Mish, what is the endgame with what the fed is infected doing? Just continue to blow up huge bubbles until they burst and damage the economy?
Lugnut
2 years ago
Yes Hyperinflation is a purely political one, it generally can’t occur without the fiscal pre-requisites in place. Secondly, ‘we’ arent the ones to define the parameters of what triggers it; the foreign central banks and buyers of our debt are the ones to make that determination.
That said, hyperinflation need not occur, all’s it will take is enough outside forces to push up interest rates to ‘nominal’ levels and the jig is up, as far as being able to continue to finance and monetize our profligate spending levels. I mean, long term, the Fed can’t buy ALL the Treasuries to suppress rates, yes? Any attempt to do so if there is a significant tampering of appetite by foreign CB purchases, in and of itself, would be the political trigger you speak of.
Hyperinflation? Bah. In 1985 1-years were about 8.5%, and that was a breath of fresh air. If they went to that today, you’d get killed walking down Wall St by all the falling bodies. The political domino that would trigger it would be any credible threat to the $ reserve status.
corkball
2 years ago
Concur that hyperinflation is political until such time as a gold volcano appears, or counterfeiting is legalized. But so what? The precursor elements are all in place. Massive indebtedness, no financial way out, etc.
The US is in an odd situation relative to all the other hyperinflations of the past. USD is the world’s reserve currency. Like FDIC, we have traded a short term problem for a longer term one. We can print and print and print no problem look ma no hands, but what happens when the dollars start to repatriate?
If I read this correctly, it is all still gonna happen, but just not as short term as the inflationistas think. Am I reading that right?
Doug78
2 years ago
We can look at it this way. If we take a world view the Chinese export deflation and the Americans export inflation. Till recently there was a balance until the Americans upped by far their inflation production possibly overwhelming China’s amount of deflation exportation.
Jacob Zuma
2 years ago
Mish, the Fed can print money to buy debt, then relieve the issuer from the obligation to repay it. Do this consistently and you will get hyperinflation. I agree the Fed doesn’t want hyperinflation, but it can generate it should it wish to do so.
I think there are other examples of massive or hyperinflation you can add to the list. For example, the stagflation of the 1970s, while not hyperinflation, might have turned into such had it not been for the Fed raising rates drastically in the 1980s (an action it can no longer do without destroying the economy).
Jacob Zuma
2 years ago
Mish. The Fed can print money to buy paper debts then relieve the debt issuers from the obligation to repay the debt. Do this enough and you will get hyperinflation. I agree the Fed will not want to do this, but I think they can if they wanted to.
Droidsafari
2 years ago
jivefive99
2 years ago
Oh, and I forgot to mention, as the rich get richer and richer, it seems to me they will never allow any government to make their billions worth less under any circumstances.
RonJ
2 years ago
All i know is that Costco is apparently going to put 20 less sheets in a roll of their paper towels, for the same price.
That has been happening for years. Consider that toilet paper rolls kept getting smaller and smaller. Now they have reintroduced the original size, as a “Super Mega-Roll” , 6 rolls in one. Conveniently, they just happen to fit dispensers, probably because the dispensers were designed for the original, larger rolls.
Anda
2 years ago
I don’t see the seperation of power between fed and gov that you imply, not because the fed doesn’t largely set monetary policy but because its balance sheet is based on government debt, which is political. That is to say that ultimately all fiat is political, and so a monetary cause would also be a political one.
Having said that, I don’t think hyperinflation has to be a political event. We are balancing supply of money vs. supply of goods and services. Though politics (and money supply) has been the major factor affecting hyperinflation in the past, there are other elements. Natural destruction of an economic base, failure of the global financial system for reasons primarily apolitical, human nature even, could lead to hyperinflation. In fact it is disputable whether war would not count as a “natural destruction”, political as it is in a sense the two overlap in definition.
So for example, with Weimar reparations was not primary cause of hyperinflation, it was a combination of political promises to unions and in reaction to rising prices hoarding by the population, the infamous “starving with barns full”. Financial profiteering boosted that reality, which is one reason why certain segments of the population were then turned on. So you cannot just say it was political in my opinion, it was equally monetary and social.
Same goes for Zimbabwe, it was political or it was (one might say failed) social redemption of/by the population ? It was monetary because policy was to outrun inflation by printing more, so both.
Therefore I would not say hyperinflation was always a political event, but almost always there is a political facet needed for hyperinflation to occur, if nothing else because money supply tends to be integrated with political reality .
That all really won’t help explain hyperinflation properly though, so I think the better definition is when goods (or potential goods, e.g. shares in companies) are prioritised and money is shunned for those. That could be due to loss of control of money supply, a herd-like speculative event or reverse of, loss of production of goods, and so on.
To say it is always a political event gives a false impression that hyperinflation is always controllable as long as politics is reasonable, and I don’t think that is nescessarily true.
I read today that hyperinflation is so bad in Venezuela that even US dollars are losing their buying power there over time.
Eddie_T
2 years ago
That was not aimed at you @simb555, Looking forward to the new site, maybe that won’t happen anymore.
Eddie_T
2 years ago
OT…Apparently Bill and Melinda Gates are getting a divorce. He’s my age for goodness sake, That’s a little old for a mid-life crisis. I wonder what the real story is….
With their money you’d think they’d stay married just to keep up appearances.
My guess is she’s tried of his forays outside of tech (ie into claiming knowledge about vaccines, population control and a host of other things he likes to spout off on as if he is an expert just because he’s rich).
Not that long ago (90s’) he was probably the most admired/envied rich guy in the world because he built up Microsoft from scratch like a modern day Rockefeller/Getty/Morgan etc. Now he’s mostly the object of derision/memes. He should have either stayed at Microsoft or quietly went behind the scenes to manage his foundation and hand out money out of the spotlight like Allen or Buffet.
I agree its currency depreciation we have to worry about which is caused too many $ in the economy so it loses value compared to commodities and houses in desirable locations. Gold, Silver and land have preserved wealth over the years.
Engaged_Titan82
2 years ago
Not an economist, just trying to understand all of this. You say “The above discussion pertains to CPI measures of inflation not monetary inflation which is 100% certain to continue.” But from everything i have read (which is limited) most economists believe monetary inflation has a causal relationship to regular inflation. Are you saying that monetary inflation and inflation are going to start to diverge in opposite directions?
People might say look at japan or the US using QE, but your point is that QE cannot cause inflation so I would think that argument goes out the window. Have there been any examples where monetary inflation was followed by deflation in recent history?
He has long pointed out that they have been diverged for quite some time. Monetary inflation has been visible in asset prices, such as stocks, bonds, and real estate, yet the CPI has been quite tame by comparison.
Thanks, I have only been a reader for 2 weeks so catching up here. This makes it a little more clear.
Is that to say that monetary inflation has existed for quite some time? I thought on a relative basis monetary inflation only started to dramatically increase in the past 12 months? I thought the question currently was “given the recent dramatic increase in m1 money supply, will that result in inflation”.
Casual_Observer
2 years ago
This whole post is full of sound of fury signifying nothing.
CO – it was an excellent discussion, especially in light of more nonsense about hyperinflation on Twitter.
I laid out compelling evidence on the politics of it and explained accurately why the Fed cannot cause it but governments can.
Your comment is ridiculous.
Carl_R
2 years ago
I believe hyperinflation can occur in one, and only one situation, that being where the debt of a country is denominated in something other than it’s own currency. When the debt of a country is denominated in it’s own currency, it always has the option of printing additional currency to pay off it’s debt, a one time event. That may cause a decrease in the value of that currency, but can never create a runaway situation, i.e. hyperinflation.
By contrast, say you have a country, such as Germany, which has a debt denominated in gold. They can print more currency to buy gold to pay the debt, but as the currency loses value, the debt (as translated from gold to currency) becomes bigger, so the debt can never be paid off. The more they print, the further behind they become.
Say that you have a country, such as Argentina, and their debt is denominated in USD. If they try to print more currency to buy USD to make payments on the debt, and the currency loses value, the debt gets bigger. The more they print, the further behind they get.
What about the US? The US debt is almost exclusively denominated in USD, so hyperinflation is impossible. The one exception to debt denominated in USD are the TIPS bonds, which are inflation adjusted. Thus, for those, printing more USD to repay them, if it caused a loss of value of currency (i.e. inflation) would increase the value of the TIPS bonds.
TIPS bonds, however, are only a small portion of the debt, so for now, hyperinflation is impossible. If, at some point in the future, the USD loses it’s currency reserve status, and other countries demand that our debt be denominated in some other entity that we don’t control, then at that point, hyperinflation will become possible.
Just to be clear, I absolutely agree with you that you also need a precipitating event. A country can have debt in USD, for example, and not end up in hyperinflation. All they have to do is practice fiscal prudence. The Zimbabwe situation is murky. There they had more than enough precipitating events. Did they have debt in other currencies? I don’t know either, but it appears that they had foreign spending in others currencies, for military expenses, for one, and most likely for food as well, since food production crashed.
Certainly the two are both aspects of hyperinflation, and they are often intertwined. For example, you termed the war reparations that Germany had to pay as a political event, while I would call them a debt in an outside form of money, in this case, gold. In reality, it was both.
I appreciate your responses. I think you have it nailed.
Zimbabwe had tons of capital flight because Mugabe was a populist demagogue who took it on himself to redistribute much of the wealth in the country. We might learn from that. It’s a popular idea in many corners these days, and the same thing is probably going to happen here at some point.
It’s interesting that after their currency became worth less than the (expensive) printing cost, they finally made it legal to use US dollars (which was already well underway in the black market).
At that point they got back to some stability….and then they made the USD illegal again and immediately started printing more of their own Zimbabwe dollars…..and they immediately went back into hyperinflation, which I think is still ongoing, although I don’t have much insight into the last year or so.
Are you familiar with the toxic loans that some companies took out about twenty years ago? It was much the same thing, on a corporate level, rather than a country level. Sharks loaned money to struggling companies based on the promise that the loan shark could be paid back by demanding stock as payment based on the market price at the time of the demand. On it’s face that sounds reasonable enough, but in practice, it was not; it was toxic, and the share price always went to $.0, or a tiny shade higher, say $.00001/share.
Say the stock price at the time of the agreement was $2, and the company borrowed $2m dollars. The loan was was entitled to 1m shares, if they demanded the shares immediately. Rather than taking the shares, though, the loan shark would start shorting the stock, and just keep shorting more and more shares. Say they shorted 100m shares, and drove the price down to $.01. Now they were entitled to 200m shares, so they kept selling shares, and the stock eventually would go to $.0001/share.
This is no longer legal, thankfully, but, just like infinite printing of currency to pay a debt denominated in something outside the control of the country drives the price of the currency to $.00001, infinite printing of shares to pay something outside the control of the company drives their shares to $.00001.
I wasn’t really tuned in to this example, since it happened near the beginning of my real interest in such things. I’ve been trying to get my head around it.
Isn’t that really the whole scam of the IMF….and colonialism in general , fwiw. You loan poor countries (with natural resources) more money than they can possibly pay back…..get them to leverage their real estate….then take the collateral when they default? Or otherwise use it as leverage to do some other deal that benefits you?
KyleW
2 years ago
“Currency collapse” would be a better term than hyperinflation. Inflation implies something is being inflated. Normally that’s the money supply.
Cocoa
2 years ago
I believe companies are using jawboning and expectations of inflation to raise prices…to compensate for low sales. Hence why we need China to push the cost of making goods down.
Cocoa
2 years ago
The US got closest to hyperinflation after Vietnam War and ruining the gold standard. We basically defaulted. Interest rates made it near 19%. Prices were going up monthly. The only thing that stopped us from paying $4 a gallon back then was the threat of invasion in MiddleEast and hence petrodollar pin.
If all this money doesn’t make it into economy and just goes into asset stabilization, then thats not hyperinflation. The velocity of money is petty muted these days
Doug78
2 years ago
You should add to your list something that is much more likely to happen under Biden and that is a war with China over Taiwan. Instead of bottlenecks we would have total supply ruptures not to mention the monetary chaos we would have. It could be the spark that gives us hyperinflation.
If we didn’t stand up for Hong Kong, why should we stand up for Taiwan? I suppose we are more committed, but going to war over Taiwan would be horrible policy for the US, with no good outcome possible.
Alternately, simply waiting a couple of decades might change the calculus over Taiwan a great deal, with no loss of anything for the US.
A war with China would be the very worst possible thing I can conjure in my mind…I sure hope we don’t go there. Hyperinflation is less of a worry for me than any of several other negative outcomes I can imagine in that scenario.
The logistics for Hong Kong were just impossible. For Taiwan it’s dicey. Unfortunately they make a lot of chips that we need and don’t make anymore and now we are in a quandary. Defend them and have war or don’t defend them and lose our high-tech advantage. Thank you stupid Democrat and Republicans politicians for actually encouraging this situation with your eyes wide open. I guess the money was just too good to pass up.
Taiwan is an independent country (China disagrees but it’s recognized as one by everyone else). Hong Kong is just one of many states in China.
We have no business in Hong Kong other than voicing an opinion on what we think is right/wrong with Chinese policy there in the same way they voice opinions on what they think is right/wrong with US policy regarding individual states here.
I don’t want to go to war with China but we should definitely stand up for Taiwan.
Agreed, they won’t back down. But the US can’t either or no one will ever take their word / agreements seriously again. It will quickly go nuclear (the US has no real qualms about using them) even if it’s just tactical nukes and the US is vastly ahead of China who have only a few hundred to the US 5K or so.
China’s best path forward is to peacefully convince Taiwan to rejoin in some sort of federated republic. Not sure they will go that route but that’s the best route for everyone (world wide).
They’re best mates with Russia at the moment, they have some nukes. Anyway, the point is it could get out of hand very quickly and the outcome is far from certain in my view.
Seems to me the nature of war has changed. Instead of requiring resources using force. china just goes in and bribes officials/ or steals information by hacking etc. lot cheaper less destructive.
Eddie_T
2 years ago
First, I read your articles in 2010 and 2011 and they impacted my thinking a great deal. Thanks for being there when I needed you.
Second, please make the case for bonds. I still don’t quite see it. What am I missing? If yields fall, bond prices go up, but how far can yields fall before they bottom out? I could see it for a trade. I have a harder time seeing it for anything else.
Gold….I get gold, I think, and I still view it as safe but pretty boring in just about any likely scenario other than hyperinflation.
CoxSwane
2 years ago
Great stuff, Mish. All of your recent stuff on inflation (lack thereof), as well as pointing to historical writings, is spot on and timely. Appreciate all the work.
anoop
2 years ago
I’m not enough of an expert to comment on this post, but when someone like Burry says we are headed towards hyperinflation and that it takes multiple years to play out, I’m more inclined to believe that it’s going to happen.
jivefive99
2 years ago
Based on my 54 years of watching the news, and having my Reggie bar in 1970s go from 25 cents a bar to 40 cents (I was sad for a year), I believe: there will never be any inflation until, for whatever reason, the price of a barrel of oil/gallon of gas goes up (1970s); that the US govt doesnt care about nor really measure price inflation except when it comes to gasoline prices — all other prices can be “cheated” down; that companies are “monkey see, monkey do” when it comes to raising prices (if one of them starts it, they all do it — blaming the other guy or Covid or something), the company consolidation/reducing by half the stocks on the exchanges that has happened only gives them an excuse to raise prices due to lack of competition, and remember what Jim Rickards is saying about inflation: without money velocity, there will be no inflation.
Mish
2 years ago
I am out this morning – bad timing because there is a comment conversion (or supposed to be).
Comments will at some point be down for a few hours.
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Yes Hyperinflation is a purely political one, it generally can’t occur without the fiscal pre-requisites in place. Secondly, ‘we’ arent the ones to define the parameters of what triggers it; the foreign central banks and buyers of our debt are the ones to make that determination.
That said, hyperinflation need not occur, all’s it will take is enough outside forces to push up interest rates to ‘nominal’ levels and the jig is up, as far as being able to continue to finance and monetize our profligate spending levels. I mean, long term, the Fed can’t buy ALL the Treasuries to suppress rates, yes? Any attempt to do so if there is a significant tampering of appetite by foreign CB purchases, in and of itself, would be the political trigger you speak of.
Hyperinflation? Bah. In 1985 1-years were about 8.5%, and that was a breath of fresh air. If they went to that today, you’d get killed walking down Wall St by all the falling bodies. The political domino that would trigger it would be any credible threat to the $ reserve status.
If I read this correctly, it is all still gonna happen, but just not as short term as the inflationistas think. Am I reading that right?
We can look at it this way. If we take a world view the Chinese export deflation and the Americans export inflation. Till recently there was a balance until the Americans upped by far their inflation production possibly overwhelming China’s amount of deflation exportation.
Mish, the Fed can print money to buy debt, then relieve the issuer from the obligation to repay it. Do this consistently and you will get hyperinflation. I agree the Fed doesn’t want hyperinflation, but it can generate it should it wish to do so.
I think there are other examples of massive or hyperinflation you can add to the list. For example, the stagflation of the 1970s, while not hyperinflation, might have turned into such had it not been for the Fed raising rates drastically in the 1980s (an action it can no longer do without destroying the economy).
Mish. The Fed can print money to buy paper debts then relieve the debt issuers from the obligation to repay the debt. Do this enough and you will get hyperinflation. I agree the Fed will not want to do this, but I think they can if they wanted to.
Oh, and I forgot to mention, as the rich get richer and richer, it seems to me they will never allow any government to make their billions worth less under any circumstances.
All i know is that Costco is apparently going to put 20 less sheets in a roll of their paper towels, for the same price.
That has been happening for years. Consider that toilet paper rolls kept getting smaller and smaller. Now they have reintroduced the original size, as a “Super Mega-Roll” , 6 rolls in one. Conveniently, they just happen to fit dispensers, probably because the dispensers were designed for the original, larger rolls.
I don’t see the seperation of power between fed and gov that you imply, not because the fed doesn’t largely set monetary policy but because its balance sheet is based on government debt, which is political. That is to say that ultimately all fiat is political, and so a monetary cause would also be a political one.
Having said that, I don’t think hyperinflation has to be a political event. We are balancing supply of money vs. supply of goods and services. Though politics (and money supply) has been the major factor affecting hyperinflation in the past, there are other elements. Natural destruction of an economic base, failure of the global financial system for reasons primarily apolitical, human nature even, could lead to hyperinflation. In fact it is disputable whether war would not count as a “natural destruction”, political as it is in a sense the two overlap in definition.
So for example, with Weimar reparations was not primary cause of hyperinflation, it was a combination of political promises to unions and in reaction to rising prices hoarding by the population, the infamous “starving with barns full”. Financial profiteering boosted that reality, which is one reason why certain segments of the population were then turned on. So you cannot just say it was political in my opinion, it was equally monetary and social.
Same goes for Zimbabwe, it was political or it was (one might say failed) social redemption of/by the population ? It was monetary because policy was to outrun inflation by printing more, so both.
Therefore I would not say hyperinflation was always a political event, but almost always there is a political facet needed for hyperinflation to occur, if nothing else because money supply tends to be integrated with political reality .
That all really won’t help explain hyperinflation properly though, so I think the better definition is when goods (or potential goods, e.g. shares in companies) are prioritised and money is shunned for those. That could be due to loss of control of money supply, a herd-like speculative event or reverse of, loss of production of goods, and so on.
To say it is always a political event gives a false impression that hyperinflation is always controllable as long as politics is reasonable, and I don’t think that is nescessarily true.
Seems weird to not even mention Venezuela.
I read today that hyperinflation is so bad in Venezuela that even US dollars are losing their buying power there over time.
That was not aimed at you@simb555 , Looking forward to the new site, maybe that won’t happen anymore.
OT…Apparently Bill and Melinda Gates are getting a divorce. He’s my age for goodness sake, That’s a little old for a mid-life crisis. I wonder what the real story is….
With their money you’d think they’d stay married just to keep up appearances.
Probably something like what happened to Bezos.
My guess is she’s tried of his forays outside of tech (ie into claiming knowledge about vaccines, population control and a host of other things he likes to spout off on as if he is an expert just because he’s rich).
Not that long ago (90s’) he was probably the most admired/envied rich guy in the world because he built up Microsoft from scratch like a modern day Rockefeller/Getty/Morgan etc. Now he’s mostly the object of derision/memes. He should have either stayed at Microsoft or quietly went behind the scenes to manage his foundation and hand out money out of the spotlight like Allen or Buffet.
Perhaps being tied to Epstein was part of the problem.
Melinda makes my gaydar go off.
She filed on him. Not surprised.
We know the reason now.
I agree its currency depreciation we have to worry about which is caused too many $ in the economy so it loses value compared to commodities and houses in desirable locations. Gold, Silver and land have preserved wealth over the years.
Not an economist, just trying to understand all of this. You say “The above discussion pertains to CPI measures of inflation not monetary inflation which is 100% certain to continue.” But from everything i have read (which is limited) most economists believe monetary inflation has a causal relationship to regular inflation. Are you saying that monetary inflation and inflation are going to start to diverge in opposite directions?
People might say look at japan or the US using QE, but your point is that QE cannot cause inflation so I would think that argument goes out the window. Have there been any examples where monetary inflation was followed by deflation in recent history?
He has long pointed out that they have been diverged for quite some time. Monetary inflation has been visible in asset prices, such as stocks, bonds, and real estate, yet the CPI has been quite tame by comparison.
Thanks, I have only been a reader for 2 weeks so catching up here. This makes it a little more clear.
Is that to say that monetary inflation has existed for quite some time? I thought on a relative basis monetary inflation only started to dramatically increase in the past 12 months? I thought the question currently was “given the recent dramatic increase in m1 money supply, will that result in inflation”.
This whole post is full of sound of fury signifying nothing.
You left out the first part of Macbeth’s soliloquy, on purpose, I assume. My guess is I’m not the only one who knows the rest of that line. 🙂
“Out, out brief Causual_Observer.”
…and illustrates that our central bank is an unweeded garden that grows to seed. Things rank and gross in nature posses it merely.
CO – it was an excellent discussion, especially in light of more nonsense about hyperinflation on Twitter.
I laid out compelling evidence on the politics of it and explained accurately why the Fed cannot cause it but governments can.
Your comment is ridiculous.
I believe hyperinflation can occur in one, and only one situation, that being where the debt of a country is denominated in something other than it’s own currency. When the debt of a country is denominated in it’s own currency, it always has the option of printing additional currency to pay off it’s debt, a one time event. That may cause a decrease in the value of that currency, but can never create a runaway situation, i.e. hyperinflation.
By contrast, say you have a country, such as Germany, which has a debt denominated in gold. They can print more currency to buy gold to pay the debt, but as the currency loses value, the debt (as translated from gold to currency) becomes bigger, so the debt can never be paid off. The more they print, the further behind they become.
Say that you have a country, such as Argentina, and their debt is denominated in USD. If they try to print more currency to buy USD to make payments on the debt, and the currency loses value, the debt gets bigger. The more they print, the further behind they get.
What about the US? The US debt is almost exclusively denominated in USD, so hyperinflation is impossible. The one exception to debt denominated in USD are the TIPS bonds, which are inflation adjusted. Thus, for those, printing more USD to repay them, if it caused a loss of value of currency (i.e. inflation) would increase the value of the TIPS bonds.
TIPS bonds, however, are only a small portion of the debt, so for now, hyperinflation is impossible. If, at some point in the future, the USD loses it’s currency reserve status, and other countries demand that our debt be denominated in some other entity that we don’t control, then at that point, hyperinflation will become possible.
Zimbabwe had no debt in other currencies that I am aware of.
Just to be clear, I absolutely agree with you that you also need a precipitating event. A country can have debt in USD, for example, and not end up in hyperinflation. All they have to do is practice fiscal prudence. The Zimbabwe situation is murky. There they had more than enough precipitating events. Did they have debt in other currencies? I don’t know either, but it appears that they had foreign spending in others currencies, for military expenses, for one, and most likely for food as well, since food production crashed.
Certainly the two are both aspects of hyperinflation, and they are often intertwined. For example, you termed the war reparations that Germany had to pay as a political event, while I would call them a debt in an outside form of money, in this case, gold. In reality, it was both.
I appreciate your responses. I think you have it nailed.
Zimbabwe had tons of capital flight because Mugabe was a populist demagogue who took it on himself to redistribute much of the wealth in the country. We might learn from that. It’s a popular idea in many corners these days, and the same thing is probably going to happen here at some point.
It’s interesting that after their currency became worth less than the (expensive) printing cost, they finally made it legal to use US dollars (which was already well underway in the black market).
At that point they got back to some stability….and then they made the USD illegal again and immediately started printing more of their own Zimbabwe dollars…..and they immediately went back into hyperinflation, which I think is still ongoing, although I don’t have much insight into the last year or so.
Are you familiar with the toxic loans that some companies took out about twenty years ago? It was much the same thing, on a corporate level, rather than a country level. Sharks loaned money to struggling companies based on the promise that the loan shark could be paid back by demanding stock as payment based on the market price at the time of the demand. On it’s face that sounds reasonable enough, but in practice, it was not; it was toxic, and the share price always went to $.0, or a tiny shade higher, say $.00001/share.
Say the stock price at the time of the agreement was $2, and the company borrowed $2m dollars. The loan was was entitled to 1m shares, if they demanded the shares immediately. Rather than taking the shares, though, the loan shark would start shorting the stock, and just keep shorting more and more shares. Say they shorted 100m shares, and drove the price down to $.01. Now they were entitled to 200m shares, so they kept selling shares, and the stock eventually would go to $.0001/share.
This is no longer legal, thankfully, but, just like infinite printing of currency to pay a debt denominated in something outside the control of the country drives the price of the currency to $.00001, infinite printing of shares to pay something outside the control of the company drives their shares to $.00001.
I wasn’t really tuned in to this example, since it happened near the beginning of my real interest in such things. I’ve been trying to get my head around it.
Isn’t that really the whole scam of the IMF….and colonialism in general , fwiw. You loan poor countries (with natural resources) more money than they can possibly pay back…..get them to leverage their real estate….then take the collateral when they default? Or otherwise use it as leverage to do some other deal that benefits you?
“Currency collapse” would be a better term than hyperinflation. Inflation implies something is being inflated. Normally that’s the money supply.
I believe companies are using jawboning and expectations of inflation to raise prices…to compensate for low sales. Hence why we need China to push the cost of making goods down.
The US got closest to hyperinflation after Vietnam War and ruining the gold standard. We basically defaulted. Interest rates made it near 19%. Prices were going up monthly. The only thing that stopped us from paying $4 a gallon back then was the threat of invasion in MiddleEast and hence petrodollar pin.
If all this money doesn’t make it into economy and just goes into asset stabilization, then thats not hyperinflation. The velocity of money is petty muted these days
You should add to your list something that is much more likely to happen under Biden and that is a war with China over Taiwan. Instead of bottlenecks we would have total supply ruptures not to mention the monetary chaos we would have. It could be the spark that gives us hyperinflation.
If we didn’t stand up for Hong Kong, why should we stand up for Taiwan? I suppose we are more committed, but going to war over Taiwan would be horrible policy for the US, with no good outcome possible.
Alternately, simply waiting a couple of decades might change the calculus over Taiwan a great deal, with no loss of anything for the US.
A war with China would be the very worst possible thing I can conjure in my mind…I sure hope we don’t go there. Hyperinflation is less of a worry for me than any of several other negative outcomes I can imagine in that scenario.
The logistics for Hong Kong were just impossible. For Taiwan it’s dicey. Unfortunately they make a lot of chips that we need and don’t make anymore and now we are in a quandary. Defend them and have war or don’t defend them and lose our high-tech advantage. Thank you stupid Democrat and Republicans politicians for actually encouraging this situation with your eyes wide open. I guess the money was just too good to pass up.
Taiwan is an independent country (China disagrees but it’s recognized as one by everyone else). Hong Kong is just one of many states in China.
We have no business in Hong Kong other than voicing an opinion on what we think is right/wrong with Chinese policy there in the same way they voice opinions on what they think is right/wrong with US policy regarding individual states here.
I don’t want to go to war with China but we should definitely stand up for Taiwan.
“I don’t want to go to war with China but we should definitely stand up for Taiwan.”
I doubt China will back down.
Agreed, they won’t back down. But the US can’t either or no one will ever take their word / agreements seriously again. It will quickly go nuclear (the US has no real qualms about using them) even if it’s just tactical nukes and the US is vastly ahead of China who have only a few hundred to the US 5K or so.
China’s best path forward is to peacefully convince Taiwan to rejoin in some sort of federated republic. Not sure they will go that route but that’s the best route for everyone (world wide).
They’re best mates with Russia at the moment, they have some nukes. Anyway, the point is it could get out of hand very quickly and the outcome is far from certain in my view.
I agree Doug, it’s very worrying.
Seems to me the nature of war has changed. Instead of requiring resources using force. china just goes in and bribes officials/ or steals information by hacking etc. lot cheaper less destructive.
First, I read your articles in 2010 and 2011 and they impacted my thinking a great deal. Thanks for being there when I needed you.
Second, please make the case for bonds. I still don’t quite see it. What am I missing? If yields fall, bond prices go up, but how far can yields fall before they bottom out? I could see it for a trade. I have a harder time seeing it for anything else.
Gold….I get gold, I think, and I still view it as safe but pretty boring in just about any likely scenario other than hyperinflation.
Great stuff, Mish. All of your recent stuff on inflation (lack thereof), as well as pointing to historical writings, is spot on and timely. Appreciate all the work.
I’m not enough of an expert to comment on this post, but when someone like Burry says we are headed towards hyperinflation and that it takes multiple years to play out, I’m more inclined to believe that it’s going to happen.
Based on my 54 years of watching the news, and having my Reggie bar in 1970s go from 25 cents a bar to 40 cents (I was sad for a year), I believe: there will never be any inflation until, for whatever reason, the price of a barrel of oil/gallon of gas goes up (1970s); that the US govt doesnt care about nor really measure price inflation except when it comes to gasoline prices — all other prices can be “cheated” down; that companies are “monkey see, monkey do” when it comes to raising prices (if one of them starts it, they all do it — blaming the other guy or Covid or something), the company consolidation/reducing by half the stocks on the exchanges that has happened only gives them an excuse to raise prices due to lack of competition, and remember what Jim Rickards is saying about inflation: without money velocity, there will be no inflation.
I am out this morning – bad timing because there is a comment conversion (or supposed to be).
Comments will at some point be down for a few hours.