Inflation is a currency event and not an
economic event.Monetary inflation always leads to
price inflation (higher price).
Inflation is the result of a larger than proportionate growth in money supply. The pain
is higher prices and a weaker economy!
Only constraining the influence
of Politicians and Governments by a monetary constitution leads to
lower rates of Inflation.
Central banks strongly
independent from the Politicians traditionally have much lower rates
Updated June 2011
(Posted July 2010)
M3 and hyperinflation -
There is a great deal of debate about the
root causes of hyperinflation. But Hyperinflation is often
economic depressions, wars (or aftermath) and political or social upheavals.
Those who advocate Deflation because of a decreasing M3 don't
understand what inflation and deflation is all about. The money supply (M3)
is only one of three factors that determine whether we have inflation or
deflation. The other two are the velocity of money and the real output of
the economy. Due to its effects on the velocity of money, the ebb and flow
of confidence have a much greater impact on the short-term trend of prices
then changes in the money supply (M1-M2-M3-MZM)
have entered the 2nd Phase towards hyperinflation:
a lack of money becomes evident in the second phase of the crisis - the
financial crisis is replaced by an economic crisis, triggering massive
bankruptcies that would spread globally in a chain reaction. During the
second stage of the crisis, another large sum of capital will "evaporate"
from the market...click
here for more
Authorities cannot maintain an (hyper)
inflationary policy unless it is sugared with Deflation propaganda...like...why
would we have hyperinflation when M3 is contracting? M3 is contracting
because we have a economic depression! [By definition M3 must contract
during the 2nd phase!]
During a cycle of (Hyper)-inflationary (re)depression
the price of High Order Capital Goods keeps falling whilst
those of Low Order Consumer Goods rise strongly.
But Hyperinflation is a monetary
phenomenon and not an economic one...and M3 is contracting because of the
depression. This is something normal and is happening each time as
the economy moves towards hyperinflation.
Hyperinflation starts when the
public is unwilling to hold the money for more than the time it is needed to
trade it for something tangible to avoid further loss. A good indicator that
Hyperinflation has started will be a sudden increase in the Velocity of
Money. [ P = M x V ]. This alone can increase the general level of prices.
Even with a falling M3!
Hyperinflation is a psychological
phenomenon. It happens overnight and it is extremely difficult to
forecast when it will start.
The main cause of Hyperinflation is a
massive and rapid increase in the amount of money that is not supported by a
corresponding growth in the output of Goods and services. Assuming
there is a decrease in the output of Goods and services (like we have now)
it is still possible to see Hyperinflation when the Output is falling faster
than M3 is contracting.
We have a recession/depression (output of
goods and services is falling) and Public debt is soaring towards 100% of
GDP (gross domestic product) and has in some cases even become
are about to enter the 3rd Phase towards Hyperinflation:
hyperinflation mostly starts when the Bond (Treasuries) market breaks down.
It does when Authorities start to monetize their debt like they are doing
now UNDERCOVER (The ECB and the FED are already buying Treasuries/Bonds - Is
it not weird that Spain sold all Bonds in about a day's time after a
downgrade warning?) and the public is unwilling to absorb it (the confidence
is eroding). Who would be so stupid to buy 30 year Treasuries yielding a
nominal 4% when real inflation takes both the Interest and Capital away?
Few realize the Quantity of Money is still dramatically up in the
here for more [charts for the Euro and the British Pound money
supply are similar]. Looking at the chart below one can clearly
understand there is NO WAY to mop up this excess of Money supply. It is
simply to large. Having said this, the Authorities have absolutely no
intention nor the will to mop it up. Inflation and Hyperinflation will
simply erase the excess of Government debt and this is exactly what there
are going for.
A hyperinflationary Depression we shall have!
For those that believe all depressions begin
with deflation, I suggest reading a good history book and/or anything on
hyperinflationary depressions. They are not incompatible as many think.
History is littered with examples of hyperinflationary depressions. They are
all currency related events.
Updated March 2011 (Posted February, 2010)
Posted March 8, 2011
Note the inflation growth is still +
7% to + 8% higher than the official figure used by the Authorities. Inflation
figures are important because they have a huge impact on other economic
statistics. GNP (gross national product is a good example).
Politicians and Banks call "Printing Money"
- Quantitative Easing!
Today the quantity of freshly created
Fiat Money is still larger than the money contraction due to the Credit
Crunch. Hence, there is still monetary inflation and NOT deflation as Talking
heads incorrectly claim.
The Quantitative Easing is so
large and widespread it as reached a point where mopping it up becomes
Also, we still have monetary Inflation
of Low Order Consumer Goods (LOCG) and a price contraction [some call it price
deflation] of High Order Capital Goods (HOCG).
Posted February 2, 2009
The danger of hyperinflation lies in a dramatic increase in the velocity
of money due to a loss of confidence, not in changes in the money supply.”
Price = Money supply x Velocity
there is debt deflation, and the overall money supply is shrinking as a
result. However, those calling for "multi-year bull market" for the US
dollar are insane. These individuals need to review basic monetary theory.
The money supply is only one of three factors that determine whether prices
rise or fall. The other two are the changes in the velocity of money and
real output of the economy.
As long as M3 (total money supply) keeps on growing at a rate higher
than the rate of growth of the economy it creates Inflation.
Inflationis the result of a larger than proportionate growth in money supply.
we see now is that M3 (total money supply) is coming down as banks keep
sitting on cash because they are reluctant to grant credit. Money
supply is coming down, but keeps on growing at a slower rate. Hence we
still have Inflation and NOT Deflation as some talking heads incorrectly
Only the RATE of
Growth in Money supply is coming down; M3
keeps on GROWING at a slower pace (10% instead of 18%) and therefore we
keep on having monetary inflation and not deflation. M1 is growing at a
faster rate (more people are keeping their savings under their mattress)
and the rate of growth of M2 has also increased to almost 8%.
this time we also see the velocity of Money coming down.This is a normal and expected faze of the
inflation/hyperinflation cycle we are living: people are spending less
because they erroneously think prices will come down. The day they
understand Inflation is here to stay, people will start to buy whatever
they can to get rid of paper money. Velocity will pick up again and we
will at that point have entered Hyperinflation.
domestic product) is decreasing by almost 4%!
Updated June 3, 2011 (Posted November 18, 2008)
Governments try to disguise the true
rate of inflation through a variety of techniques:
Outright lying in official statistics such as money supply, inflation or
Suppression of publication of money supply statistics, or inflation indices.
Price and wage controls.
savings schemes, designed to suck up excess liquidity. These savings schemes
may be described as pensions schemes, emergency funds, war funds, or
the components of the Consumer price index, to remove those items whose
prices are rising the fastest.
is a good indicator for Inflation and Hyperinflation. At first velocity comes
down as people start to spent less. This is what we have NOW. Only once they
understand Inflation is to stay, velocity picks up as they scramble to get out
of paper money and into Real Assets. This action is connected to Gresham's law:
"the Bad money drives the Good money out of
circulation." A modern example of this is Zimbabwe.
Before 1933 was the Age
of Gold. Back then a dollar your grandfather saved in the early 1800s would
buy the same amount of goods and services as a dollar you saved in the early
1900s! Can you imagine living in an environment where housing prices never
skyrocketed, where grocery prices were always constant, where transportation
and energy prices never rose, and where the value of money was as solid as
the gold that fully backed it? Compared to today’s tragic environment where
the prices of life’s necessities relentlessly rise every year and impoverish
millions, the Age of Gold was financial paradise!
Updated October 1, 2009 - The money is
already there...we just need more velocity to start Hyperinflation.
Inflation, the silent thief...it won't make any difference whether you have
your money in a Bank or under your mattress...it will be taken away where ever
Got REAL MONEY or GOLD!?
and Bernanke are keeping the key interest rates at almost ZERO.
At the same time the central banks inject billions into the
system. They call it Quantitative Easing sold packed with a propaganda ribbon
of deflation. People know the Deflation propaganda is false. However it keeps
coloring the investment behavior of the Herd. And this is exactly what the
Central Banks are after.
In the EU the
Tax level has reached the maximum level. It is so high it chokes the
economy. Over the last couple of years, in an effort to fill the gaps other
tax inventions were voted into place: garbage bags, highway stickers, speed
fines, you name it and they have it. Belgium is now planning to increase
the Diesel tax and the Wealth tax is being prepared.
The next step is inflation and
hyperinflation. The chart below shows hyperinflation already sits in the
Our initial FIGURES FOR THE
MONETARY BASE was $ BN 950 !
Updated September 16, 2008
It is impossible for Fiat Paper
Money to increase in value if 20 % of it is created each year!
It is a fallacy to measure
Inflation by measuring (the consequences) price increases!
It is incorrect to state that
higher interest rates will bring down the inflation rate!
a continuing process of inflation, government can confiscate, secretly and
unobserved, an important part of the wealth of their citizens." (John Maynard
Keynes, chief architect of the modern-day economic system).
At no time in history has the biggest money in
the world been as MISALLOCATED and invested as it is today. Generally run by
misinformed, poorly prepared ignoramuses who are at the top of the world
investment and banking industries. They have not studied (monetary) history or know
economics and are repeating it as is always the case. THIS IS THE BIGGEST
OPPORTUNITY IN HISTORY. The greatest transfer of wealth from those that store
their wealth in paper to those that don’t is unfolding. ALL Markets will have
to price in reality, and the reality is that the G20 in general and the
financial and banking industries in particular (there are exceptions to this)
are INSOLVENT. Rather than default through the normal process they will
default through the printing press as legendary economist ADAM SMITH and
Ludvig Von Mises have illustrated and predicted in their bodies of work. (Ty
Monetary inflation causes price
inflation regardless of business conditions.
This CONSEQUENCE is UNAVOIDABLE. We are in the midst of an unprecedented
expansion of liquidity. As a result we will experience unprecedented levels of
inflation. There is no way to avoid the HYPER-INFLATIONARY CONSEQUENCE!
The definitions of Inflation and
Deflation are extremely hard to understand and are, most of the time,
is not an increase in the price level of goods
and services. It is a more than proportionate growth of credit
and money supply. The consequence of this growth is mostly, but not necessary
an increase in the price level of goods and services.
is not a decrease in the price level of goods and
services. It is a reduction of credit and
money supply. The consequence of this action is mostly, but not necessary a
fall in the general price level of goods and service.
curse of deflation is that it increases the burden of debts. Incomes fall:
debts stay the same. This way lies suffocation.
Also, in a cycle of
(hyper)inflation we see a shift from HOCG to LOCG. In other words, because of
the misallocation of funds into HOCG the supply of these goods is too large
for the consumers to absorb. The general price level of these goods tend to
fall. On the other hand, because of the same misallocation of funds, there is
a shortage in supply of LOCG and the general price level of these goods
goes up. The (hyper)inflation cycle will last until all of the misallocated
funds have shifted from the HOCG into the LOCG and the supply of these goods
and the demand is in equilibrium.
HOCG or High Order Capital Goods -
LOCG or Low Order Consumer Goods.
This explains why the price of Real
Estate (over supply) is coming down and at the same time the price level of
food commodities and energy is going up. Because the price level of Real
Estate (HOCG) is falling at the very time where the price level of Food
Commodities and Energy is going up, many are incorrectly recognizing the
initial faze of (Hyper)inflation.
One of the reasons we have so much
inflation is that in the past decennia, the Central banks misinterpreted
inflation figures that were coming down as a result of Globalization (i.e. the
production of cheaper goods in China) , they incorrectly continued to increase
the Total Money supply.
Charts: click on
the charts to enlarge! As the American
authorities have stopped publishing the M3 figures.
The M3 chart in the middle has been made using
Only a Recession and Depression can cleanse and correct the
misallocation of funds of the last decennia.A recession
has started + 6 months ago and Governments and Bankers are lying like hell
about it. It is clear the bubbles have stopped to make anybody rich, and that
we have initiated a cycle of
Hyperinflation. People that have problems in understanding the actual
situation should book a holiday in Zimbabwe. It won’t take them long to
understand that Mugabe, Ben Bernanke and Trichet are one and the same and that
they follow similar politics!
This first stage
of the inflationary process may last for many years. While it lasts, the
prices of many goods and services are not yet adjusted to the altered money
relation. There are still people in the country who have not yet become aware
of the fact that they are confronted with a price revolution which will
finally result in a considerable rise of all prices, although the extent of
this rise will not be the same in the various commodities and services. These
people still believe that prices one day will drop. Waiting for this day, they
restrict their purchases and concomitantly increase their cash holdings. As
long as such ideas are still held by public opinion, it is not yet too late
for the government to abandon its inflationary policy (we are leaving this
point of no return NOW!).
But then finally
the masses wake up. They become suddenly aware of the fact that inflation is a
deliberate policy and will go on endlessly. A breakdown occurs. The crack-up
boom appears. Everybody is anxious to swap his money against "real" goods, no
matter whether he needs them or not, no matter how much money he has to pay
for them. Within a very short time, within a few weeks or even days, the
things which were used as money are no longer used as media of exchange. They
become scrap paper. Nobody wants to give away anything against them.
It was this that
happened with the Continental currency in America in 1781, with the French
mandats territoriaux in 1796, and with the German mark in 1923. It will happen
again whenever the same conditions appear. If a thing has to be used as a
medium of exchange, public opinion must not believe that the quantity of this
thing will increase beyond all bounds. Inflation is a policy that cannot last.
(Ludwig Von Mises).
Hyperinflation, Recession and Depression are
real. Although it is at this point
extremely hard to forecast how much time politicians and Bankers will be able
to buy, and what the scenario will be, it is a fact that at this time a Credit Crunch is unfolding. Economics and mass
psychology are linked to each other. Therefore it is important for politicians
and bankers to use propaganda and to blame external factors like speculation
and bubbles for price increases that are the consequence of the huge monetary
“Credit expansion without an increase in savings that is at
least equal to the newly created credit Banks extends from nothing, always
does result in a crisis and economic recession”.
Note:February 2008, the growth
rate of M3 for the EU is 11,3 % (official figure published by the ECB).
The USA has stopped publishing M3 but according to certain sources it runs as
high as 30 % per annum. Other sources publish a figure of +18 %.
Deflation propaganda is together with the
cooked inflation figures a vital part of the inflationary policy of the
In the current monetary
system, the supply of money is not constant and the central banks of this
world are free to create as much inflation (money-supply growth and no gold
reserve) as they want. There is a catch though – the central banks can only do
so as long as they can keep inflationary fears under check by constantly
reminding the public of the threat of deflation. Turning over to the current
situation, it should not come as a surprise then, that in the past few weeks
the media has published various stories comparing the recent downturn in the
US to the Japanese deflationary bust or the Great Depression of 1929.
In my opinion,
as economy is also psychology and sociology, this “deflation” propaganda is
crucial to further promote the Federal Banks’ agenda of creating even more
inflation as a “cure” for the ailing economy.
Let there be
no doubt that the Federal Reserve is now desperately trying to inflate the
system via rate-cuts, pumping of liquidity and bailouts. And it is this
monetary inflation and not strong economic growth which is causing commodity
and consumer prices to rise. A lot of these price increases are hitting the
front pages of the Media: crude oil, agricultural and other commodities, etc..
for the average citizen, this is occurring at a time when the economy is
weakening, incomes are falling and unemployment is rising. In other words, the
Federal Banks’ inflationary efforts are making things a lot worse for the
majority of people.
The actual savings rate for the USA is negative. For Europe it is declining to
historically extremely low levels. Trillions have been, are, and will be
injected into the financial system in order to try to keep it liquid. But as
the savings rate continue to come down under pressure of disinflation, the
situation is becoming more critical each day.
Low or negative savings and over
indebted consumers.Personal savings
rate in the US 1950 to 2008 and total outstanding Consumer Credit from 1940 to
2008. There is no way to built a boom based on these figures.
Total debt in the United States is
$53 TRILLION dollars, which is almost 500% of net national income. We owe
foreign entities 12.5 trillion or 24% of the total. The situation in many
European countries is not better.
Highway to hell: Ludwig von Mises stated: "There is no means of avoiding the final
collapse of a boom brought about by credit (debt) expansion. The alternative
is only whether the crisis should come sooner as the result of a voluntary
abandonment of further credit (debt) expansion, or later as a final and
total catastrophe of the currency system involved."
The first alternative is
deflation. The second is hyperinflation. Authorities have
clearly opted for hyperinflation or more money supply.
The Fed is able to increase the
money supply, but they cannot determine exactly how or where it will be used
in the economy. We have misallocation of funds. At this time, the
misallocation is into Treasury bonds. Hence interest rates fall and
the value of debt rises. Businesses go bankrupt. We are witnessing this
occurring at an alarming rate around the world. These are classic examples of
mal-investments gone astray.
Markets and asset prices have
been distorted by excess credit and money creation. Global asset prices
are mispriced, and this is especially true of the huge toxic wasteland of debt
Soon it is discovered that the purchasing power of money is falling
faster than the demand for money is rising. Money cannot be created fast
enough to make up for the loss of purchasing power. We are moving into
Interest rates start to rise,
as do prices. The purchasing power of the currency falls in spite of
higher interest rates. Slowly panic sets in. People can't spend their money
fast enough - before it loses more purchasing power. The race to hell begins.
The fraud is seen for what it is.
The currency is no longer accepted as the common medium of exchange. The use
of the currency ends. The creature destroys itself by suicide - by
hyperinflation. Hyperinflation is the death-knell of paper fiat debt-money
Some examples of price increases (May 2008) - supply and demand
also play a role) as a result of monetary inflation:
• Platinum has gone
from 400.00 to 2,000.00, an increase of 400%
• Copper from 0.75 to 4.00, an increase of 470%
• Lead from 0.20c to 1.20, an increase of 500%
• Uranium from 0.63 to 63.00, an increase of 530%
• Crude oil from 12.00 to 124.00, an increase of 900%
• Molybdenum from 2.50 to 32.50, an increase of 1300%
• Rhodium from 400.00 to 9,400.00, an increase of 2200%
If you want to avoid
inflation, high interest rates, and volatile commodity prices, the first step
is to avoid wars. The second step is to take the power of printing money out
of the government's hands.
occur during or immediately following major wars (WW I, WW II, Vietnam war,
Iraq). Historically, peaks have occurred every 50 years.
The correct measure
of inflation matters in a number of areas, not the least of which are social
security payments and wage bargaining adjustments. There is no doubt that an
artificially low number favors government and corporations as opposed to
ordinary citizens. But the number is also critical in any estimation
of bond yields, stock prices, and commercial real estate cap rates.
Posted May 23, 2008
Pimco's Gross: Inflation Threat Is Being Underplayed
are fooling themselves if they think U.S. inflation is under control, the
manager of the world's largest bond fund said.
Bill Gross, chief
investment officer of Pacific Investment Management Co (PIMCO) said in his
June investment outlook that he has been arguing for some time that inflation
statistics "were not reflecting reality at the checkout counter."
He said statistical
practices in calculating price growth had favored lower U.S. inflation over
the last 25 years and called for change.
including its inflation rate, is changing. Being fooled some of the time is no
sin, but being fooled all of the time is intolerable," Gross said.
"Join me in lobbying
for change in U.S. leadership, the attitude of its citizenry, and (to the
point of this Outlook) the market's assumption of low relative U.S. inflation
in comparison to our global competitors."