tag:blogger.com,1999:blog-1892824566694270102.post4236785774151380244..comments2024-01-27T00:46:34.345-08:00Comments on How Fiat Dies: Lenin and planned hyperinflationVincent Catehttp://www.blogger.com/profile/06502618776820144289noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-1892824566694270102.post-73829499148846145382014-10-03T11:16:40.330-07:002014-10-03T11:16:40.330-07:00Had some discussion over on bloomberg:
http://www...Had some discussion over on bloomberg:<br /><br />http://www.bloomberg.com/news/2014-10-02/fed-critics-say-10-letter-warning-inflation-still-right.html#disqus_threadVincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-56863106973458752212014-09-30T14:24:07.702-07:002014-09-30T14:24:07.702-07:00When they are spending about twice taxes, that lit...When they are spending about twice taxes, that little "only need to get the deficit under control" may not be as easy as you think. Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-27636166930990493422014-09-30T11:32:44.415-07:002014-09-30T11:32:44.415-07:00On the other hand they have several untapped resou...On the other hand they have several untapped resources that could be utilized if there is some reform. Low workforce participation of women, low immigration, low taxes (compared to other developed countries). I think the BOJ are in control of interest rates. If they end up as the only owner of JGBs they would be in control of interest rates even more, but then the yen would be the only way for the market to price those bonds. So it looks like the japaneese gov only need to get the deficit under control to save the situation because they can keep the interest rates low forever. Dan https://www.blogger.com/profile/14228383423254118263noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-33383114410062670442014-09-30T07:21:03.276-07:002014-09-30T07:21:03.276-07:00Japan's numbers are extreme. With interest ra...Japan's numbers are extreme. With interest rates near zero they are still spending 1/4th of taxes on interest on the debt. If rates go up they are clearly broke. The debt is over 240% of GNP. They are spending twice what they get in taxes. The USA and UK had numbers close to this at the end of WW2 but then cut their military. The US at least then had a budget surplus, no deficit. But in peacetime I don't think anyone has gotten these kinds of numbers and survived. There are sort of conceivable ways out, just the odds are they get hyperinflation. Really the central bank is faced with the choice of trying to keep interest rates near zero or letting them go up, either way they seem headed for hyperinflation. The idea of the government cutting their budget in half when they can borrow money for almost nothing, just does not seem realistic. Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-881905050205369142014-09-30T06:29:05.457-07:002014-09-30T06:29:05.457-07:00I don't think Japan is safe either but I would...I don't think Japan is safe either but I would like to think more about the numbers involved. Can there be a possible scenario of growth of the economy and extra income for the government that can save them. All other conceivable outcomes must be considered and discarded before I feel confident that only one thing will happen.Dan https://www.blogger.com/profile/14228383423254118263noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-20447377564174737052014-09-30T05:47:24.527-07:002014-09-30T05:47:24.527-07:00Yes. I lost $100 once because I was only thinking...Yes. I lost $100 once because I was only thinking in equation of exchange terms and there was a central bank that had a huge increase in their total currency but as it was backed by something that held value they did not get inflation. <br /><br />Because there are assumptions in the quantity theory, it can easily be wrong. The equation of exchange on its own is always true. It is safer to work off of that.<br /><br />In Japan's case they are buying bonds years out. This is "backing the currency with the future value of the currency" which is not safe at all and not permitted under the "real bills doctrine". So Japan is not OK even under the backing theory.<br /><br />Thanks!Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-76307266741836696272014-09-30T00:07:00.792-07:002014-09-30T00:07:00.792-07:00I saw your link, I think there have been earlier a...I saw your link, I think there have been earlier and later versions of both QTM and EOE making it a little confusing. I thought of them as basically the same. This is from wikipedia on EOE : "This equation is a rearrangement of the definition of velocity: V = PQ / M. As such, without the introduction of any assumptions, it is a tautology. The quantity theory of money adds assumptions about the money supply, the price level, and the effect of interest rates on velocity to create a theory about the causes of inflation and the effects of monetary policy." <br /><br />If you would side with one theory over the other if they have conflicting predictions then I would always stick to the theory you side with as the basis for analysis. It would be interesting to read more from the backing perspective. Maybe hyperinflation in Japan is still not immenent from a backing perspective for instance. <br /><br />Anyway, I enjoy reading your blog.Dan https://www.blogger.com/profile/14228383423254118263noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-87467794425636833642014-09-29T12:15:22.985-07:002014-09-29T12:15:22.985-07:00I would not say I use "QTM". I would sa...I would not say I use "QTM". I would say I use the equation of exchange. Yes, I really like the backing theory of central banks and money value. I discovered the equation of exchange on the page below and that was the first good theory of hyperinflation I found. <br />Yes, if there were a disagreement in predictions between this and the backing theory, I would expect the backing theory to be right. Don't understand your comment about volatility. <br /><br />http://www.sjsu.edu/faculty/watkins/infldynamic.htmVincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-57801296502434330432014-09-29T11:33:04.544-07:002014-09-29T11:33:04.544-07:00Vincent, I read in some comments somewhere that al...Vincent, I read in some comments somewhere that all the hyperinflation you studied came from "money printing" except two that came from the CBs loosing their assets. You use QTM as an explanation for what leads to hyperinflation but wouldn't it be better to use something that can be applied to all cases? Perhaps the backing theory. I see you are using that also, but less often, but I don't think they can both be correct at the same time. Since QTM can not predict volatility, but heavily relies on it, I don't think it can be used for inflation predictions.Dan https://www.blogger.com/profile/14228383423254118263noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-75230113104257573392014-09-29T06:47:58.020-07:002014-09-29T06:47:58.020-07:00Part of a government's power comes from the ab...Part of a government's power comes from the ability to print money. If a government had any smarts they would not destroy this ability. Part of why I don't believe it was ever planned to happen.<br /><br />If there were even rumors from ahead of time that Lenin was planning to destroy the money they would be more credible. But this rumor of it being planned was from after it was mostly destroyed. Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-5243953167205469432014-09-28T16:16:21.079-07:002014-09-28T16:16:21.079-07:00Vincent, I made the claim once (albeit with no evi...Vincent, I made the claim once (albeit with no evidence, but still I made the claim): regarding Hungary after WWII: I speculated that the commies intentionally caused the Hungarian hyperinflation.<br /><br />I also speculated at the time that hyperinflations tend to be associated with left wing takeovers (e.g. Hungary, the various Bolshevik plots in Germany in the early 1920s), and that depressions tend to be associated with fascists (Hitler, Huey Long, Golden Dawn in Greece, and the neo-Fascists in Hungary right now). But of course that was all speculation. Tom Brownhttp://www.google.comnoreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-78392082944851285312014-09-28T02:50:46.550-07:002014-09-28T02:50:46.550-07:00The U.S. will benefit from hyperinflation. All the...The U.S. will benefit from hyperinflation. All their debts will be paid off nominally, without the need to ship stuff to China for 15 years (ie, pay back in real terms). <br /><br />Of course, the US also benefit from the status quo (getting free stuff from China), so they'll delay hyperinflation as long as they can.<br /><br />Regards,<br /><br />Delusional Investinghttps://www.blogger.com/profile/13300828190667701781noreply@blogger.com