Theodore Dalrymple notes that inflation is more than a purely economic phenomenon…it also has profound social and psychological effects.even characterological effects:
For one thing, inflation destroys the very idea of enough, because no one can have any confidence that a monetary income that at present is adequate will not be whittled down to very little in a matter of a few years. Not everyone desires to be rich, but most people desire not to be poor, especially in old age. Unfortunately, when there is inflation, the only way to insure against poverty in old age is either to be in possession of a government-guaranteed index-linked pension (which, however, is a social injustice in itself, and may one day be undermined by statistical manipulation by a government under force of economic circumstances, partly brought about by the very existence of such pensions), or to become much richer than one would otherwise aim or desire to be. And the latter turns financial speculation from a minority into a mass pursuit, either directly or, more usually, by proxy: for not to speculate, but rather to place one’s trust in the value of money at a given modest return, is to risk impoverishment. I saw this with my own father: once prosperous, he fell by his aversion to speculation into comparative penury.
Reminds me of something written by Sebastian Haffner, who grew up in Germany between the wars. Discussing the great Weimar inflation, he says:
Anyone who had savings in a bank, bonds, or gilts, saw their value disappear overnight. Soon it did not matter whether it ws a penny put away for a rainy day or a vast fortune. everything was obliterated…the cost of living had begun to spiral out of control. ..A pound of potatoes which yesterday had cost fifty thousand marks now cost a hundred thousand. The salary of sixty-five thousand marks brought home the previous Friday was no longer sufficient to buy a packet of cigarettes on Tuesday.
The only people who were able to survive financially were those that bought stocks. (And, of course, were shrewd or lucky enough to buy the right stocks and to sell them at the right times.)
Every minor official, every employee, every shift-worker became a shareholder. Day-to-day purchases were paid for by selling shares. On wage days there was a general stampede to the banks, and share prices shot up like rockets…Sometimes some shares collapsed and thousands of people hurtled towards the abyss. In every shop, every factory, every school, share tips were whispered in one’s ear.
The old and unworldy had the worst of it. Many were driven to begging, many to suicide. The young and quick-witted did well. Overnight they became free, rich, and independent. It was a situation in which mental inertia and reliance on past experience was punished by starvation and death, but rapid appraisal of new situations and speed of reaction was rewarded with sudden, vast riches. The twenty-one-year-old bank director appeared on the scene, and also the sixth-former who earned his living from the stock-market tips of his slighty older friends. He wore Oscar Wilde ties, organized champagne parties, and supported his embarrassed father.
Haffner believes that the great inflationparticularly by the way it destroyed the balance between generations and empowered the inexperienced younghelped pave the way for Naziism.
In August 1923 the dollar-to-mark ratio reached a million, and soon thereafter the number was much higher. Trade was shutting down, and complete social chaos threatened. Various self-appointed saviors appeared: Hausser, in Berlin…Hitler, in Munich, who at the time was just one among many rabble-rousers…Lamberty, in Thuringia, who emphasized folk-dancing, singing, and frolicking.
The inflation was eventually brought under control:
Then a miracle happened. “Small, ugly grey-green notes” appeared, with “One Rentenmark” written on them. The small numbers on these notes belied their value. You could use them to buy goods which had previously cost a billion marks. And, most amazingly, they held their value. Goods which had cost 5 Rentenmarks last week would also generally cost 5 Rentenmarks next week.
But the after-effects of the great inflation lived on.
There are two excellent novels, both by author Hans Fallada, which portray the psychosocial impact of the Weimar inflation and its aftermath
Wolf Among Wolves is set in the worst period of the inflation. The protagonist, Wolfgang Pagel, is a well-meaning but rather irresponsible young man trying to make his way in a society with rising social and economic chaos. Can Wolfgang grow up to be a responsible adult?..and can he survive surrounded by wolves without himself becoming a wolf? I reviewed the book here.
Little Man, What Now? is set in a somewhat later time period, 1932. The great inflation of Weimar has come and gone, but the psychological damage as well as the economic damagestill lingers. Johannes and Emma, known to one another as Sonny and Lammchen, are a likeable young couple who marry when Lammchen unexpectedly becomes pregnant. Their world is not the world of Weimar’s avant-garde artists and writers, or of its risque-to-outright-degenerate cabaret scene. It is far from the world of a young middle-class intellectual like Sebastian Haffner. Theirs is the world of people at the absolute bottom of anything that could be considered as even lower-middle-class, struggling to hold on by their fingernails. Here’s my review. There was also a pretty good American movie made based on the book, review here
The Weimar inflation was an extreme case, of course, and we are unlikely to see anything nearly as severe. But, as Dalrymple notes, even less-catastrophic levels of inflation tend to have malign effects. The Biden administration and the Democratic Congress seem remarkably unconcerned about these effects, or with the socially-destructive effects of so many other parts of their total policy set.
On the other hand, if inflation gets sufficiently bad, kids can make kites out of currency. And, if energy prices continue their climb upward, devalued currency could be used for heating fuel.
Why does discussion of inflation always go straight to Weimar Germany? Places like Brazil, Argentina, etc., have seen regular bouts of high/hyper-inflation, why don’t we ever talk to people from there about what it’s like? Seems like it’s some combination of Eurocentrism in general and obsession with Naziism in particular.
“The Biden administration and the Democratic Congress seem remarkably unconcerned about these effects, or with the socially-destructive effects of so many other parts of their total policy set.”
Didn’t we have a super long thread about this recently, that it’s not incompetence or being unconcerned, it’s active malice. The destruction of the middle class seems to persistent of a theme in recent years to be an accident.
The inflation we are now experiencing, is mostly the result of the ‘stick save’ the Fed made in 2008. That produced Quantitative Easing, or money printing. They did this to a great degree by pushing interest rates to nearly 0 and literally handing out money.
They kept this going until now with the collusion of most of the worlds central banks and so everyone is screwed. Money is worth a great deal less than its face value in real terms, and commodities are about the only thing that will do well, but not for quite a while. This puppy will take a long time to unravel.
Gold did well in the 70s inflation. Then it collapsed. I wish I had bought gold in 2000 and 2001 when it had collapsed back to $200 an ounce from $800 an ounce in 1978. Now, it is on a huge bull market again but if we really get into bad inflation, especially if Democrats are in power again, the feds will probably confiscate it again like Roosevelt did.
Wishes – I wish I could have gotten a jewelers license back in the ’60s and started buying gold at $35 an ounce :)
Another thought – while we have more recent examples of inflation robbery, the long term effects as best seen by looking back at older examples and how that society reacted.
Fair or not, the USA and Germany are in a different league than Brazil, or Argentina, or Venezuela. Perceptions like that are part of the psychological context, as sure as expectations of future inflation are–and the reactions of populations in large, powerful countries will affect more people, potentially.
Germany underwent dislocations that so far have no clear parallels here, but add in a disastrous war and who knows what could happen.
As far as the testimony of people from the other places, go for it. I doubt the sense of angst and pervasive dread vary much from one place to another–and in none of the cases was the outcome positive.
I don’t know what hyperinflation in the U.S. would look like but it won’t be anything like Weimar.
To take just on example, Weimar German agriculture was based on horses entirely. American agriculture isn’t. Every non-hobby farm requires thousands of gallons of diesel fuel, hundreds of tons of fertilizer and tens of thousands of dollars of various pesticides every year. None of this is negotiable, most especially the fuel. Without fuel, absolutely no production takes place. The tools and equipment to do it any other way simply don’t exist, not to mention the horses. Some production could take place without fertilizer for a season possibly but only at a fraction of normal productivity, the same goes for pesticides.
“Organic” agriculture survives on generally poor yields by charging a sucker’s premium. And even those poor yields depend on substituting energy in the form of added tillage and trucking low value “organic” material for fertilizer hundreds of miles.
You know who depends on American agriculture just as much as we do? China most especially as well as the rest of Asia to a greater or lesser extent. The level of dependence is just about proportional to the level of development. Japan and Korea on top and trailing down from there. Even if a given cargo is from somewhere else, it’s a totally fungible market where whatever is available will go to the highest bidder. Under these circumstances, I expect export returns from the U.S. market to be disappointing.
“As far as the testimony of people from the other places, go for it. I doubt the sense of angst and pervasive dread vary much from one place to another–and in none of the cases was the outcome positive.”
Yes, this is exactly my point. We can ask millions of people from South America about what hyper inflation is like, from recent decades, it doesn’t always have to be about Germany a century ago.
IIRC the last bout of serious inflation – during the Carter years – real estate was king and stocks took a back seat.
Larry Summers on inflation:
https://www.commonsense.news/p/larry-summers-on-inflation-and-the
…incomprehensible to me that he has “almost never questioned anyone’s motives’…except Trump…in the same article, he expresses concern about the ‘New McCarthyism’ (ie, Cancel Culture) at universities…where does he think this comes from? It sure ain’t Trump.
Summers:
“LS: He got America to move way back towards getting on track after a deeply dangerous and crazy period.
BW: In a year from now, what do you think the most urgent thing on our minds will be? What would we need to talk about a year from now?
LS: Making sure that populism does not completely pollute American politics to the point of producing dangerous outcomes in 2024.”
So he thinks everything is going great, except for Trump and “populism” trying to go and ruin everything.
What a clown.
Good thing the “elites” are focused on the important things, like throwing Orange Man in jail and destroying the middle class.
Otherwise, they might have to talk about how their geopolitical propaganda that Russia is totally isolated, China is separating themselves from them, and India is a bulwark for the West against a Russia/Chinese alliance is all complete and total nonsense.
https://www.reuters.com/world/china/chinese-military-will-send-troops-russia-joint-exercise-2022-08-17/
BEIJING, Aug 17 (Reuters) – Chinese troops will travel to Russia to take part in joint military exercises led by the host and including India, Belarus, Mongolia, Tajikistan and other countries, China’s defence ministry said on Wednesday.
Larry Summers on inflation:
David, Larry Summers is such a skilled economist that , back in 2009, he nearly bankrupted Harvard.
The story.
Only a year ago, Harvard had a $36.9 billion endowment, the largest in academia. Now that endowment has imploded, and the university faces the worst financial crisis in its 373-year history. Could the same lethal mix of uncurbed expansion, colossal debt, arrogance, and mismanagement that ravaged Wall Street bring down America’s most famous university? And how much of the turmoil is the fault of former Harvard president Larry Summers, now a top economic adviser to President Obama? As students demonstrate, administrators impose Draconian cuts, and construction is halted on an over-ambitious $1.2 billion science complex, the author follows the finger-pointing.
On US inflation:
http://www.shadowstats.com/alternate_data
And:
http://www.shadowstats.com/alternate_data/inflation-charts
This is from John Williams, who calculates inflation based upon the way the government used to calculate it, back when the government was making an attempt to appear honest.
By the 1980 method, we’re presently “enjoying” roughly 18% inflation, higher than the peak of circa 1981. And it hasn’t been much lower than about 8% since about 2002. The calculations based upon the 1990 method are of course better looking.
Now since the business model of our self-described elites is to lower wages in any way possible- and has been for generations- my theory is that wages have been dropping for decades, regardless of what the government claims.
At some point they dropped below a critical threshold and millions of people simply decided it wasn’t worth it, for one reason or another.
Another aspect of that business model is the assumption that there will always be a stream of willing workers to immigrate into the US and replace Americans, doing the exact same jobs but for much less money.
I suspect that stream will dry up. I’ve already seen stories that prices in Mexico are much better, so much so that Americans are leaving the US to go live there. Mexicans are reportedly not happy with all these foreigners moving to their country, btw.
But my point is that the social disruption is already occurring inside the US, even before the inflation has really taken off- and it won’t get better from here.
LS: Making sure that populism does not completely pollute American politics to the point of producing dangerous outcomes in 2024.”
I see “dangerous” used in the context of elections, Trump, populism, etc, a lot.
The question is dangerous to whom?
I don’t think it’s dangerous to the people voting for Trump, among other examples.
But it is quite likely to be very dangerous for the people grifting a living off the taxpayers.
Hence, I’ll take dangerous, with great enthusiasm.
Here’s a good book on that period of German history – “The Downfall of Money” by Fredrick Taylor.
The story is that the Socialist who took over after WWI used inflation as a deliberate tool to beggar and weaken their political opponents.
Oddly, the Socialists used the major industrialists as co-conspirators. The unions for these exporters were offered cost-of-living contracts and as the mark depreciated, so did the exporters cost advantage improve. The unionists and the magnates made a living and the Socialists keep control.
Sound familiar?
Well thats not entirely true they had to print money in order to pay for reparations under havermeyer the social upheaval that arose out of the war was more significant than the break hyperinflationary spike
Reparations had to be paid in gold or physical goods, not paper money…the allies weren’t *that* dumb. But the need to pay these reparations obviously created financial pressures which increased the temptation to print money…then the French occupied the Ruhr because reparations were late, German workers there went on strike, the German government extended welfare benefits to them, and money-printing occurred to fund those benefits.
Well, miguel didn’t say they printed money to pay reparations, he said it was to pay FOR reparations, so I don’t think the two of you are disagreeing.
Will be interesting to see how this winter goes in Germany/France/etc., they look to be after six months still completely unprepared for what’s going to happen. Their only hope now is that global warming saves them and it’s an historically mild winter.
Slightly OT, can anyone here recommend a book that does a good job of explaining how the Fed goes about “creating money”? The explanations I’ve read so far are pretty vague and hand-wavy.
They just order it printed like a counterfeiter
What if this recent bout of inflation is transitory. What if the government pumping $20 trillion into the economy the last 12 years was to stave off a depression?
Could this be why the Inflation Reduction Act is actually a stimulus package?
Is there an amount of debt worldwide with an inability to service that debt trigger a worldwide depression?
Brian E: “What if the [US] government pumping $20 trillion into the [CHINESE] economy the last 12 years was to stave off a depression [in CHINA]?”
That was probably what you intended to say. As long as the US is running $Trillion Trade Deficits, the money printed by the Swamp is not promoting the US economy, it is propping up the economy of the countries that accept the Bidenbucks. Whether it was smart for other countries to exchange their Real Goods for our dubious IOUs, time will tell. But we should not base our plans on the continued willingness of the rest of the world to treat Bidenbucks are actual tokens of value.
Just a few random tweets that came across the transom today…
https://twitter.com/SeanDurns/status/1560378873770135552
America’s Industrial Base Isn’t Ready for War With China – WSJ
https://twitter.com/Jules31415/status/1560658367047413765
BREAKING: US announces new $775 million arms package for Ukraine
Reminds me of the poem:
…The statues will be standing in the same
Tree-muffled squares, and look nearly the same.
Our children will not know it’s a different country.
All we can hope to leave them now is money…
where has that 7 trillion dollars gone, just in the last two years, to productive ventures, I don’t see any evidence of that, now the Dawes plan stabilitized Weimar’s hyperinflation spike in complicated ways, of course it left a jagged hole in the psyche of many germans not only in fallada’s work, but even in some of len deighton’s precursor to his mexico set series,
A few weeks ago I was promised that Ukraine was about to launch a massive offensive to push Russia out of the country. Which is about the 10th time I’ve been promised that Russia was on the verge of imminent collapse. When does that start?
Where is all the money going? (It’s a rhetorical question, please don’t answer as if it’s serious.)
You mean Kherson, the largest squirrel, the cite of the first potemkin village, a major battlefield in the Great Patriotic war, against the OUN, ultimately they lost,
Brian, I think you & me are about the last two people in the West who even remember that the US is paying for a proxy war in the Ukraine. Maybe that should not be a surprise — look how quickly the devastating US abandonment of Afghanistan has been forgotten. The part of the proxy war that was going well for the rather unsavory anti-democratic corrupt crew in Kiev was the propaganda war, but now everyone has lost interest. Consequently, the Kiev crew need to keep pumping the propaganda up to 11 to try to catch the attention of a distracted public and keep the money flowing in.
What is really going on? There is no reliable information getting through to the public. If you read the London Daily Mail, Kiev is winning more every day and Russia is falling to pieces. If you look at sites like Moon of Alabama, the Donbas forces backed by Russian artillery are destroying massive amounts of Kiev military equipment 7 days a week and demilitarizing Kiev forces one trench at a time as they slowly inch forwards. What is really happening is anyone’s guess. Asia Times used to do a fairly even-handed summary based on information from both sides, but it seems that now even they have lost interest.
This looks like more than merely the Fog of War; more like Our Guys, with all their involvement with Kiev and with satellites overhead looking at both sides, don’t want the American people to know what is happening in the proxy war they started against nuclear-armed Russia.
Just one more comment on the situation in the Ukraine. Generous Americans are donating yet another $775 Million to Kiev. The intriguing part is the last sentence of Blinken’s public announcement:
https://www.state.gov/775-million-in-additional-u-s-military-assistance-for-ukraine/
“These capabilities are carefully calibrated to make the most difference on the battlefield and strengthen Ukraine’s position at the negotiating table.
Implies that even the DC Swamp Creatures are telling the Kiev crowd is it time for jaw-jaw to replace war-war.
Gavin,
Since China joined the WTO the trade deficit with China is about $4 trillion.
I think I looked up the trade deficit from the mid 70’s until the mid 2000’s was equal to the national debt, for what it’s worth.
Per Dave Foster: “Reparations had to be paid in gold or physical goods, not paper money”¦the allies weren’t *that* dumb.”
You should read Keynes’ “The Economic Consequences of the Peace.” He was a bit player for the British negotiating team at Versailles and pretty much predicted the futility and collapse of the reparations scheme both economically and politically.
Especially read his damning impressions of Woodrow Wilson, one of our worst, most tyrannical presidents.
…don’t want the American people to know what is happening in the proxy war they started against nuclear-armed Russia.
Which is a tell that the war is going poorly for Davos. If it were otherwise they’d never stop touting their success.
Implies that even the DC Swamp Creatures are telling the Kiev crowd is it time for jaw-jaw to replace war-war.
I don’t doubt it- but the problem is that the Russians have apparently decided that there is no point in negotiating with the Swamp Creatures because they will not honor any agreement after the ink dries.
Hence, the Russians- noticing that history goes on forever- are taking their sweet time conquering the parts of Ukraine that they want to keep, with the intent to the leave the parts worthless to them to the EU.
Not being a citizen of Russia, Ukraine, or the EU- I wish them all the best.
Before this descends into yet another pointless Ukraine thread where everyone repeats for the 16th time everything they’ve already said 15 time before, I’ll try to bring us back to the OP.
When you look at all the recent instances of hyperinflation, one common denominator emerges, they all ended by the country in question Dollarizing their economy. This allowed commerce to resume on some sort of rational basis and by happy coincidence, preserved the wealth of those that held assets abroad.
To add another point to all the things that are different from Weimar; there were not some unknowable number of pallets of high denomination German currency floating from place to place, holding the proceeds of a huge criminal economy and seemingly world spanning corruption.
Not to mention pallets more of counterfeit currency produced by North Korea among others. A Chinese scandal that surfaced briefly before being overshadowed by others concerned the fact that the “company” printing Chinese currency as well as other currency by contract was found to have produced some quantity, thought to run into trillions of RMB, in duplicate. A sort of one for you and one for me deal. So far, no one I’ve heard has established just what other currency they may have been printing on an illicit basis, especially Dollars. The Federal Reserve publishes its guess of the value of counterfeit $ in circulation abroad from time to time.
To all of those touting the BRICS to form some sort of alternate depository currency, I’ll simply list who they are: Brazil ,Russia, India, China and last and least, South Africa. All unparalleled examples of economic probity, right.
“To all of those touting the BRICS to form some sort of alternate depository currency, I’ll simply list who they are: Brazil ,Russia, India, China and last and least, South Africa. All unparalleled examples of economic probity, right.”
Well, first off, the issue is that those crazy non-Westerners don’t have to try to replace the American dollar from 50 years ago. They just have to compete with the corrupted one of 2022.
Second, they don’t actually have to replace it as a solid barometer of value and trade, if their goal is to upend the global order that intentionally keeps them in a second-class position. If their goal is to smash the unipolar order, not just insert themselves as the new hegemon.
And third, thanks to the supergeniuses who run the world, Saudi Arabia is now clearly on board with the BRICS crew. Makes it a bit harder to laugh hysterically at the pathetic foreigners and their feeble attempts, no?
For anything like that to come to pass, all the oligarchs, drug kingpins, corruptocrats not to mention Saudi princelings would have to either see all their accumulated gelt, predominately denominated in dollars disappear, or find a way to convert it to…? Not to mention all those pallets of C-notes sitting around.
I especially don’t see the Saudis foregoing Western arms and technology for the junk they can buy on Allibaba or the Russian stuff on display in Ukraine right now. It all comes down to what the money can buy and the inferior TP in circulation among the proles in the BRICS just won’t buy what they need. When the crooks running these places start converting away from dollars in their offshore accounts, you’ll have something to pay attention to.
MCS: “… either see all their accumulated gelt, predominately denominated in dollars disappear, or find a way to convert it to”¦?”
Hard to argue that Dollars in US accounts still represent a store of value — something that the owner can use to buy Real Goods on a future rainy day. Not after the UK and US effectively stole $Billions of financial assets from a nuclear-armed superpower. If they can do that to Russia, they can do it to anyone. That was not the sort of thing that was ever supposed to happen, but there is no going back.
It is a reasonable guess that every global major owner of financial assets held in the US or in Dollars is now getting very good advice on how best to tiptoe towards the door before the US steals their money too. The process will take years, but the end result is obvious. Saudi Arabia switching part of their oil sales to China into Yuan which they will use to buy Chinese goods makes perfect sense.
That proxy war in the Ukraine is going to have an appreciable effect on inflation. Everything in the global world is inter-related.
“For anything like that to come to pass”
I’m not sure what you mean by “that”? That there will be a significant non-dollar global economy? Because Russia got the West to knuckle under about paying in rubles, and other countries are happy to do so, including our NATO friend and ally Turkey, and Saudi Arabia and China have been trading in yuan for most of the year. Will you and I ever think of our money in non-dollar terms? No, I can’t imagine so. Like I said, BRICS bucks aren’t going to replace the dollar. Nothing is. But I still think you’re whistling past the graveyard here. Our supergeniuses have thrown away our position completely, because they’re corrupt morons.
“It all comes down to what the money can buy and the inferior TP in circulation among the proles in the BRICS just won’t buy what they need. ”
No one in power anywhere cares what their proles do. They’ll own nothing, and be happy. The advantage that the non-Western countries have is that their populations are already used to that. Trying to turn Europeans and Americans into serfs isn’t going to go well, I don’t think. Though covid showed the “elites” that they can probably pull it off, I still don’t think they’ll be able to.
“When the crooks running these places start converting away from dollars in their offshore accounts, you’ll have something to pay attention to.”
Well, then maybe the Western response to the Ukraine invasion shouldn’t have been to steal all the rich Russian’s stuff? Doesn’t seem like a very smart “soft power” play, but then, I don’t think anyone was thinking more than one step ahead. The “president” is a pudding brained nobody, and whoever is in charge thinks they can run the world like they’ve run universities and the EU and dumps like Chicago for decades, without any worry about consequences or pushback.
Money will always come down to a matter of trust. Even those with a pile of gold coins under their mattress are trusting that they’re really gold. Remember a little while ago where a gold depository was found to be holding some gold covered tungsten bars that they thought were real? The ongoing crypto crash just shows how many suckers there are in the world. My only regret is that I wasn’t imaginative enough to start selling prime numbers 20 years ago. And anyone arguing that crypto is different can stuff it.
Anybody with a stack of gold coins is going to find in short order that, push comes to shove, transacting business with a wallet stuffed with $1,000 bills is both hazardous and inconvenient. What do they expect to take in change?
When gold circulated as currency as late as the 19th century here, transactions very commonly included a mix of coins from different sources and eras. A canny trader had to be on the lookout for arbitrage opportunities from the less well informed as well as keep a lookout for every possible way to slip a ringer (the original meaning as a coin that would ring when struck or dropped rather than give the dull thunk of gold) into the pile.
In the end, a currency is the product of the system it represents. For the last hundred odd years, ours has been the most secure and stable, albeit, far less than perfect. When the Chinese authorities start hauling tons of Rupees from the homes of their corruptocrats instead of dollars, I’ll start to think a change may be in the wind. If it does happen, don’t forget to shed a tear for all the newly impoverished drug dealers and Sheiks standing amid their piles of now worthless C-notes.
Some economists argue that no-one really understands what money is. Try to put together a simple explanation and we can see what their point is. One approach is to recognize that “money” serves two major functions in society — medium of exchange, and store of value.
Medium of exchange — in the limit, it is unnecessary and there can be barter. Iran sends oil to North Korea, and North Korea provides support to Iran’s nuclear program. No money changes hands, and both parties are still satisfied. A medium of exchange relies on trust … but even there, there can be a lot of leeway. We trust that our Political Class is not so stupid as to keep printing Bidenbucks (hah!) — but when the Weimar Political Class was indeed printing freely, the German mark was still useful as a medium for exchange; just the exchange of money for real goods had to take place almost immediately.
Store of value — there’s the rub. One of the hamburger chains in my area has a photo of the original store, advertising burger & fries for $0.25. The dollar bill has been a lousy store of value — but many other financial instruments have also under-performed as stores of value.
Thus we see the typical societal consequence of high inflation caused by excessive politician money-printing: the guy who has a job producing useful goods or services gets by; the price of the food & things he needs goes up, but so does his wages. On the other hand, the guy who has a fixed pension is screwed.
Bottom line is that an economy which has the capacity to produce real goods & services (eg, Chinese electronics, Russian titanium) is better placed to survive the coming inflationary debacle than an economy which prints IOUs and hopes to trade them for those real goods & services.
Money, cash has never been a store of value. Its value, as measured by what it will buy, has always been subject to the vagaries of the market. There may have been periods and places of exceptional stability but the norm has been flux, either minor or major. This trend in the positive direction is so ingrained that a general decline in prices across the economy is considered a pathological condition.
Before there was money, there was barter. The problem was that if you have what I need, I may not have something you would consider sufficient. Several MASH episodes revolved around Radar working out fiendishly complicated, multi-dimensional transactions where no money could change hands. At best, this creates huge friction which is just another way of saying high cost. Thus money.
Money in a time of brigandage, ship wrecks, and disease had its own drawbacks. Thus the advent of banks and their prerequisite; reliable bookkeeping. There’s a reason that early banks were known as houses. Virtually all the principals were related by family connections. This allowed a trader to deposit money in Genoa and carry a letter of credit to a brother or cousin in Paris or London that would be funded from local sources. The trust derived from family connections was widened to others in time, under the aegis of law and a generally more orderly society at large.
Some of us might remember a thing called a check, a piece of paper which would be accepted as a substitute for cash pending clearance at a later date, days or even weeks hence, who’s only authentication was a personal signature. This quaint, primitive practice lasted in the more benighted precincts of the country, generally known as flyover country, clear into the present century. Surviving some decades beyond its demise in more progressive areas where the authorities decided that they had more important things to enforce. So we may be coming full circle.
But money as a store of value? Its never been worth more than what it would buy.
Well, if the powers that be get their way and these “central bank digital currencies” catch on the only criminals will be state approved or completely off the grid…there’s not nearly enough outcry about them, by the time people catch on to what it means it might be too late…
MCS: “But money as a store of value? Its never been worth more than what it would buy.”
That is true of anything — even gold coins or cryptocurrencies. Something is worth only what some other person is willing to give for it at the time the owner needs to sell. That’s all there is to it — whether it is a dollar bill, a stock certificate, a house.
Complication is that improving future productivity (the source of good living) requires investment today, which requires saving — where people defer consuming what they produce today. But if the currency they get back in the future buys less real goods & services than they could get today, why invest? Inflating the currency kills investment, which in turn kills the future standard of living.
Money, cash has never been a store of value.
Fascinating. I take this to mean that no one should be surprised or object when money loses value over time, because it’s not intended to retain value. And also that people shouldn’t be surprised or upset when the number of Federal Reserve Notes they receive for their labor buys them less and less, because they should buy stocks as a store of value and get a bridge card to buy food.
This is ludicrous. During the 19th century, when money was gold specie, its value actually increased. Cash was quite literally a store of value and a good one, too.
When the Chinese authorities start hauling tons of Rupees from the homes of their corruptocrats instead of dollars, I’ll start to think a change may be in the wind.
China is stuffed with dollars because they have been busily building up an enormous trade surplus with the US, which of course you know.
If it does happen, don’t forget to shed a tear for all the newly impoverished drug dealers and Sheiks standing amid their piles of now worthless C-notes.
Do you think you’re going to get an email announcing that rich folks of all stripes are dumping their dollars? You won’t. What’s happening is that they’re busily engaged in buying real assets in exchange for their fiat currency backed by nothing, such as Smithfield Hams, Bell’s Brewery, and vast areas of farmland. And, also, companies creating stealth technology for the air force and their IP.
In the end, a currency is the product of the system it represents.
I think we can agree here. And thank you for pointing out that Chinese authorities are hauling tons of dollars from the homes of corrupt officials, because it reminded me that I’ve seen this sort of story quite a bit over the years. That is, China is going after corruption.
Now compare and contrast with the system of the United States, where I’ve seen frequent stories about vast sums of money vanishing into thin air after the government decides to spent it. The gist of these stories is that the money is gone and no one is looking into the matter. That is, the US is not going after corruption. Instead, the regime has spent vast sums going after the one guy who objected to all this and threatened to stop it. I suspect that various wealthy foreigners know all about this and are reacting accordingly- as I’ve already mentioned.
When you look at all the recent instances of hyperinflation, one common denominator emerges, they all ended by the country in question Dollarizing their economy.
I will note again that the US has been experiencing significant inflation for many years, covered up by the regime to the best of its abilities, which continues to this day. Lately, the official inflation rate- even as calculated by the regime and its heavily manipulated methodology- has reached something like 9%. The actual inflation rate seems to be much higher- I note that the price of some items I buy have doubled in the last few months- and there appears to be no end in sight.
The last time this happened- you know when- the Fed was able to raise interests rates high enough to stop inflation, at least enough to prevent a Weimar-like hyperinflation. I think it is rather well known that the Fed could not do that now, because the vastly increased interest on the regime’s debt would blow the entire system into chaff.
The regime’s attempt to deal with this unhappy problem appears to have been the Ukraine War. That is, use it to destroy Russia, then take control of the Russian resources and use that to solve its myriad problems, somehow.
Or maybe the regime is just full of morons or traitors who do stupid or traitorous things because they are morons or traitors. In neither case do I expect a bright future for the dollar.
the ukraine war, serves most of the regime’s goals, which is emptying of our military stores, vis a vis China, empoverishing the people, strangulating their food and fuel supplies, all in the cause of something noble, we’ve spent five years in afghanistan, level of funds, that money ended up in the uae, in switzerland, the caymans,
just like the tax regimes, many countries have put forth, yet the panama dubai paradise papers give the lie to them,
like in the A team revamp, a hostile force got hold of the ink and the plates, and just printing money, well the force was the US Treasury under Janet Yellen, who gives havermeyer, the weimar era finance minister, a tip of the hat,
The last time this happened- you know when- the Fed was able to raise interests rates high enough to stop inflation, at least enough to prevent a Weimar-like hyperinflation. I think it is rather well known that the Fed could not do that now, because the vastly increased interest on the regime’s debt would blow the entire system into chaff.
Exactly. I assume there is no interest in ever trying to reduce the national debt. It will be repudiated. How ? Hyperinflation is one way, Your observation that China and the super rich, like Gates, are buying up assets, especially assets that will have real value like farmland, is a good one.
The Japanese tried the same strategy in the 80s, buying Pebble Beach golf course, etc. Their own asset values at home collapsed and the assets here were all sold at a loss. China might be entering a similar debt problem but we exported our manufacturing economy during Clinton’s terms.
this should be criminal:
https://nltimes.nl/2022/08/19/dutch-purchasing-power-expected-fall-68-pct-year-child-poverty-hit-95
great esg score though
“Your observation that China and the super rich, like Gates, are buying up assets, especially assets that will have real value like farmland, is a good one.”
As did Ted Turner before them. When you get down to it, farm land is just about as good a doomsday investment as a steel mill. Beyond subsistence, farm land is useless without all the necessary resources to plant, cultivate, harvest and sell the crops. All of that is far beyond the ability of even a billionaire to somehow provide in the midst of an overall collapse.
As an example: Most of the corn seed for next year’s crop is yet to be harvested in places like Puerto Rico and Brazil. Then there’s fuel, fertilizer, etc. (See Above.) Then there’s all the people to run and maintain all of the equipment. Then there’s a place and a way to transport the crops to someone who’ll pay for them. Trucks, elevators, trains, barges, ports, ships, mills, a nearly endless list. Absent any step in the chain you’re left with a rotting, stinking pile of waste.
If that’s their plan for the day after, I’m not impressed. On the other hand, American farm land has a pretty decent history for maintaining its value. Not perfect, see: The Great Depression, but impressive over the long term. But only in a functioning society with functioning infrastructure, otherwise it will be one more expanse of weeds.
In a free, capitalist society, It’s just a transaction between a buyer and seller. As long as the check clears and assuming there were no guns held to anyone’s head, a billionaire’s money is just as good as anyone else’s. Agriculture has an impressive capacity to generate losses, something that many people can confirm to their sorrow.
I will put out one positive note: the Weimar hyperinflation was in 1923. The German economy recovered (with the Rentenmark), and the next five years were relatively stable and prosperous. The Nazis remained an insignificant fringe party until the Great Depression took hold in 1930.
A hyperinflation episode in the US would be very bad. But it wouldn’t be the Black Death, or a Yellowstone mega-eruption, or invasion by Mongols.
Also: Germany had already had major inflation before 1923. The Reichsmark lost about 90% of its value from 1914 to 1922, mostly due to the Imperial government printing money to pay for WW I.
Rich Rostrom: “A hyperinflation episode in the US would be very bad. But it wouldn’t be the Black Death, or a Yellowstone mega-eruption, or invasion by Mongols.”
That is an excellent point to keep in mind. The financial crunch brought about by Our Betters stupidity will be very damaging and will destroy many of our lives — but it will not be the end of the world.
However, we also need to recognize that it will mark a very major change, and the world will never go back to the way it is today. What kind of phoenix will emerge from the ashes, only time will tell.
Oh well it wouldn’t exterminate humanity, that’s a relief.
I think our society is extremely fragile right now, and anything at all like the Great Depression even would almost certainly see the Constitutional order completely obliterated, even far more than “progressive” “reforms” of the past did.
This winter is going to be a catastrophe in Europe and probably the US unless it is historically warm, and I don’t know what’s going on over there, but here no one in authority is doing anything to prepare for it. They honestly seem to think “this is why we need to transition to green energy” is the appropriate response.
Given rational leadership–a Big If–the USA is still better situated than our rivals to weather the coming trials.
As for the heathen Chinee buying our assets, that just proves Marx was right about Capital being a coward. And given that we have already proven able and willing to “steal” the financial assets of those who cross us, who really thinks that any of our farm product will reach China or anywhere else if we decide otherwise?
Eddie: “As for the heathen Chinee buying our assets …”
It is tough for us to know what is really happening. We can read the newspapers & listen to media — then we are misinformed instead of uninformed, as Mark Twain observed.
Still, it does seem like the heathen Chinese have seen the writing on the wall about the risks of investing in US assets, and Chinese ownership of paper such as Treasury bills is declining in an orderly fashion.
Most of the reports about Chinese asset buying these days seem to revolve around strip-mining the last of the former US technology industry and buying farmland strategically situated relative to US military installations. There still is rumored to be an appreciable amount of buying of houses by individual rich Chinese seeking a bolt hole — but there the US has to compete with places like Dubai, which is hardly a fair competition.
So I agree that it seems to make sense that the ChiComs have lots of paper, and we get lots of stuff, so we have the upper hand…but can you honestly tell me that if in October or so they decide that they’ll throttle back all the stuff they send us by 90-100%, and we say, ok we’ll stop giving you paper, that we will “win” that? Because I’m not quite sure I see that we obviously would, rather than the bigwigs would knuckle under and make whatever sort of deal they need to to prevent massive riots…
“whatever sort of deal they need to prevent massive riots.”
Goes for Xi too–and we have the meats.
Xi has lived through tens of millions of Chinese being starved to death by their government so he knows they can do it. Americans probably won’t be quite so resigned to it…
I don’t know if they’re trying to make people riot or what…
https://twitter.com/disclosetv/status/1562120889658970113
JUST IN – U.S. to announce a $3 billion arms package for Ukraine tomorrow, the single largest yet.
well his father was sent to the camps, yet he prizes marxism as an organizing principle,
turtle will just up it to 5 billion, and complain why his candidates are ‘mediocre’