Tag Archives: hyperinflation

Bits and Pieces – 20171013, Friday

Commentary: Here is an argument why there will be no market crash this fall. Although the precursors for earlier crashes have been equaled or exceeded, the Fed will intervene to prevent one from happening.

Here’s the background. The Swiss National Bank has bought $80 billion in US stocks: The Swiss National Bank Owns $80 Billion In U.S. Stocks — Here’s The Catch. The Bank of Japan currently owns 44.7% of all JGBs (government bonds) issued: Japan JGBs held by BoJ. The ECB has been buying large quantities of sovereign debt but also corporate bonds ($1.4 trillion euros as of Feb. 2017: An update: Sovereign bond holdings in the euro area – the impact of QE). Zero Hedge reported that Janet Yellen, in addressing the House Finances Service Committee, noted that the Fed by its charter cannot buy stocks but congress can easily change this: Janet Yellen On The Fed Buying Stocks: “Maybe In The Future, Down The Line…”.

Socialism: Argentina – Theater of the Absurd in One Act

The socialist government of Argentina, has just frozen all supermarket prices for two months. Mike Shedlock reporting in Argentina Announces Price Freeze to Control Inflation; Expect a Robust Black Market and Falling Tax Revenue, cites an ABC News report: Argentina Freezes Prices to Break Inflation Spiral that states: Argentina announced a two-month price freeze on supermarket products Monday in an effort to stop spiraling inflation. Let’s examine how this wonderful exercise in centralized planning and control works.

Flash Point: How to Spot Hyperinflation

We maintain that hyperinflation is not just a case of large-scale price inflation but essentially, a loss of confidence in the currency causing holders of currency units to immediately convert them into hard assets. This creates a positive feedback loop that exacerbates the runaway price problem (our use of the term ‘positive feedback’ is the correct usage and counter to how most pundits use the term. See Negative Feedback, theTragedy of the Commons, and Complex Systems).

The economic measure of this is called the “velocity of money” or the number of times it changes hands in the economy. If the velocity grows sharply then we should become concerned that we may be on the edge of hyperinflation. So where does the US stand? Consider the following graph:

Figure 1. Velocity of the M2 money stock. Click to open in a new window.

For the broadest measure of the money supply, M2’s velocity has been decreasing since the late 1990s and is currently at record lows for the period the available data covers. Velocity is a calculated rather than a measured quantity and is the ratio of nominal GDP to M2. The interpretation is that the money supply has been growing faster than GDP since the late 1990s. Or in the interpretation of velocity, the rate of circulation of available money in the economy has been slowing. Should this begin to show a large sharp increase (upturn in the graph) then we would want to look for signs that hyperinflation might be emerging.

Flash Point: Europe is fixed! Not!

We received this note from our friend JR that echoes what appears to be a common sentiment.

This is simple. If the ECB sets rate caps on long-term rates then the solvency crisis is essentially over. This would essentially be a pseudo guarantee of bond markets with the ECB’s backing. This would almost certainly bring private investors back to these markets and help fund the governments. So we eliminate the solvency crisis. That’s a HUGE first step. http://pragcap.com/europe-a-policy-proposal-with-teeth

We will argue that the solvency issue is not resolved but simply kicked down the road. That in turn opens up a rarefied space we haven’t seen commentary or speculation on yet.

Things That Make You Go Hmmm…: 20120729

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In this issue, Grant takes an in-depth look at Japanese demographics. These trends combined with Japan’s record high sovereign debt spells trouble and sooner rather than later.

Whilst the heavy domestic funding and negligible foreign holdings of Japan’s government debt have been its saviour over the last twenty years (see chart, below), it was always going to be the case that when Japan’s pension funds began to need to sell their holdings, the problems would multiply in their complexity very quickly. We appear to have reached that tipping point—albeit very, very quietly.

Related problems are problems a stagnating tax revenue, a rapidly diminishing savings rate, a declining current account balance and the appearance of trade deficits. Dylan Grice whom he quotes extensively in this discussion when asked what will happen in Japan in his view has the picture of either a depression or that it will end in a hideous bout of hyperinflation that will take the Nikkei from its current level of 9,662 to 40,000. And gives the time-frame as Within the next five to ten years.

He finishes with a brief comment on Mario Draghi’s recent comments and the role of the ESM in saving Europe (chortle).

Placing Japan on Deathwatch

When we began our post, Placing Spain on Deathwatch, less than 6 weeks ago, we had no idea we would get so much material for it. We read candidate articles daily but select only the more informative to keep the workload down. We like these ‘tracking’ style posts for a number of reasons:

  • It is easier to accumulate information for an article as the story unfolds than to have to search for it at a later date.
  • If the topic is proposed early enough, the post grows to become a comprehensive source of background information.
  • Diverse items can be collected together and the post becomes an easy first source for responding to any questions or inquiries on the topic.
  • Our preference for a point-form executive style summary of information is in contrast to verbose articles that in the end, we end up creating a point-form summary of anyway.

In some respects, Japan has been comatose for a couple of decades. In the past it was a society of high personal investment. Now, Japan has the worst demographics of all nations, in part because they have virtually no immigration. Consequently, with a rapidly aging and retiring workforce, the propensity to save has been transformed into a propensity to spend in old age.

Japan may continue along its path for years or it may blow up next week. However, we think its time to place it on a deathwatch.

Keeping a Running Tab on the Situation

This section will be updated with selected news and articles on the topic as we find them.

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