Archive for the 'Dollar’s Demise / Hyper-Inflation' Category
Up until now, Argentina’s descent into a hyperinflationary basket case, with a crashing currency and loss of outside funding was relatively moderate and controlled. All this is about to change. Today, in a futile attempt to halt inflation, the government of Cristina Kirchner announced a two-month price freeze on supermarket products. The price freeze applies to every product in all of the nation’s largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies’ trade group, representing 70 percent of the Argentine supermarket sector, reached the accord with Commerce Secretary Guillermo Moreno, the government’s news agency Telam reported. As AP reports, “The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.”
Perhaps they will. What consumers will certainly do is scramble into local stores to take advantage of artificially-controlled prices knowing very well they have two short months to stock up on perishable goods at today’s prices, before the country’s inflation comes soaring back, only this time many of the local stores will not be around as their profit margins implode and as owners, especially of foreign-based chains, make the prudent decision to get out of Dodge while the getting’s good and before the next steps, including such measures as nationalization, in the escalation into a full out hyperinflationary collapse, are taken by Argentina’s female ruler. (Read more)
Great Interview of Patrick Barron by Andy Duncan — Germany, EU, Sound Money, the Looming Fiat Tidal WavePosted in Dollar's Demise / Hyper-Inflation, European Union, Money/Economy/Taxes, Sound Money on February 2nd, 2013
Characteristically, Nobel Laureate Krugman takes the idiotic “Platinum coin option” proposition seriously and uses it to bash the Republicans mere compliance (as opposed to enthusiasm) for spending the economy into oblivion.
The left treats Republicans as Bolsheviks treated Mensheviks. The Republicans are (for now) the radical saboteurs solely responsible for the failure of the otherwise glorious plans of our commissars.
Socialism requires endless enemies on which to blame the failures of central planning. Think of Orwell’s image of the future: a jackboot stomping on a face, forever.
The platinum coin discussion has moved with startling speed, from an idea nobody took seriously (and which, as I’ve mentioned, senior officials were unaware of just last month), to assertions that it’s ridiculous and illegal, to grudging acknowledgment that it’s almost surely legal coupled with strained attempts to dismiss it as an option nonetheless.
Ezra Klein has now opened up a new front, which I would consider a sort of progressive version of the shock doctrine: we shouldn’t invoke the coin option, he says, precisely because it would work too well, and therefore let us sidestep the real issues. . . .
This isn’t a stupid argument. We really do need to come to grips with Republican extremism. The question is whether refusing to use this escape hatch is the place and time to do that.
My own view is that I was willing to go over the brink on the fiscal cliff, but not here, for three reasons. (Read more)
Here’s Robert Murphy’s take:
Jack Balkin — a professor of constitutional law at Yale — outlined strategies that the White House could use to evade the pesky borrowing ceiling imposed by a fickle Congress:
Are there other ways for the president to raise money besides borrowing?
Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time.
Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.
The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government’s checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.
The “jumbo coin” and “exploding option” strategies work because modern central banks don’t have to print bills or float debt to create new money; they just add money to their customers’ checking accounts.
These suggestions should horrify anyone who understands the importance of sound money. Not only are the proposals themselves preposterous, but the mere fact that they are being discussed is a symptom of the cultural decadence wrought by the government and the Fed’s responses to the 2008 financial crisis.
Money for Nothing
When critics of the Fed assert that Bernanke creates money “out of thin air,” they mean the following: The Federal Reserve has the power to buy whatever assets it wants at whatever price it wants. In principle, Treasury Secretary Geithner could sell a paperclip to the Fed for $2 trillion. The Fed would simply write a check made out to the Treasury, drawn on the Fed itself.
When the Treasury deposited this check with its own bank — which just so happens to be the Fed — then its own “checking account” balance would go up by $2 trillion. This money wouldn’t come from anywhere in the sense that some other account would need to be debited $2 trillion. On the contrary, the system’s total reserves (and what is called the “monetary base”) would have swelled by $2 trillion. The Treasury would be free to start paying bills by writing checks on the $2 trillion in its account.
The only kink in the plan would be the state of the Fed’s balance sheet. Initially it could value the paperclip at $2 trillion — what the Fed paid for it — and list the paperclip among its other assets such as Treasury bonds and mortgage-backed securities.
“These suggestions should horrify anyone who understands the importance of sound money.”
Of course, people in the financial markets would cry foul. They would know that if the Fed’s books were “marked to market,” the paperclip would be worthless and the Fed would suddenly be insolvent according to regular accounting rules. (Its liabilities, in part consisting of bank reserves — which are dollar-denominated claims on the Fed — would have risen by $2 trillion, while its assets didn’t budge.) But this would merely be an embarrassment rather than a legal obstacle because the Fed has put into place Orwellian rule changes that allow it to shield its shareholder equity from capital losses.
The difference between my absurd paperclip scheme and the two proposals discussed by Balkin is one of degree and not of kind. As of this writing, platinum is trading for a little less than $1,800 per ounce. Thus, $2 trillion in platinum would weigh about 35,000 tons (Read more)
From Dan Amoss of the Daily Reckoning, originally published in September 2012:
“For years, I’ve expected that at the end of all this central bank printing, we’ll see the end — not a reversal — of quantitative easing programs and a re-pegging of the US dollar to gold at much higher gold prices. A new gold standard would allow the Fed and other central banks to save face after the following sequence of events:
1. Central banks inflate their balance sheets and buy up many of the bonds governments issue to fund soaring budget deficits
2. Once the largest suppliers of scarce products realize they’re exchanging products for infinitely diluted paper money, they start demanding more and more money in exchange for sending their scarce products to the marketplace
3. Consumer prices start rising
4. Calls for monetary tightening (reduction of central bank balance sheets and interest rate hikes) grow louder
5. These central banks won’t be able to slash money supplies without crashing government bond markets and stock markets. They talk about tightening, but don’t tighten
6. As central banks lose credibility, gold launches on a final, near-vertical stage of its bull market
7. In response to inflation expectations running wild, governments and central banks draw up plans to re-peg currencies to gold in order to avoid having to drain trillions worth of cash from the banking system.”
In the face of imminent hyperinflation, Dan Amoss postulates that the Fed will back the dollar with gold at some significantly higher price in order to avoid a complete collapse of the dollar. It is reassuring that the Fed can do this, but will it? Another scenario is that some large and important country, such as Germany or China, will back its currency with gold and cause demand for the dollar as the preferred means of international settlement to fall. This will cause prices to rise in the US as overseas dollars start to flow back into the only economy where they must be accepted for all debts public and private. (Read more)
Krugman: “The U.S. government is having no trouble borrowing to cover its deficit. In fact, its borrowing costs are near historic lows.”Posted in Big Media, Dollar's Demise / Hyper-Inflation on December 17th, 2012
In his latest propaganda dispatch, Krugman writes:
It’s important to make this point, because I keep seeing articles about the “fiscal cliff” that do, in fact, describe it — often in the headline — as a debt crisis. But it isn’t. The U.S. government is having no trouble borrowing to cover its deficit. In fact, its borrowing costs are near historic lows. And even the confrontation over the debt ceiling that looms a few months from now if we do somehow manage to avoid going over the fiscal cliff isn’t really about debt.
No, what we’re having is a political crisis, born of the fact that one of our two great political parties has reached the end of a 30-year road.
This is such a flagrant distortion that it makes my blood boil.
Basically, the US government is lending money to itself at an artificially low interest rate. This allows professional propagandists like Krugman to claim that the US is having no trouble borrowing money.
The US holds over 6.3 trillion dollars worth of its own debt. By contrast, China holds about 1.1 trillion. (source)
What they’re effectively doing is printing money to buy their own debt. The effect of this is that they steal the saving of everyone in the world who uses dollars. This is going to be a goddamn catastrophe. I recommend guns, gardens and gold.
He talks not about the Constitution, but about the initiation of force, and the state as a monopoly of force.
From earlier this month:
Many bazaar merchants had closed their shops the day before and authorities reported arrests amid efforts to clampdown on black market money exchangers, who effectively set the rates around the country. Trash bins were set ablaze during sporadic confrontations with security forces.
The Prosecutor’s Office in Tehran said 16 people have been detained for “disrupting” the currency — an apparent reference to speculators trying to take advantage of the rial’s declining value.
Iran’s rial has lost nearly 40 percent of its value against the U.S. dollar in the past week. The rate Thursday — about 32,000 rials for the dollar — was a bit higher than the record low earlier this week. (Read more)
“This decsion is a disaster for the German people and a disaster for the world. The flood gates of unlimited monetary inflation have been opened. German capital will be plundered by its neighbors. This is NOT a victory for Europe but a defeat for the original post war European vision of a peaceful and prosperous Europe. Now it is up to the German people to throw out Merkel and the Euro federalists and return to the original vision of a Europe of free trade, free mobility of labor, and free mobility of capital.”
Patrick Barron‘s letter to the Philadelphia Inquirer:
It is a misnomer to claim that markets “rejoice” due to interventions by monetary authorities, in this case by the European Central Bank (ECB), to drive down the interest rate artificially. True, the world’s stock markets went up and the targeted interest rates did go down, but this is strictly the result of money printing and not the result of market fundamentals, such as increased profits. When a central bank intervenes to lower interest rates, it buys bonds at above market prices, which is the flip side of the interest rate; i.e., when bond prices rise, interest rates go down (and vice versa, of course). One may view this as nothing more than a counterfeiter paying more for a good than the free market price; there is no market force involved. Consequently, when bond interest rates are forced down by such action, these bonds become less attractive investment instruments. Money that would have been invested in bonds will now flow to stocks, where one may get a better yield. The resultant increase in stock prices is not some sort of rejoicing by the market, but simply arithmetic by investors who have nowhere else to go. This game of ever larger injections of funny money will come to an end when price inflation gets out of hand. Simply stopping the increase in the monetary spigot will cause the whole, corrupt house of cards to come crashing down.