Hyperinflation __ The Answer To Our Prayers for Small Government and Free Markets?

So, the old man in Venezuela says that hyperinflation is the answer to our prayers. Has he finally gone off the deep end? Has he joined the ranks of the most insane in this asylum, in which we are all compelled to live? If I have, I take comfort that I am in good company.

This past Friday my good friend Brian of the Frankenstein Government blog introduced his readers to the FOFOA blog, which Brian called pure genius. Knowing that Brian is not prone to hyperbola, I clicked on the link he provided and read for about 15 minutes without finishing the article. I was excited by what I was reading and learning, but I didn’t have time to read any longer. This weekend, however, I spent hours at the FOFOA blog. Brian was right. The author is a genius! He is also a mystery. FOFOA has no about page. We don’t know who the author is or what his credentials are. He is currently writing a series of ten posts (one per day) that will coincide with the tenth anniversary of his blog. If you are a blogger, what I am about to tell you will humble you. Get a load of his stats:

Five years later and my blog has more than 400 posts, 52,000 comments (2,600 of which are mine), and more than 5 ½ million views. I guess that means a few people found the discussion worthwhile! ;D

Impressed? I am. By comparison. this humble blog will see its third anniversary next month. I will have written just over 1000 post by that time. And, I do not have enough years left in me to ever expect to see my view total reach 1 million, let alone 5.5 million.

FOFOA stands for Friend Of a Friend Of Another. The author was apparent a big fan of a blog called FOA (Friend Of Another) and that is he came up with the name for his blog. FOFOA ia a blog for gold bugs. Gold and why people should own physical gold is the only subject discussed at FOFOA. The thing to understand about gold bugs is they believe people should own physical gold because they believe that this inflationary fiat money system that depends on ever-expanding debt (debt and money are equivalent) will come to its inevitable end by way of hyperinflation. Although you can’t eat gold, the gold bugs will tell that during hyperinflation, if you have a little gold, you will be able to sell small amounts for a lot of the new dollars with the added zeros (a la Zimbabwe) which you will need in the race with your neighbors to find and buy the scarace necessities of life. It is the inevitable coming of hyperinflation that I want to talk about today.

You may or may not know that there has been a long running debate between those who believe the fiat monetary system will end in hyperinflation and those who believe it will end in a deflationary crash. Although I spent several hours reading FOFOA this weekend, I only got through the first three of his ten part series called My Candid View because I was distracted several times by links to earlier articles that sounded interesting. One of those links was to a post in 2011 titled Deflation or Hyperinflationn. I found it fascinating. By the way, FOFOA has successfully converted a few long-time pundits from the deflation camp. Here are a couple of quotes from that article:

There is a quote I like that comes from Le Metropole Cafe. It goes, “we will have deflation in everything we own, and inflation in everything we use”. This is partly true. It is true during the run up to the rubber band snapping. It is true until we hit the waterfall. At that point I have my own version of the quote. “We will have hyperDEflation in everything measured against real money, GOLD, and we will have hyperINflation in everything measured against paper dollars.”

{…}

This is very important: Once hyperinflation commences it is characterized by a running shortage of cash, even though it appears like the opposite to the outside observer. The currency collapses in value against economic goods because the debt and the credit collapsed. There is no credit, only cash, and there is a shortage of cash for everyone, including the Elite and the government. So they, the Elite/government, print and print for their own survival while saying it is for yours.

{…}

And, from Part 2 in his series, this is one deflation pundit throwing in the towel:

Sheesh! Where to begin? It’s difficult to give up a belief system that took root 30 years ago, but I find your arguments irresistible. I took notes as I read the essay, thinking to rebut you point-by-point; instead, halfway through it, I found myself overwhelmed by the clarity of your thoughts. The real power of this essay is that each step of the hyperinflationary endgame it foresees is entirely consistent with human nature, particularly where self-interest and self-preservation are fated to play out.

I will have to find a way to break this gently to my readers, perhaps starting with the joke about not having to outrun the bear. It goes a long way toward explaining how the Masters of the Universe will actually benefit from hyperinflation…..

Hyperinflation _ The Bad News

Well, what could hyperinflation be but bad news? I will get to the other side of the coin in a moment.

One thing many pundits believe is that, be it hyperinflation or be it deflation that finally takes down this worthless fiat monetary system perpetrated on the world by biggest of the world’s banker with a little help from President Richard Nixon, those bastards will finally get what they deserve. In other words, the bankers will see their great wealth destroyed. Wrong, says FOFOA. And, in the interest of full disclosure, maybe this is why I se the author as a genius. He confirms something this humble observer wrote over two years ago. That is that when the US Treasury has no choice but to put the printing presses into hyper-drive (printing new bills with more zeros on them), it will be the bankers and connected elites who will be first in line. That is how the newly printed fiat money begins to be circulated into the everyday economy which ignites the Hyper as opposed to High inflation. Because they are first in line, they will spend all liquid money buying hard assets __ gold, yes, but also assets that are or produce the things that all people will need to survive. This is how they will protect and even increase their wealth.

Hyperinflation will result in scarcities of basic necessities and civil order will break down. Our government will crack down hard on the disorderly. Wages will not keep up with the hyperinflation. The unprepared, the poor and the elderly dependent on government programs will suffer the most.

Hyperinflation __ The Good News

Believe it or not, according to FOFOA, there is some very good news that will come with the hyperinflation. First, let me report that FOFOA believes the period of chaos, the period before the transition to real money backed by gold, will be short lived…as short as six months, in his opinion. But, the really good news is that the author of FOFOA believes there is nothing wrong with our Leviathan government that won’t be fixed by hyperinflation. My interpretation of what he believes is as follows:

Once the Banksters have converted all their mountains of inflated cash into hard assets and once the US government paid of all of its sovereign debts with worthless fiat dollars, they will have no choice but to produce a new currency back by gold or, at least, at basket of gold and other commodities, They will no longer be able to deficit spend. They will no longer be able to tax and borrow sufficiently to maintain the Leviathan and, therefore, the size of our federal government will be reduced to a small fraction of what it is today. Entitlement programs will have to go and the social safety net will be will barely be enough to keep people alive. The federal government will no longer be able to micro-manage our lives or the economy. Free markets will finally have a chance to work their magic. Both people and governments will have to live within their means.

Summary

It is probably obvious to you that this old man has a new favorite pundit. If you decide to checkout FOFOA, make sure you set aside some good quiet time to read at length. This is a long post, by my standards, His are four or five times this long. FOFOA is not easy reading because he gets into some heavy subjects that require that you have your thinking-cap screwed on good and tight; and because he has developed a system of acronyms you won’t be familiar with, as his long-time followers are. (He could help new readers if he had a glossary of his acronyms.) In my opinion, it will be worth your effort. He has good advice on how to survive the coming collapse of the dollar and the hyperinflation that will result from the collapse. I will definitely be reading every last word of his current ten part series: My Candid View.

For the first time in a long time, I have hope that my grandchildren and their children have a good chance of living to enjoy an American Renaissance.

Well, that’s what I’m thinking. What are your thoughts?

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15 thoughts on “Hyperinflation __ The Answer To Our Prayers for Small Government and Free Markets?

  1. “Once hyperinflation commences it is characterized by a running shortage of cash”

    A classic definition of inflation is “too many dollars chasing too few goods”.

    That is exactly the opposite of what the genius says. Logic dictates that a shortage of dollars causes deflation, given there are more goods to buy for the available money supply. What economic logic reverses the law of supply and demand?? What am I missing?

      1. First off, the so called Fed “printing press” isn’t a printing press at all. The U.S. Treasury prints money, not The Fed.

        What folks call “printing money” by The Fed (also called quantitative easing) is really just purchasing private-sector assets that the Fed owns. Then, through T-bonds, are converted into liquid assets deposited at the central bank that can then be borrowed by the member banks. The purpose of making those purchases is to inject more liquidity into the financial system to stimulate the economy.

        The Fed later sells the private assets to recover the taxpayer’s investment.

        Fed monetary policy serves only two purposes:
        1-Price stability
        2-Maximum employment

        Fulfilling those two purposes depends on the law of supply and demand working within the monetary system. Fed policies are based on it.

    1. Of course there is too much money chasing to few goods. There just is never enough. Remember, wages do not keep up with hyperinflation. And, “we will have deflation in everything we own, and inflation in everything we use”.

      1. Agreed… with caveats…

        At the moment, hyperinflation is the last thing we have to worry about. Quite the opposite is true. Deflation and recession are the greater dangers facing the economy today. That is “too few dollars chasing too many goods”.

        The current Fed inflation target is 2%. The “price stability” mandate appears to be working since the current inflation rate is around 2%.

        The “maximum employment” mandate isn’t working. That is because banks aren’t borrowing Fed asset purchase money to re-invest into the economy. They figure they can still make more, albeit not much more, by holding their T-bonds to maturity, instead of risking them in a volatile economy to create new jobs.

        Thus, we are having a so-called “jobless recovery”.

        U.S. Treasury bond yields are the ultimate inflation barometer. The higher they go the more inflation there will be. The lower they go, the less inflation there will be. It is a simple as that.

        For proof, just look at home mortgage interest rates plotted against U.S. Treasury 30-year bond yields over the last 60 years. They are practically Siamese twins.

      2. “The Fed later sells the private assets to recover the taxpayer’s investment.”

        In a world devoid of buyers, who will they sell to? In fact, in June the FED bought every 10 year treasury issued. There were no buyers, only sellers- hence you saw the 10 year treasury rate increase a full 100 basis points. http://www.zerohedge.com/news/2013-08-20/buyer-last-resort-guess-mystery-buyer-x

        The FED has been monetizing the debt for four years now by “buying” it’s own debt.

        The greatest lie ever conceived was the Federal Reserve Bank. It is not Federal, there are no reserves, and without reserves I am not sure you can call it a bank. It is three shell Monte on a grand scale. It is a total mirage- not to be found in any school book.

        I have this picture in my mind of the Federal Reserve which was created in 1913. Within that “Reserve” they planted spare trillions upon trillions of dollars so that one day (2008)- they could blow all of the dust off of all of those trillions of dollars which were lying in wait to finance our way thru a soft patch and then having done so- immediately withdraw all of those excess trillions and place them back into safekeeping until such point that they are needed once again. It is a fantastic premise.

        It ranks on high with the Easter Bunny and the Legend of Sleepy Hollow.

      3. The Dow closed at 14,966.00… not an all-time high, but not far from it. Looks like even in a poor economy there are plenty of buyers out there for The Fed’s mortgage-backed securities since housing is finally slowly recovering.

        You make a VERY important point…
        The Fed is buying most U.S. Treasuries. That is a problem. It is a chancy balancing act whose final outcome is anything but certain.

        U.S. Treasuries influence these major things:
        1-Global economic stability (safe haven investment)
        2-Servicing the National Debt (yields up… service costs up)
        3-An instrument of monetary policy
        (For both “price stability” AND “maximum employment”)
        4-As lender of last resort

        That is a lot of different directions to be pulled. Somewhere along the line, something bad can happen. Fed venturing into uncharted territory with Treasuries is fraught with danger… hyperinflation is just one of them.

        That being said…
        Folks don’t understand The Fed and that is why they fear it. It is one of the few government entities motivated to work for the public good rather than for political gain.

        The Fed has done a reasonable job serving the dual mandate over the years and Ben Bernanke has done more to make Fed operations transparent than any Chairman before him.

    2. I have to say AZ- you actually answered your own question by defining inflation and then, deflation.

      Debtors are helped by inflation. Savers are helped by deflation. In a world swimming in debt, it is the debtors who cannot pay. The only way out in a world swimming in debt is inflation and then hyperinflation.

      I love it when people say we are never going to pay that 17 trillion we owe, nor are we going to pay that 200 trillion in entitlements over the next 30 years.

      All debts are paid. Either by the debtor or by the lender. Everyone is going to pay this one.

      1. “Debtors are helped by inflation. Savers are helped by deflation. In a world swimming in debt, it is the debtors who cannot pay.”

        True to the max!

        “The only way out in a world swimming in debt is inflation and then hyperinflation”

        In other words, you suggest we punish those who save while rewarding those who foolishly overspend?

        That wouldn’t be my suggestion, but to each their own thoughts.

  2. “In other words, you suggest we punish those who save while rewarding those who foolishly overspend?
    That wouldn’t be my suggestion, but to each their own thoughts.”

    That is exactly what I am saying. There is ABSOLUTELY no other way to pay the debt. However, if you figure out some other way to pay the 17 trillion with another 100 trillion due in 20y, I’m all ears.

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