Hyperinflation

[hancocs]

Just read an article in Backwoods Magazine about Hyperinflation. I did not really understand it to well till I read the article, but it seems we are more then likely going towards that road. How close do you think we are to seeing this happen? Also since 1913 when the Fed Res was created the dollar today is only worth about 4 cents in buying power.

[opsec]

Nobody can tell that for sure.

[Atash Hagmahani]

Well, in a grand scheme of things, we can. Pure fiat currencies, so far, have always ended in hyperinflation. The longest-lasting one on record was one of the first, in Imperial China under Mongolian Rule.

I believe it was Emperor Kublai Khan who issued pieces of paper claiming to be worth something like 1lb of gold. The notes had to be accepted by merchants under penalty of death, and unlike what happened in a similar situation in the American colonies, the Imperials would not have accepted merchants simply pulling their wares off the shelves and closing shop.

It lasted for about 200 years before collapsing into hyperinflation. Bear in mind that China of the time had a huge, and rather slow-moving, economy at the time.

The USA's early experiments with fiat currency did not last as long. The "Continental" collapsed within a matter of months or a few years.

Some other pure fiat currencies that also collapsed into hyperinflation included the Assigniat and the Mandat, from Revolutionary France. The penalty for refusing them was the same as in China ("sous peine de mort"). One followed the other in fairly quick succession. Ironic considering that it was a fiscal crisis that brought down the monarchy itself.

The current system has lasted a long time as fiat currencies go. That's because the whole world was conditioned for it for decades before it was introduced, with a lot of hocus-pocus.

[Eddie]

The notes had to be accepted by merchants under penalty of death

Major astute comment you just made. In the 13th chapter of Revelations an 8th king is depicted as an image that comes to life and demands the worship of everyone on earth ON PAIN OF DEATH. Maybe that is because at that moment in time, the value of currency will transfer to ones soul.

[opsec]

So what happened in France between the time that the Assigniat failed and the Mandat came into use?

Eddie, I think you may be onto something with that.

[Atash Hagmahani]

So what happened in France between the time that the Assigniat failed and the Mandat came into use?

Eddie, I think you may be onto something with that.

I dunno, but I would guess one followed the other in fairly quick succession as there were "too many zeroes" printed on the notes to take them seriously.

While looking for an answer, I found this long and detailed discussion, which may be of interest to history buffs:

http://www.usagold.com/gildedopinion/assignats.html

Funny how we never learned this stuff in high-school history.

[opsec]

http://www.usagold.com/gildedopinion/assignats.html

According to an International Monetary Fund sponsored study by Stanley Fischer, Ratna Sahay and Carlos Veigh (2002), hyperinflations have been a rare commodity since 1947 and the dawn of the Keynsian era, but "much more common have been longer inflationary processes with inflation rates above 100 per cent per annum." These they classify as "very high inflation" episodes. The study finds that close to 20% of the 133 countries studied experienced inflations of that magnitude. The average duration of these episodes was 40 months with a minimum of 12 months and maximum of over 200 months.

This sounds like the kind of information I'm looking for.

Later, when a European war broke out, they undertook measures to promote the demand for assignats, by severely restricting individuals' access to other assets, and later by introducing the assignats into newly conquered territories.

Uh-oh. War?...followed by restricting access to other assets (like land)? If history is about to repeat itself...

Born in 1801 in the wake of this sad monetary and social chapter in human history, Frederic Bastiat advocated some principles that remain even today good words of guidance for each of us to live by. He said that we must strive to be responsible for ourselves. "Look to the State for nothing beyond law and order.

Law and order are essential for individuals to accumulate wealth. Isn't that precisely what TPTB are trying to prevent? This tells me the direction that law and order are going to go.

(3) An wholesale demoralisation of society took place under which thrift, integrity, humanity, and every principle of morality were thrown into the welter of seething chaos and cruelty.

Human nature doesn't change over time. We will experience this when the dollar finally does fail.




 

[Mike]

Very interesting thread!!

According to an International Monetary Fund sponsored study by Stanley Fischer, Ratna Sahay and Carlos Veigh (2002), hyperinflations have been a rare commodity since 1947 and the dawn of the Keynsian era, but "much more common have been longer inflationary processes with inflation rates above 100 per cent per annum." These they classify as "very high inflation" episodes. The study finds that close to 20% of the 133 countries studied experienced inflations of that magnitude. The average duration of these episodes was 40 months with a minimum of 12 months and maximum of over 200 months.

100% inflation per annum isn't hyper?

[Atash Hagmahani]

100% inflation per annum isn't hyper?

No, Bud, it's not, if the currency survives it. I would define "hyperinflation" as "terminal", as in, the currency plunges to its asymptotic "zero", as not only do prices rise, but the rate at which they are rising is itself rising.

Several currencies have been "rescued from the brink", probably only with intervention by international banks.

[opsec]

How did people get along in life after their currency failed? Was it straight barter or just your basic kill-and-plunder model?

[hancocs]

I think  people would do whatever they had to do t feed their own. If it meant taking a life....some would be capable of doing that.

[opsec]

If it meant taking a life....some would be capable of doing that.

Are you kidding? I think that once people get used to the idea, they will not just be able to kill, but will actually enjoy it. Remember back in the old west how people would gather around the gallows in order to watch a prisoner be hung? The whole town, women, kids, old people, came to watch the festivities.

[Atash Hagmahani]

How did people get along in life after their currency failed? Was it straight barter or just your basic kill-and-plunder model?

Depends on where and when, but in general, "moral values" decline. People start perceiving the system as "unfair", and so they start cheating as well.

The bad news is that the economy tends to tank as "division of labor" breaks down.

[opsec]

 http://www.usagold.com/gildedopinion/assignats.html

If this paper represents real credit, founded upon order and legal security, from which it can derive a firm and lasting value, such a movement may be the starting point of a great and widely-extended prosperity, as, for instance, a splendid improvement in English agriculture was undoubtedly owing to the emancipation of the country bankers. If on the contrary, the new paper is of precarious value, as was clearly seen to be the case with the French assignats as early as February, 1791, it can confer no lasting benefits. For the moment, perhaps, business receives an impulse, all the more violent because every one endeavors to invest his doubtful paper in buildings, machines and goods, which, under all circumstances, retain some intrinsic value. Such a movement was witnessed in France in 1791, and from every quarter there came satisfactory reports of the activity of manufactures."

"But, for the moment, the French manufacturers derived great advantage from this state of things. As their products could be so cheaply paid for, orders poured in from foreign countries to such a degree that it was often difficult for the manufacturers to satisfy their customers. It is easy to see that prosperity of this kind must very soon find its limit. . . . When a further fall in the assignats took place this prosperity would necessarily collapse, and be succeeded by a crisis all the more destructive the more deeply men had engaged in speculation under the influence of the first favorable prospects."[31]

I have a room temperature financial IQ and I'm not understanding the process by which this prosperity finds it's limit. Can somebody explain on a first grade level how this happens?

[Atash Hagmahani]

I bet it's a translation of Bastiat's dated and somewhat understated language. Let me explain it more simply:

For a while, French factories SEEMED to be thriving, because orders were pouring in from France and all over Europe. But what was really happening was that the buyers were anticipating that the currency would collapse, so they would rather have goods than soon-to-be-worthless paper.

Once the currency starts nosediving in earnest, so does business, in part because inflation starts getting booked as a false "profit". Imagine that you were a merchant, and you bought goods for $100 and sold them for $200. You've made a 100% profit! OR HAVE YOU?! If inflation is very steep, you might very well have sold at a LOSS! Because you'd have to replenish your stock at, say, $250. You're actually losing money, but on your books it "looks" like a profit! (and you are taxed accordingly!)

When he said "limited prosperity", more likely that was an understatement (perhaps politically-motivated, to avoid offending the wrong people!) for saying widespread bankruptcy.

Another thing that does businesses in during steep inflation, is that as prices rise, consumer preferences shift. Someone in the wrong business will go bankrupt as consumers switch to more basic necessities. As a result, a lot of businesses fail during steep inflations.