptive future gold backed currency.
      Why not just buy Gold?

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  5. +1 for Argentina, which is a very interesting case:
    - 30% inflation per year, food, fuel, energy etc
    - USD impossible to get except on black market
    - Since 2 years a black market for USD, spread has risen to 70%
    - All houses are paid in cash cash: a pile of USD. So nearly no mortgages.

    What will happen with Real estate prices in such a system? Wise to invest USD in land or houses or not?
    What happens is the Argentine peso is hyperinflating (now happening), but the shadow currency (USD) might do so soon?

    I welcome your thoughts...

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    Replies
    1. When Argentina stole the central bank reserves, again, I thought to myself that hyperinflation was coming. If I had written my "real bills view of hyperinflation" before then I probably would even have looked to short the currency.

      When interest rates go way up then people can not get loans and only buy real estate with cash. So compared to gold land does not do well at first. But once people are just paying cash then it seems to go up with gold. So ideal is probably gold at fist then diversify into land.

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  6. Maybe I missed this somewhere here, but after reading about a dozen articles, I don't recall reading anything about the role of rising wages in tipping "normal" (say 3% annual) inflation into 25%+ hyperinflation. I remember the 1970s very well and 10%+ annual inflation along with 10% pay raises every 6 months, in industries with pricing power. This has led me to conclude that inflation is always and everywhere an increase in wages (net disposable income). Nominal wages are not rising significantly now, and real wages are below 1970's levels, and official inflation is hardly moving up. I believe there is a link here. When wages begin to rise in earnest, all hell is going to break loose with the velocity of money.

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    Replies
    1. I use wages in one of my "many explanations of hyperinflation" post. For hyperinflation the wages that matter are government wages, so they have to print more and more as wages go up, which makes more and more inflation, which means wages have to go up, etc and you get a cycle.

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    2. Yes, thank you. I realize now it is one of the many feed-back loops you have identified. Higher wages for the lower 99% (those with the greatest marginal utility of more income) will mean lower debt burden. Banks will want to lend more and will be able to command higher interest rates on the loans, while they encourage more borrowing, that might actually be paid back. This, however, presupposes massive cash reserves parked at the Fed. Oh, wait! That stage is set. Bank reserve cash will break free into circulation, feeding into greater velocity of money, and a nasty impact on inflation, feeding into even higher wages for those who can demand it. And the longer this doesn't happen, due to more than a decade of suppressed wages and high unemployment, the greater the pent-up demand from a repressed consumer. Which could mean any hint of rising wages for the masses might be a hair trigger indicator. And lo and behold, the Fed is basing the end of QE on falling unemployment, which if that is achieved, will ultimately cause rising wages. And the longer QE goes on before that happens, the greater the avalanche of reserve cash that breaks out into circulation. Unfortunately for us, the Fed will ultimately get the inflation they so desperately desire, a tsunami of it.

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  7. eToro is the ultimate forex broker for newbie and full-time traders.

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