Thoughts From the Frontline, Hyperinflation

2 posts tagged with “Hyperinflation”.

Can “It” Happen Here?

October 15, 2011

"Bankruptcies of governments have, on the whole, done less harm to mankind than their ability to raise loans."

- R.H. Tawney, Religion and the Rise of Capitalism, 1926

"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

- John Maynard Keynes, Economic Consequences of Peace

"Unemployed men took one or two rucksacks and went from peasant to peasant. They even took the train to favorable locations to get foodstuffs illegally which they sold afterwards in the town at three or fourfold the prices they had paid themselves. First the peasants were happy about the great amount of paper money which rained into their houses for their eggs and butter… However, when they came to town with their full briefcases to buy goods, they discovered to their chagrin that, whereas they had only asked for a fivefold price for their produce, the prices for scythe, hammer and cauldron, which they wanted to buy, had risen by a factor of 50."

- Stefan Zweig, The World of Yesterday, 1944.

The beginning of the end of the Weimar Republic was some 89 years ago this week. There is a stream of opinion that the US is headed for the same type of end. How else can it be, given that we owe some $75-80 trillion dollars in the coming years, over 5 times current GDP and growing every year? Remember the good old days of about 5-6 years ago (if memory serves me correctly) when it was only $50 trillion? With a nod to Bernanke's helicopter speech, where he detailed how the Fed could prevent deflation, I ask the opposite question, "Can ‘it' (hyperinflation) really happen here?" I write this on a plane flying to NYC, with a tighter deadline than normal, so let's see how far we can get. More on where I'm heading at the end of the letter.

But first, let me quickly call to your attention a speaking engagement that I'm doing November 9 in Atlanta. It is for Hedge Funds Care, and it's a wonderful event for a children's charity. If you can make it, I hope to see you there. You can learn more and register at http://www.hedgefundscare.org/event.asp?eventID=74.


Inflation and Hyperinflation

March 11, 2011

Bankruptcies of governments have, on the whole, done less harm to mankind than their ability to raise loans.

—R. H. Tawney, Religion and the Rise of Capitalism, 1926

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

—John Maynard Keynes, Economic Consequences of Peace

Unemployed men took one or two rucksacks and went from peasant to peasant. They even took the train to favorable locations to get foodstuffs illegally which they sold afterwards in the town at three or fourfold the prices they had paid themselves. First the peasants were happy about the great amount of paper money which rained into their houses for their eggs and butter. . . . However, when they came to town with their full briefcases to buy goods, they discovered to their chagrin that, whereas they had only asked for a fivefold price for their produce, the prices for scythe, hammer and cauldron, which they wanted to buy, had risen by a factor of 50.

—Stefan Zweig, The World of Yesterday, 1941

I have had a lot of questions about my thoughts on inflation and hyperinflation of late, especially in the new “Ask Mauldin” section on www.johnmauldin.com. Unfortunately, the answer is not short and simple. The good news is that my new book has an entire chapter on inflation and hyperinflation, and today, as I fly to La Jolla (more below), I give you that chapter as this week’s letter. The letter will print a little long, as there are a lot of charts. Hopefully it will encourage you to want to read the rest of the book!

Please note, my co-author (Jonathon Tepper) and I have different views on the subject, for different countries. In some, we consider high (or worse) inflation a serious prospect. In others the opposite is true. There is no one size fits all. And of course our best estimates today are based solely on the facts as we know them – if the facts change, so will our opinions. When we wrote this chapter late last year, it was not obvious that the Fed would purchase 100% of the US debt. We currently assume that will stop. If it does not, then the lessons of this chapter are more important than we would like them to be. Inflation and hyperinflation are choices made by humans. That means there is an element of uncertainty, when logic would dictate there should not be. And also, we start off the chapter a little tongue in cheek (we are NOT really recommending inflation as an answer to debt!).

Endgame got up to #2 on Amazon yesterday (#1 non-fiction). Thanks to all you faithful readers who bought the book, whether there or at your local bookstores. Maybe this weekend, those of you who procrastinated will help us get to #1! And if you are going to buy some extra books for clients, family, or friends go ahead and do it now! No more procrastination! Go to www.Amazon.com/endgame and get clicking!

I just bought the book myself (really!) on Kindle. I need it on my IPad for reference. It works great! And we are #1 on Kindle! OK, I will only be this aggressive for another month or so, then it’s back into regular e-letter mode, but cut me some slack – books are a big deal for my generation. And I think this one adds some important insights to the national conversations that must be had around the world. Now, let’s jump into the chapter on inflation.