While I can't sign off on this entire report from UBS (I need to read it a little more carefully), I can support it's central thesis which is that while inflation is a monetary phenomenon, Hyperinflation is a fiscal one. Or to put it even more succinctly in my opinion, it is a political phenomenon. It's a loss of confidence in the ability of a country's political institutions. When those institutions begin applying irrational solutions to problems (imagine secretary of the Treasury Maxine Waters), a loss of confidence in the process being used creates hyperinflation.
To put this in the proper context with the much publicized Chuck Schumer / Ben Bernanke chat from yesterday, if someone is going to be creating hyperinflation, it's Schumer not Bernanke.
5 comments:
It's a crazy mixed-up worl:
I passed this not to clients this morning:
“There is a sizable risk that inflation could even turn negative in the medium run,” the IMF said, assessing the risk of deflation as 25 percent by early 2014.
“This risk of deflation is relatively low in the faster- growing economies, but significant in the periphery, where administrative price and tax increases are masking more severe downward price pressures from still substantial output gaps,” the IMF said.
The IMF’s deflation warning contrasts with European Central Bank President Mario Draghi’s remark on July 12 that there is “no sign” of deflation in any euro country. The ECB on July 5 cut its benchmark interest rate to a record low of 0.75 percent and its deposit rate, which has steered market rates since the financial turmoil started, to zero.
I told someone yesterday that Ben doesnt need another QE. All he has to do is take overnight rate to 0 and our banks will do the work for him. Theyl take the money and turn our rates up to 5yr for sure to negative like about 6 countries in the EU. Voila lower rates, Its sick!!!
Someday--I donr know when but I do thnik that there is gonna be alot of pain in fixed income.
Tom that is scary note by UBS. I have 50 questions but the elbows are pissed off..
We now pay bout $250 bil/yr in total interest. We dont hyperinflation to end it .Clinton rates would destroy us.
I think the saving grace right now on inflation has been the velocity of money is low and there is still demand for dollars.
The former because nobody is doing any long term investing, putting capital at risk, etc. You have banks now charging large depositors interest.
The latter because as ugly as our economy is right now, compared to the rest of the developed world, we still look pretty good. We are like the one homely, but skinny chick at a dance filled with fatties. The skinny chick gets all the attention.
I am mulling the idea that the world going to hell might actually help save us: If by some miracle, we get some spending restraint and pro growth policies, capital may flood the country. In turn, with the amount of domestic (I include Canada in this) energy being exploited, we may become a net exporter of refined petroleum products.
Again.. not something I have really fleshed out in my mind yet. But I see a possibility....
I think there is quite a bit to that argument. It doesn't take much to look good right now. But all that is inflation not hyperinflation. Hyperinflation is when you solve the the problem of civic disorder by printing more money to pay the troops. It's a breakdown of politics.
problem of civic disorder by printing more money to pay the troops. It's a breakdown of politics.
Wasn't it Obama 'troops' (public unions, UAW, green scam programs, etc.) that got paid in part by the quantitative easing by the Fed?
Yeah.. I know... you have to do it on a very large scale. For some reason I am reminded of the Kingdom of Laos during the 70's. The CIA would collect and burn the local currency in a vane effort to stem the hyper-inflation. The Royal Lao govt. just kept printing faster.
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