Keynesian Leaches

There was a time when doctors would prescribe leaches for certain health problems.  When it did not work they often just increased the dose, with more leaches.   Often the leaches would kill the patient.  The Keynesian economists today do a similar thing.  They prescribe money creation.  When that does not work, they prescribe an increased dosage of money creation.   Eventually the patient, the economy, dies.

James Rickards on Japan

"Jim is increasingly convinced that Japan is ground zero for some very serious problems coming in the global economy. "     I think so too.

Shape of graph for BOJ holdings of JGBs

In an article on the BOJ holdings of JGBs they have the above graph.  Note that BOJ is Bank of Japan and JGB is Japanese Government Bonds.  The red curve above is actual data and the blue part is a projection.   I think the projection is wrong.  The red part looks like it is curving up while the blue projection is linear.  If the curve is really an exponential growth curve, and the projection is linear, then after a few years the projection will be way off.  Even with this linear projection they get to owning about 50% of the JGBs within about 2 years.  I don't believe there is any historical case of any country monetizing such a large fraction of such a large debt without very high inflation.  If inflation picks up you can be sure everyone will want to dump their JGBs, since fixed rate bonds lose value fast as inflation picks up.  This will make the BOJ buy even faster.  So I expect the real graph will keep curving up.

All you need to know

People think central banks have "lots of different tools to work with" but really they have one trick, they can make more money.   The details on on how they do the trick, the words, and the smoke, can change, but at the end of the day their only "secret weapon" is making more money.  If the only tool you have is a hammer, you treat every problem as if it were a nail.  If you try to fix your car, or the economy, with a hammer, it probably won't be a happy ending.

Studies of Failed Currencies

Somehow I have been credited with a study of 599 failed currencies, though I have not done such a study.   There have been studies of the history of failed currencies and it seems good to have a post where we can collect such studies into one place.   If anyone knows of other interesting studies  please post them in the comments and I will add them to this list.

1) History of Fiat and Paper Money Failures by Mike Hewitt.

Has a list of 177 current currencies and when they were started. I count only 16 of these as existing prior to 1900.

It has a list of 609 currencies that no longer circulate and says 153 of these died of hyperinflation.

2) Inflation and the Fall of the Roman Empire by Arto Bendiken

Detailed history of Roman inflation.

3) Fiat Currency: Using the Past to See into the Future by Nick Jones at Daily Reckoning.

Looks at Rome, China, France, and Germany. Says China's paper money was called "flying money" was because "because it could just fly from your hands.". To clarify, people would spend hyperinflating paper money as fast as they got it and hold onto silver coins.

4) Fiat Money Inflation in France by Andrew Dickson White

Fantastic book (free online) with detailed history of a French hyperinflation.

5)  5 Failed Currencies And Why They Crashed by Investopedia

Looks at Germany, Argentina, Zimbabwe, Peru, and Chile.

Referenced but not located studies.

1)  " 775 fiat currencies by DollarDaze.org" but the domain dollardaze.org does not work.  Wonder if someone has a copy.

Stock Market Omen

The S&P 500 recovered much more from the Aug drop than the Russel 2000 did. When people start to get nervous they move from smaller "risky" stocks to larger "safer" stocks. This often happens before a big crash.