Saturday, January 11, 2014
Mish needs to understand what is happening during hyperinflation
Again this week Mish was ridiculing hyperinflation with words like "stupid", "foolish", and "preposterous".
However, Mish really only looks at the setup for and the after effects of hyperinflation. He never looks directly at hyperinflation. He understands that the core problems leading up to hyperinflation are political in nature. However, this is the setup, before hyperinflation starts. He understands that it usually ends in the destruction of the currency, or a "complete loss of faith in the currency". But this is after hyperinflation has ended. There can be many years between the setup and the after effects, and this is the time that is really called "hyperinflation". He has yet to focus on what is going on in the actual hyperinflation period.
The core political problem always results in the government deficit spending, a large debt, and the central bank monetizing the debt. Monetizing debt is a monetary phenomenon. Another key issue is that the velocity of money always increases at the start of hyperinflation and this helps make prices go up. Quantity of money and velocity of money are monetary phenomenon. Mish is clearly wrong when he says, "hyperinflation is not a monetary phenomenon".
I think it is fundamentally wrong for anyone to say there is no risk of hyperinflation without first describing their theory of how hyperinflation works.
I have more than 30 different ways of explaining the interesting process of hyperinflation that Mish skips over. I also have a Hyperinflation FAQ that counters Mish's arguments. I dearly wish that Mish would look at the actual process of hyperinflation.