UBS’s Larry Hatheway — who once issued some fairly sane advice when he recommended the purchase of tinned goods and small calibre firearms in the case of a Euro collapse — thinks 1000% inflation could be beneficial:
When 1000% inflation can be desirable
In fact, the costs associated with inflation (price change) are less than commonly supposed. There is the famous “sticker price cost” – the cost of constantly changing price labels – but in a world of electronic displays and web based ordering this is not a serious economic cost (in fact, it never was). To take an extreme position, one can make the economic argument that there are only limited costs in having inflation running at 1000% per year, with one caveat. 1000% inflation is perfectly acceptable, as long as the 1000% inflation rate is stable at 1000%, and it is anticipated. Of course, one can argue that high inflation tends to be associated with high inflation volatility and uncertainty (and that is true empirically), but economically it is the volatility and uncertainty that does most of the damage.
The maximum damage from inflation comes if it is unexpected or if it is unpredictable.Unexpected inflation causes damage, because the investor who holds bonds yielding 1% for a decade is going to feel cheated if inflation turns out to be 1000%. Of course, no one would voluntarily buy 1% yielding bonds if 1000% inflation was expected. Thaler’s Law comes into operation here; people dislike losing money more than they like making money. As a result episodes of unexpected inflation will lead to a significant adverse reaction on the part of consumers.
Unpredictable inflation is damaging because it causes uncertainty over an investment time horizon – and that uncertainty is a risk that will demand a compensating premium. What the inflation uncertainty risk does is raise the real cost of capital. If I think inflation will be 3% but I am not sure whether it will be 3%, 0%, or 6%, I am likely to demand compensation for the 3% inflation risk but then additional compensation for the possibility that the inflation risk is as high as 6%. The additional compensation is an addition to the real cost of capital.
This is a fairly typical mistake for an economist. In an imaginary economic model, it is possible to assume that inflation is stable, and that it is predictable, and to draw conclusions based on those (absurd) assumptions. In the real world, inflation and the effects of inflation are never predictable, because human behaviour — the micro-level phenomena on which macro-level phenomena like “inflation” are founded — is never fully predictable or stable. This means that future rates of inflation will always be uncertain, and renders Hatheway’s point meaningless.
As Hatheway readily admits, high inflation is associated in the real world with inflation volatility and uncertainty. It is not relevant to say that the real issue is not the high rate of inflation, because there has not been a single case in history where such a high rate of inflation has resulted in stability or predictability. Getting to a 1000% inflation rate is an inherently volatile path, historically one which has resulted in panics, crashes and breakdowns.
And beyond that, such a path would completely undermine the currency and instruments denominated in the currency as a store of value. There are no empirical examples of such high rates of inflation being tolerated, because at every stage in history such effects have been intolerable; when such rates of inflation set in, nations just end up ditching the currency, as happened most recently in Zimbabwe.
That is why 1000% (or 100%, or 50%, or probably even 10%) inflation will never be “perfectly acceptable”.
Our morning breakfast TV show just awarded 250,000 QANTAS frequent flyer points to a lucky winner.
I can’t find the AUD/QANTAS cross rate????
Corporates issuing their own points/tokens!!!!
Economists must work cheap!
With an inflation rate that high, I’d refuse to be remunerated in currency for any services or goods rendered. I think my upper inflation limit would be 20% before I’d demand to be paid in, say, gold or silver rather than currency.
At 1000% inflation I’d demand pay in cigarettes, whiskey, canned goods, and hollow point ammo.
Don’t forget sanitary napkins.
Who needs sanitary napkins when you can use the famous Federal Reserve cotton-linen blend?
Think absorbency might be an issue?
The FED thinks it can soak up bad debt with it….
“This is the Federal Reserve, how may we help you?”
Will you take Frequent Flyer points? They are redeemable for products and services at all our “Alliance” partners.
lol…speaking of traffic lights…
Has there ever been an example of stable high inflation? The idea that everyone in the economy might ‘know’ that stable inflation rate and could adjust their prices to compensate for that rate of inflation is ludicrous. There would be massive detriment to everyone on fixed incomes of any kind. Can anyone seriously imagine a government employee advising a social security recipient ‘ We have honestly calculated last month’s inflation at 50%, so we’ve increased your payment by 50% so you are no worse off.’ And if in some twisted scenario that actually happened, how long would the rate be stable?
Employer suffering Biflation “Good morning boss. I am wondering if you can consider a raise of 20% in my next annual review, you see I calculated my cost of living at 40% and I am prepared to go 50/50/ Fair?”
Boss: “Actually we need to talk. Your job is being outsourced to India. We can make an appointment with your local Job Welfare agent to help you transition. You have been an exemplary worker, and we thought it would be able to assist you. Thanks for your work. Now if you can leave I am about to take a teleconference call with Bangalore. They are having some teething problems”.
Ah, the classic “Everything will be fine as long as (thing that could never possibly happen).” I love that one. Revel at all the fringe benefits in my imaginary world! Who needs savings anyway? And this way, the issuer of currency could pick ALL the winners, rather than just most of them!
I love charts. So many people acting in psychological unison and computers predicting/amplifying said unison
Helicopter drop to QE to people anyone. The Federal Reserve has the accelerator flat to the floor, but it needs more speed.
Time for the Nitrous Oxide
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Aside. This is why Australia is impervious to military attack. Impervious to bug spray and mostly active at night. BTW I was 2 feet from stepping on a baby one of these the other day.
Impressive — snake plans and drills! “Be prepared!” “Better safe than sorry”. My congratulations to all, and my envy of the frontier spirit! There is a related fairly recent real-life MACRO story — no, two stories — Hurricanes Katrina and Sandy.
Since and probably long before the 1930s days of Huey Long, Louisiana was a one-party totally corrupt good ole boy state, with enough oil and gas production and Mississippi River commerce to keep it well oiled. The city of New Orleans wasn’t as bad — it was worse! Neither city nor state had paid any attention to the obvious risk that hurricanes can flood a city that is mostly below sea level. After many near misses, in 2005 (?) Hurricane Katrina had what it takes to breach levees. Nothing was done during MANY days of advance warning. When it hit, people waited on porches and roofs for rescue while school and municipal bus fleets and private truck fleets sat in flooded parking lots. Looting was rampant, including some policemen. The Superdome was belatedly opened as a shelter, but never had adequate personnel or supplies. The requisite request from Governor Blanco for federal assistance was delayed by 2+ days while (as proved by telephone recordings) she and New Orleans Mayor Nagin (both Democrats, of course) plotted how they could shift the blame to Republican Pres. Bush. OTHER states’ National Guards were the first troops on the scene. Blanco did not run for reelection! Republican Congressman Jindal, who lost the previous gubernatorial election to Blanco, easily won the next election on a platform which included comprehensive bottom-up disaster plans, public education, and drills. Two years later, when two hurricanes (though lesser than Katrina) hit, evacuation, shelters, medical assistance, emergency supplies, etc. all worked perfectly. In another year or two, Republicans had majorities in both legislative houses and still do!.
Hurricane Sandy brought two tragedies when it hit the east coast just before election — it helped Obama and other Democrats win, and it caught state and local governments unprepared in NJ, NY and elsewhere. Unnecessary loss of life and human misery resulted as the Katrina drama replayed. On TV, Jindal was shown as saying rhetorically to Obama and Gov. Christie, “Stop congratulating yourselves and start getting the people what they need!” [If Texas can pull off secession, you can be sure that Louisiana (and my home state of Oklahoma) will be included].
I think an inflation rate of 1,000,000% would be 1000x’s better.
Moar inflation = moar better, right.
The Three metals become more valuable faster in 100%+ inflation.
Gold Silver and Lead
Lead leads the way when the hyperinflation gets bad.
Where’s Paul Volcker when you need him! O thats right! No need to panic, fed funds rate is at unprecedented historical lows…..wheeeww. O WAIT , wheres Paul Volcker when you need him
When you live in a world where the people who control the money [central banks] have convinced the rest that counterfeiting [2% inflation target] is OK, then you must considerably lower your expectations.
Banking is theft, always has been, always will be.
The debt based system is designed to take the fiat currency away, as in inflating it to infinity, to zero value! Why is anyone shocked at devalued currency when it’s debt from its birth or beginning! Debt paid off is depression, shrinking the money supply simply put! So, inflating it to hyperinflation rates is the only logical end conclusion! It’s going to be a SHTF moment and it’ll be literally overnight as Congressman John Fleming stated to a group of dead from the neck ups in a town hall meeting in Louisiana within his district in 2011; she said to prepare for it and all the onlookers/listeners did was grin very big and make their pictures with him! One lady in attendance said of the mayor and council, “you could’ve hit her in the head with a two by four 10 times and you couldn’t ‘ve made her blink.” Asleep at the wheel headed for the rocks!
Well I no longer hold USD and I am accumulating Yuan. How many others are doing likewise?
Great article on how China is maturing as an economy. I recall the Japanese doing this with a similar appreciation of the Yuan over the Dollar.
Latin America had rampant inflation and I recall they had pretty strong economies before it all collapsed.
If the Fiscal Cliff is not resolved, I think many people will lose patience and head to China for stability. Once the leadership transition is bedded down (Next month) watch the policy stability, and full convertability of the Yuan attract capital, away from the US.
Wall Mart prices will triple overnight.
Seriously, John, while you have clearly and correctly (this macroeconomics amateur believes) shown that high inflation can be neither stable nor predictable, here’s an intriguing hypothetical: if ALL (significant) currencies are inflating(ed) at the SAME RATE, will the cost of living and costs of doing business be affected? After the farmers and grocers eat their own food and the oil companies hoard their own fuel, will they barter, sell for currency, or go out of business?
If your answer is that I have merely recast your introductory conjecture by Larry Hatheway, I would ask for YOUR best guess as to the possibility that this theoretically impossible outcome could be arranged.
A related but less important question: has this universal matching inflation ever occurred, or been approximated, in the real world?
I wouldn’t say it’s possible for all currencies to inflate at the same rate in the real world. Even if the monetary base is inflated by proportionately the same amount, each country will react differently, because each country is composed of different people, different circumstances.
In order for such a thing to be attempted, central banks around the world would have to co-ordinate together and agree to inflate uniformly. Because each economy is different, inflating at a uniform rate is likely to have different effects in each country. This means that there will be pressure from the start for different central banks to do different things. Such an effect is on display today in Europe. Germany’s economy is not depressed, so it is resisting inflating the currency, whereas Spain, Portugal, Greece are deeply depressed and so they are desperate for some juice.
What this guy seems to miss is that money is simply transcended labor-value. Labor-value gives all things their true value, and this quantity is constantly changing [like all things].
All commodity and asset values are also expressing the labor-value contained within. The markets exploring value is simply the attempt to find the difference between the actual labor-value contained and all the non-sense costs added [taxes, fees, outrageous salaries and bonuses, theft, etc].
It is this distortion through a mechanism to have legitimate discovery in the Western economy that has brought the economy to its knees [using debt to make up the difference between what’s affordable and false (inflated) pricing].
Inflating the money supply has nothing to do with any of this.
What if labour no longer has a value, but only Capital value does? Wouldn’t that make people worth less? And owners of capital more?
Karl Marx never thought about robots. BTW In Ukrainian, worker in the language is “Robota”.
All value is really labor-value. Capital is simply stored labor-value. If a human being is not involved, what would give it value?
The problem is that we have strayed so far from true value of commodities because of all the distortions present in the economy. Just think of all the things that drive-up costs that have nothing what-so-ever to do with the relationship between producer and consumer.
The process of returning to a workable economy is going to be getting rid of as many of these distortions as is possible, the two biggest being government and debt.
Is oil labour value? How about sunlight? Or water?
I think you are right to conflate labour and capital, however I think you are wrong to conflate them as labour. Everything is capital, including labour.
Although sunlight and water are freely available have no inherent economic value [that is, they are free for the taking], the value of oil is that amount of labor necessary to get it out of the ground, refine, transport, distribute, etc.
Capital is simply an asset [its value] placed into economic service.
Whilst capital is the accumulation of labour value (seizing the day and winning a war and acquiring lands with resources included) my point I was trying to make is that without the ability to earn value, humans are redundant, and a drain on the resources of capital.
I feel that once robots take over a lot of the processes, the wealthy will get quite testy and impatient, having to curtail their Gross National Happiness with 7+ Billion people.
In the past, we were useful to them, now we may be a burden. Their very survival and their descendants survival is at stake.
The process you describe — the obsolescence of labour — has already progressed a long way.
Perhaps there will come a time when human beings will no longer do physical labor [although I doubt it], but even if this was the case, there is no end to the stupid shit that human beings can come up with.
Technology preforms two economic functions; first, it increases productivity, second, it creates new products/markets. Look at the idiots that believe that Apple, Inc. is some kind of religion.
There will be thousands more Apples in the future. People love stuff, especially new stuff. If this economic set-up does not function properly in the future, it will be replaced by a system that works better.
The difficulties in the present economy have little to do with technology, but everything to do with fraud, theft, over-taxation, mis-pricing, counterfeiting, massive corruption, and many other niceties.
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“The process you describe — the obsolescence of labour — has already progressed a long way.”
John, how do you figure?
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The cause of the Revolution was that London, King DH, had outlawed the use of the colonies’ money, paper; the outlawed transactions had to be paid in gold; anyone with an eye and 2 cents could see that soon, the colonies would have NO MONEY! THE BANKSTERS were behind the law to pay only in gold! The City of London, no less! Great men, such as John Hancock had a glass ceiling; no matter how rich he was, he was an American, about the same as calling him a “nigger.” The British looked down on their American brothers with utter contempt, hatred. They were “rabble” to them. They were second glass citizens, or worse, third class to their British brothers! By the constitution, which is not worth the paper it’s written, the republican government could print its own money, and, as an example, Lincoln did just that! Greenbacks! All that the people need to do is elect a republican government back into power, and overthrow this private municipal corporation, the United States, Inc., that has ONLY authority over the 10 square miles and its territories granted to it by the states. The states have all the power to do exactly as the tenth amendment grants it. They can make another republican government by a constitutional convention by sending delegates. But there’s a huge problem! The States of ….. are now private municipal chartered corporations! The people would have to elect representatives to state constitutional conventions to form republican forms of state government! The people, in the original constitution, are guaranteed a republican form of state government. Let’s see if you can see the difference in what is pretending to be government by just the titles: State of Louisiana, Inc. vs. Louisiana Republic. State of Texas, Inc., a chartered private municipal corporation vs. Texas Republic. State of New York, Inc., vs New York Republic. In 1971, all the state governors at the time met with the International Monetary Fund Director and they all colluded to form State of …. private municipal corporations and developed a code, a way to fool the people that they had “law” when in fact it was merely a system of commerce. The Uniform Commercial Code. Every detail of a private municipal corporation is a transaction! It’s all conducting business and you’re only subservient to it if you allow it! Notice the difference in the ens legis, artificial entity, that only a corporation can deal with: JOHN FRANCIS DOE, notice the all caps, vs John Franics Doe. Were you ever taught to write your name in all caps? JOHN FRANCIS DOE is a fiction! It’s a corporate body of one! When someone calls out that fiction, and a flesh and blood man, says, “Here I am,! you, the flesh and blood man just came under the authority of whomever called out your private property, your name! You’ve assented to their authority by accepting responsibility, as in court, when the name is called out, and you’ve responded as if you are the fiction, the ens legis, the artificial entity/being, JOHN FRANCIS DOE. You’ve hung yourself by your tongue! If they’ve charged your fiction with a misdemeanor, you’ve made yourself liable for it by saying, “Here I am.” If you’ve been charged with murder, to your account, your fiction, JOHN FRANCIS DOES, and when you’ve heard your private property, your name, fiction, called out, and you respond, “Here I am,” you’re liable to be put to death. No matter what you do, never say, “Here I am.” You should say, under their system of commerce, “That’s my personal private property and it is common law copyrighted, figure that out, and you must have my written permission, in red ink, to use my private, common law copyrighted property. There is a large fee associated with its use in any way, shape, form or fashion.” NEVER assent to being “charged to your account, the private fiction, JOHN FRANCIS DOE! Tell whomever that you have no authority over my private personal common law copyrighted property! Figure out the process! It’s so simple, anyone can do it! You MUST determine who you really are in this world of commerce! If you are unaware of how their system works, they can kill you and your family and make all of you disappear due to YOUR ASSENT and YOUR CONSENT! Remember, you are hung by your tongue!
Leon Trotsky, the founder and first leader of the Red Army, and
V.I. Lenin, the first Premier of the newly formed Soviet Union,
were the two main figures behind the Bolshevik Revolution.
And who was behind them?
In this classic interview, Anthony Sutton makes clear the point
that the text books on history have been sanitized to hide Wall
Streets fingerprints in the creation of our old cold war enemy, the
He also makes it clear that they knew what they were doing…
Very detailed history, but unfortunately history is hard to prove. Courts of law have difficult times proving facts only 5 years old. The cry of the 1% “Where is your proof?”
I am sure the really wealthy families who DO HAVE REAL POLITICAL INFLUENCE to cause such conspiracy are unknown to even the best financial journalists.
Taxing gold and REAL property i.e. land, monopoly sized factories, creation of a new currency and distribution to the 99% via Debit Cards which then has a right to purchase the equity shares freely traded Shares in Land Property Trusts, Companies etc, so that the 99% can become stakeholders in wealth, is the only way to right the monopoly the 1% have over the 99%
I am not talking about Communism, I am talking about redistributive Capitalism. Free enterprise, with ownership divided among the people.
Re-write the above in a Children’s Cartoon and get back to me cvpages dot buddy at gmail.com
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