Even given the failure of hyperinflation to pass since a variety of pop-Austrian TV finance pundits predicted it since 2008 in the wake of the various quantitative easing programs, the world at large continues to talk of the possibility of hyperinflation in the future. The value and purchasing power of money is a significant topic for the entirety of society — savers, debtors, large and small businesses, workers, welfare recipients, pensioners, etc — so it is no surprise that people fixate upon historical events in which the purchasing power of money has gone to zero. Yet this previously-known and widely talked about phenomenon may not occur in the future for most countries. Instead, a previously unknown phenomenon that I now tentatively coin hyperdeflation may be far more common.
Hyperinflation is an interesting phenomenon. As I have noted in the past, it seems to be predominantly associated with collapses in agriculture, infrastructure and transport, the loss of a war or natural disasters. Faced with dire economic breakdown and spiralling prices and wages (as plentiful paper money chases after increasingly scarce and limited goods) monetary policymakers are forced to print in an attempt to keep a broken economy going. In a functional economy like present day Japan, Britain or America with no mass breakdown of institutions, transport or infrastructure (and thus with with freely available food, energy and resources) printing (or digitally multiplying) money does not lead to huge, soaring inflation. But in an economy already disrupted — like the many countries on this list that experienced hyperinflation — the inflationary impact of new base money just continues to spiral, and all the extra paper dumped into the system is simply abandoned and rejected by the public as its purchasing power gravitates toward zero.
And in the modern world, some countries and places may have become more susceptible to the kinds of economic breakdowns that could lead to hyperinflation given a bad-enough shock. In an increasingly interconnective and trade-dependent world, natural disasters or wars can shut off the supply of important products or components that countries or regions do not and cannot manufacture. That makes this a particularly fragile phase of history, even if it does not seem so given the huge and widespread affluence not just in the West, but also increasingly in the developing world.
Yet beyond this phase of history, stretching out into the long run, the opposite may become true. Society is shaped by its technological capacities — this has been true since the days of the spear, the wheel, the bow, etc — and our technological evolution continues at ever rapider rates. The internet has already provided a channel for mass cultural interconnectivity, and the effective decentralisation of media. I have written at length on the possibility of superabundant decentralised energy from falling solar and alternative energy costs, combined with the possibility of mass decentralised molecular manufacturing. Simply, if every house has an advanced 3-D printer that can transform soil and waste into food, consumer electronics, or tools (etc), and a superabundant energy source from high-efficiency solar panels (or artificial fossil fuels, or even micro-nuclear reactors) then the era of material scarcity is effectively over, and humanity can concentrate its energies on other matters (cultural, religious, philosophical, space colonisation, etc). Now, we are still a while away from a single house having such capacities, but the implications of the beginning of that era will be profound.
My supposition is that the era of superabundance will be characterised by very strong deflation as the supply of goods and energy becomes increasingly superabundant. This trend has already begun in the West, where inflation and interest rates have — in the context of cheap Eastern labour, computerisation and automation — been falling for the last 20 years. Even strong quantitative easing by central banks has not reignited strong inflation. My guess is that unless we experience some huge shock that dramatically shakes the foundations of society — like a megatsunami, or a nuclear war, or a mass pandemic that wipes out half the population — it will be hard for strong inflation to ever return no matter how much money central banks print. Central bankers may be able to keep inflation close to zero with strong activist monetary policy, but even that may be challenging especially as the age of superabundance draws onward.
Of course, in a world of material superabundance, trade and business will not end. While everyone may have a molecular factory in their house that can build anything from a huge library of open-sourced 3-D designs downloadable from the internet, people will still have to design things and create things. Although at some stage the machines may become sentient and creative, this appears to be at least a very, very long way away. So all the 3-D printers, robots and unlimited energy in the world won’t for the foreseeable future invent things, or write a Hamlet or a Breaking Bad, or a Dark Side of the Moon or an Emperor Concerto, leaving humans an important niche as designers, empathisers and imagineers. While with superabundant energy and goods, people will have all the resources necessary to devote themselves to such pursuits, people as they have done throughout history will still choose to co-ordinate and collaborate, so they will still need some currency. Whether this will take the form of state fiat money, or private currencies like Bitcoins, Facebook and Youtube likes, or Whuffies, or a mixture of the above remains to be seen.
Another possibility, of course, is that there will still be scarcities even in the era of superabundance. While every house may be able to manufacture an unlimited quantity of food, household goods and gadgets, some highly-desired technologies and goods like interstellar spacecraft or particle accelerators or exotic matter may remain far beyond the reach of a typical household or community either on technological grounds or on the grounds that they are contraband (it is quite easy to imagine that manufacturing of certain goods — weaponry in particular — may be made illegal by states, who may create increasingly sophisticated and Orwellian surveillance structures to prevent the distribution of illegal materials). These post-superabundance scarcities may form the basis of new widespread media of exchange and units of account, especially if state fiat money hyperdeflates its way to irrelevance.
(And yes — in an age of superabundant energy, gold will in all likelihood lose its scarcity, as with enough energy it is possible to transmute lead into gold in a particle accelerator. This means it is quite possible that gold’s all-time high of $1917 in September 2011 may be the highest dollar-denominated price gold ever trades at).
azizonomics 
Given that this post is nothing but pseudo-intellectual twaddle…I would say that we already have hyperdeflation in the value of your essays.
A bit harsh on Aziz. He talks nonsense sometimes (as does everyone). But there are some far worse twaddlers: the Harvard University department of economics is one huge disaster area for economics. It’s full of pig ignorant, economically illiterate buffoons.
As to academia in general, promotion is closely related to the amount of twaddling one does.
I have beaten this horse to death many a time, but unless you see what screwing around with the money supply actually is, then none of this makes much sense.
There is a great deal of inflation and deflation going on simultaneously. It simply depends on your point of reference. Deflation, influenced by increasing productivity and cheaper labor, inflation, by commercial/central banks [cyclical supply/demand aside].
But, in order to really understand either side, let’s remember that money represents labor-value. So, what’s really going on? On the one hand, technology is making labor-value more valuable [higher productivity], but on the other, inflation is making labor-value less valuable.
The banks are [therefore] harming the individual worker two ways. First by literally stealing the productivity gains through decreasing the value of their labor-value [decreasing the value of the currency], an effect that not only accomplishes that, but goes beyond that theft to further lower the value of labor-value [destruction of buying power].
This makes perfect sense since the capitalist profits only off of the labor-value added to his commodities. In the economy we currently enjoy, bankers have gamed the system to the point where they seem to care little about the traditional methods of profiting, as making things takes a great deal of effort, whereas, stealing [through manipulation], little.
I have always believed that the inflationary event occurred between 1913 and 2008, and a swan-song til now, but how they can continue to fight the deflationary forces out there at this point is beyond me [viz., Japan].
You have a world awash in excess labor, and this is the key. In the end, money is labor-value, and with 7B+ people on a planet getting smaller every day, it seems unlikely that we are going to running into a labor shortage anytime soon.
Again, money manipulation aside [a temporary phenomena], the labor market will determine the long-term x-flationary tendency. Adding a glut of labor to a cornucopia of technology seems to suggest we have entered a VERY serious deflationary period.
Most people reading this reply will imagine that the basic cause is with the money system and the way banks and government treat it. Some of them have even suggested that a moneyless society would be a good way to solve the problems. Even without this approach, there is a trend in this way of thinking towards the need for the better sharing of the nation’s wealth in a semi-socialism kind of way. The only trouble with this is that it is not much fairer than what happens today, since people will not be working for themselves and will not be so willing to make a REAL effort.
For our society to function is a better way, we need to examine more deeply about its basic structure and how its various parts interact and where this interaction is socially unjust and how to make it ethical again. These are not easy questions to answer, yet there have been serious attempts at explaining about them.
The most obvious answer regarding poverty is that there is a lack of equality of opportunity, and since the Constitution guarantees equality (without mentioning opportunity) it is obviously flawed. To provide equal opportunity means to stop the hoarding and monopolistic practices of so called capitalism of today. The opportunities are mainly for finding a decent job, a suitable home and for educating one’s children (if any). These are partly denied to the poorer sections of our society and this is not only immoral but severely damaging to the rest of us. If we cannot provide an equality of opportunity for work and living and education, they we are encouraging a social division that will create a dual society, eventually culminating with slaves and bureaucrats.
Social justice is a difficult thing for many of us to appreciate and to understand, but the ideal does exist and some people at least, can see where it can be introduced and how. They are know as Georgists, after their original writer and founder, one US economist Henry George. 135 years ago George was amazed at the rate of technological progress and the fact that in-spite of this progress poverty was widespread. He set himself the task of trying to understand and explain why such big improvements were not being properly shared in his society. (You can read about it in his seminal book “Progress and Poverty”.)
George claimed that the most basic reason for this inequality was due to the monopolization and privatization of useful sites of land, so that the benefits from them were either being wasted by land-hoarding speculators in its value, or monopolized by “capitalists” who controlled the amount of produce that results from land use and consequently stopped competition from entrepreneurs. The prices of the produce were largely controlled by the monopolistic activities. Any serious political opposition and cheaper means of production were inhibited by high land prices that came from its hoarding and speculation.
There is no mild solution to this bad situation, then or even more so today. To properly share the opportunities offered by land we need to take the benefits from it in a socially just way. George (wrongly) called it a tax–to collect a single tax on land values; instead of burdening our society with all the other kinds of production-limiting forms of national income collection. A tax is something that slows down progress, but what George proposed is actually the opposite (because it would encourage the proper competitive and cheaper use of unused sites) and so it is actually a revenue and not a tax what he wanted to see introduced. This revenue would “level the playing-field” so that the advantages held by land owners would be better shared, whilst the nation would be able to have money to spend without dragging down its earners, spenders, investors, etc.
Such forms of social justice will take years of patient care and gradually introduced change and it will obviously be opposed by the monopolists who today have political power to stop such movements toward real equality. Yet it is only by becoming more politically aware, through better understanding about how our society is being damaged by speculation in land values and by greed of the landlords and their friends in the banks, that we can hope for a brighter future where the amazing technological developments are able to reduce the difficulty of our lives and give us all an equal opportunity to be free of limitations in land access opportunities and not being fooled by that capitalistic excuse–money–being the root of all evil!
TAX LAND NOT PEOPLE; TAX TAKINGS NOT MAKINGS!
The amount of solar energy which can be collected from sun radiation is limited by the area covered by solar equipment. If we divide the useable surface area of the earth (excluding oceans and mountains) by the size of the human population (7 billion), then the amount of solar energy available per person is the amount of solar energy falling on an area less than 1 acre of land. That is such a small amount of energy that it would not be sufficient to cover the present life standard in the US.
Regarding 3D printing, let us not forget that certain materials can not be printed: For instance, the axle of a car, the plumbing fixtures in a house (subject to immense water pressure), electrical conductors, battery storage devices etc. The quality of printed materials can never be better than the quality of glue.
The idea that we will be able to produce food and quality products out of soil and garbage using tiny amounts of solar energy faces a powerful enemy: The laws of thermodynamics.
During the past 100 years, the trend in production was away from individual household to specialized factories. Individuals specialize more and more in consumption which can be characterized as production of garbage. Valuable objects, food, computers, cars, etc come all from highly specialized manufacturing today most likely taking place in China.
The idea that this trend will reverse due to 3D printing and abundant solar power has no support in reality.
However, manufacturing in the US could revive as a result of the shale gas revolution taking place.
A few decades ago, experts were so optimistic about the prospects of nuclear energy, that some predicted a future where “power would be so cheap that it would not make sense to meter it”. The hypothesis of “abundant solar power” is a similar prediction. It will be disproved in time.
This is nonsense. Vastly more solar energy hits the Earth in a day than we use in a year — over 20,000 times more than we use each year hits the Earth each day. Each square mile of land assuming 12 hours of sunlight a day yields 12.2GwH per year, up to 70% of which can be collected via recent solar junction technical improvements. You could power the whole Earth at current usage levels from an amount of land less than the size of Indiana. Even if we trebled or quadrupled power consumption that isn’t much land if it’s spread out across the Earth — mostly deserts and rooftops, and could be even less if amplified using mirror arrays.
Actually, I’m not really talking about 3-D printing. 3-D printing is a very early and crude form of what I’m really talking about which is nanoengineering and molecular manufacturing. Again, this technology already exists and is swiftly developing, and with the right chemical feedstocks virtually anything will be buildable.
No, using huge amounts of solar energy, and supplemented using artificial fossil fuels and thorium nuclear.
Except the evidence of the falling cost of solar energy, which continues to fall in the same manner as silicon computer chips.
The trend of the 20th century was toward specialisation and centralisation, but the trend for the next 100 years is decentralisation. The internet is only the first chapter of this story, but future events will follow a similar template and the subsequent revolutions will branch off from internet technologies — providing schematics for 3-D printers to manufacture, providing distributed processing power to tackle difficult scientific and technical challenges, providing a technological culture upon which future technological improvements can be made, providing a smart grid to allow better management (storage, transfer and usage) of electricity in the context of decentralised generation.
Admittedly, there is a long way to go before we hit the point at which I am talking of. 3-D printing technology needs to mature from where it is now — where printers that can make cruddy models are becoming affordable — to a point where actual nanoengineering becomes affordable, and complicated multi-material designs are reliably buildable using feedstocks from disassembled household waste, soil and recycled components. But the technologies mostly already exist in crude forms. It is just a matter of miniaturisation, refinement and price reduction through bringing products to market — the same process that has taken phone technologies from dumb black bricks in the 1980s to the mature smartphones we see today which combine video recorders, music players, video calls, internet browsing, etc into one single device.
Shale is tiny-scale business compared to the future solar revolution. The energy stored is almost irrelevantly small next to the amount of solar energy hitting the Earth. Furthermore, the EROEI of shale is horrible, and contaminants have ended up in people’s drinking water. It may provide some small booms in a few places like North Dakota, but it is the story of the next 10 or 15 years, not the next 10 or 15 centuries. Enjoy it while it lasts, because the Moore’s Law effect inherent to solar energy will 20 years from now make the “shale revolution” look like a joke.
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I agree with some of the points put up here however we, as an economic group living on this planet are not, at present, in a position for the outcomes described above, to come about.
The basic presumption of unlimited energy and over production would creat hyper deflation in a world populated by predominantly upper middle class families with declining birth rates. The tax base would also need to be mostly small businesses based on primary production and/or manufacturing.
Another cause added to the above would be negating the mass technology addiction in current consumer technology electronics.
The current social-corporate “Capitalist” supporting western political war mongers will never allow a situation to arise where my outline will come about without some catastrophic event occuring and thus – Hyperinflation.
I think the reason that there has not been a lot of inflation in spite of the issuance of more and more money is that the money is generally kept away from working and poor people and instead is passed around among the rich, where it inflates the stock market, prices of collectibles, bribes for politicians, and certain kinds of real estate and commodities, but not (for instance) the price of potatoes or hand tools — the ‘real economy’.
Unlike money which exists as either specie or printed pieces of paper, it seems that most money now is abstract and consists of credit and debit accounts. Whereas it is hard to keep physical money from getting into the hands of the lower orders, it is easy to deny them credit based on income or net worth. Thus they must still exchange labor, or goods and services produced by labor, to get money, and the money retains its labor-related value. This system will work as long as the rich do not try to exchange a lot of their funny money for labor, etc., which would indeed bring about radical inflation, since the money held by them was created ex nihilo and does not represent labor.
It is also important to prevent the rich from paying much in taxes, because the government might pass this money into the real economy in the form of contracts for labor, Welfare, debt service, and so forth, which could also lead to inflation in the real economy.
The weak points of such a system occur where money passes between the two realms. One of these was the subprime real estate nexus, which depended on ever-inflating real estate prices rather than real-economy money obtained and paid by working people. I am not sure where the other weak points are, but we will probably discover one before too long.
That does not mean inflation will necessarily occur. When people cease to believe in specie or fiat money, more of it has to be used to persuade them to labor, but when they cease to believe in credit money, it effectively vanishes and deflation occurs (as in real estate, 2006-2009).
Hyperinflation is an all too real possibility; that might strike with fearful suddenness. Fiat money is being created in huge quantity, without immediate effect because it is being squirrelled away by the banks – which will release it faster than fast when, not if, inflation starts to diverge.
Hyperdeflation is an absurdity. Things cannot lose more than 100% of their value. The classic example was weapon/ammunition supply in the US island campaign of 1943-4, when these were dumped on the beaches and the only constraint on how much you could have was that you had to carry it away. Which, incidentally, proved highly cost/effective
Only possible with a large shock to the real economy, like a war or antural disaster. Wouldn’t write it off, but it won’t happen without a breakdown in the availability of goods and services.
Things can become so abundant that prices become negligible. Broadly, I'd see this as a good thing.
If, one day, those institutions and persons holding most of the presently-existing funny money were to stop functioning (as they almost did in the recent past), physical currency would become extremely valuable and could command a lot of labor and goods as long as the condition persisted. No doubt the government and others would try to alleviate the situation, perhaps by furious printing, but it might take a while to put things back in place.
“Hyperdeflation is an absurdity. Things cannot lose more than 100% of their value.”
It’s not the “thing” that is losing/gaining value [all things being equal].
Whether you approach the limit of infinity or 0 is one and the same.
What nonsense. I’m not going to protect myself from fiat currency collapse because my gold would be in imminent danger of being inflated away by magical particle accelerators? And yet, somehow, in a world of unlimited energy there’s no danger of just pressing zero 000000000000000000000000000000000000000000000000
On a compter keyboard and inflating the value of currencies? You’re more worried about particle-accellerator inflation than a fat finger inflating pixels? What sort of moron are you? Soon to be an impoverished moron, I think.
Gold is not necessarily even a protection against fiat currency collapse. It’s a speculative bet that someone will be prepared to buy gold at a higher real price than you in the future. Maybe they will. Or maybe energy and goods and gold itself (particle accelerators are not the only risk — asteroid mining could massively and immediately inflate the gold supply too) will become so superabundant that they won’t. Personally, I would bet on the unstoppable march of human technological progress, not the possibility of civilisational collapse, or the spread of goldbug ideology. There are some real risks in the world that everyone should have a physical hedge against. But even then there are better physical hedges than gold — solar panels, arable land and water purifiers are a better bet against cataclysmic events.
Gold and silver are not investments as such they are insurance against the possibility that it all goes wrong – Both were used to buy your way out of 1930`s germany or 1970`s vietnam to name a couple of examples and unlike property they are portable. Yes asteroid mining is a potential threat to gold`s value in the long term, but i`m betting our esteemed leaders muck it up before some one gets to the asteroid belt or trip over and fall on the red button, and we get to glow in the dark.
As for alternative energy I agree, – longer term they will alter the world espetialy solar, but there are many others out there that will have just as an important role to play.
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Nice scifi premise but far from the reality we live in. Earth resources are finite, and you propose we’ll have the infinite abundance thrown at the average human. Like most species on earth, the increase of food attributes to the increase in its population. There will always be scarcity to some marked degree. Until the day arrives where we can literally shit into 3d molecule factories and make a wrist watch, I suppose hyperinflation before hyperdeflation is far more realistic. Considering stupidity of the leadership in the top nations on this hopeless planet.
I’ve read your site a few times, this one really got me fapping sort of like when I watch StarTrek TNG.
Based on current technology, this is far closer to reality than most people think.
Your next post should be a series of sources backing your opinion. Otherwise this is pure conjecture. “Far closer” is unmeasurable. Are you from the future?
I’ve been writing about this for a while, and there are tonnes of sources and evidence backing my view:
The ultimate goal of any production is waste and garbage. Indeed, this may sound paradoxical, but in reality, most of the things produced 20 years ago do not exist anymore in the sense that they were thrown into garbage a long time ago. Granted, some of the material thrown into garbage can be recycled, for instance metals. However, that is not true of plastics and wood. Even if 90% of the metals get recycled, long term there is the inevitable loss of all metals due to corrosion, friction etc. So increased production means only the artificial pushing of the inevitable entropy. Of course, with infinite energy, entropy can be circumvented. So cheap and abundant energy is a precondition sine qua non if we really want to escape poverty and scarcity.
Instead of aiming at abundant and extremely cheap energy, I would suggest that we aim at less and less production and insists that the things we do produce, last much longer than just a decade. In addition, things should be designed in such a way that repairs are easy to carry out. A new product should be significantly more expensive than a repair of an older already existing product.
More generally, whatever we do, we should insists that the amount of entropy increase be kept at an absolute minimum possible.
“So cheap and abundant energy is a precondition sine qua non if we really want to escape poverty and scarcity.”
Abundance and scarcity are co-existent. How could it be any other way?
This is a laudable and interesting goal, but it is not simply a case of me claiming what we should aim for. I am just pointing to current trends in technology and noting the fact that various renewables have Moore’s Law-like cost curves:
What you or I personally want is peripheral to the greater trends of history…
Aziz, I think you need to return to reality. That super advanced technology won’t happen. They can’t even build a fusion reactor properly. Sure, the scientists like to dream.
It’s like MillionDollarBogus_ hacked your account or something.
A cold fusion reactor is beyond science right now. There is no scientific proof such a thing is possible. Molecular manufacturing and superabundant solar energy is entirely within current scientific capability. It’s just a matter of perfecting the engineering, which is happening fast.
That’s the difference.
Regarding “A cold fusion reactor is beyond science right now. There is no scientific proof such a thing is possible.”, that statement is actually not true. Fusion reactors have been built at a lab level and proven to work. The only problem is the economics of the fusion reaction: The energy output so far is always less than the amount of energy required in order to start the fusion process.
A similar point can be made about solar energy. Most of the solar companies go bankrupt (even Chinese ones). In Germany, where lots of capital was invested into solar and wind, there is a growing opposition against renewable energy as it is at least 3 times as expensive as conventional power generated by burning fossil fuels. The German industry is exercising pressure on the German government because of the high cost of electrical power in Germany. Germany is in fear of losing its industrial competitiveness due to unaffordable energy prices.
So the outlook for solar energy is dim as long there is cheap NG and cheap coal. The big time for solar will come when all fossil fuels will be almost exhausted because only then will the cost of solar energy be truly competitive with the cost of fossil fuels.
Regarding predictions about the future: Most of these turn out to be wrong. The future turns out to be not that much different from the present. In the 1960, Herman Kahn made all kinds of predictions about the future most of which turned out to be false. See http://en.wikipedia.org/wiki/Herman_Kahn. I vividly remember a prediction in the early 1960 that cars of the future will be running on turbines and not on combustions engines. Car turbines will be so powerful experts predicted, that cars will be able to fly. People seriously believed that cars of the future will travel in air corridors and not on highways. Of course, none of that ever became true. The prevailing car engine is still the old internal combustion engine invented more than 100 years ago. And it looks as if this engine will be the dominant engine during the next 50 years, at least as long as there are liquid fuels available.
In the early 1960, promoters of nuclear energy even claimed that nuclear power will be too cheap in order to meter it. The reality is that nuclear energy is declining and its cost is higher than the cost of conventional power generation. The cost of energy did not come down. To the contrary, the cost of energy did rise to such substantial levels that is now economical for the US to go to war in order to secure access to oil.
“So the outlook for solar energy is dim as long there is cheap NG and cheap coal. The big time for solar will come when all fossil fuels will be almost exhausted because only then will the cost of solar energy be truly competitive with the cost of fossil fuels.”
99.99…% of what gives life to this planet is solar energy. The final .000…1% will come in good time.
Aziz,
The following claim of yours is plain bizarre: “My guess… it will be hard for strong inflation to ever return no matter how much money central banks print.”
Well Robert Mugabwe can tell you how to get inflation going. But it comes as no surprise to me whatsoever that Robert Mugabwe has a better understanding of economics that many Western self-styled economists. And I’m not picking you in particular: plenty of economics professors make the mistake you’ve made. I’ll explain (and by the way, the following is straight out of the Modern Monetary Theory text book).
You say that large amounts of money have been printed under the guise of QE, but no inflation has ensued. You’ve fallen for the linguistic subterfuge (or plain ignorance) of many financial journalists who describe QE as “money printing”. Strictly speaking, QE does involve printing money, but at the same time, something very near money is withdrawn from the private sector: government debt. Indeed, a chunk of debt near maturity is indistinguishable from money. So in a sense, QE involves no money printing at all. Certain it results in no increase in what MMTers call “private sector net financial assets”.
To that extent, it is HIGHLY INACCURATE to describe QE as “money printing”.
In contrast, and this is a CRUCIAL CONTRAST, if government borrows £X, spends it into the economy, gives bonds to relevant lenders, and the central bank then prints money and buys back the bonds, then that’s exactly the same as government literally printing £20 notes and spending them into the private sector. Too much of that CERTAINLY WOULD lead to inflation.
Far as I can see, Milton Friedman didn’t get the above point, nor does Scott Sumner. So you’re in good company.
Here endeth the lesson.
Actually I mostly agree with what you’re saying here. Obviously you can’t spend a treasury bill in quite the way that you can cash, but neither can you spend a certificate of deposit or a money market fund.
But more broadly, all of this is irrelevant in terms of the money supply, because the money supply is not determined by the central bank, it is determined by private banks.
The point is, the central bank’s only current lever for monetary policy is printing money, and right now swapping it out for low-yielding assets (or potentially in the future just doing direct helicopter drops. With a relatively limited arsenal combined with a mandate for price stability, and a large general deflationary trend resulting from material abundance in the economy, I see it as difficult for central banks to start any inflationary trend. Whether private banks can is another question (with enough animal exuberance they can) but with a 20+ year deflationary deleveraging trend, it seems difficult for this to occur at any point soon. And in 20 years, it seems like we will be faced with even greater material abundance than we have now, as I detailed in the article.
So that leaves big commodity or resource shocks, global wars, natural disasters, etc, as the only foreseeable events with big inflationary potential.
Funny you’d compare me to Milton Friedman. Really?
In fact your post is more about people than money and I’m going to comment this side of the story.
First of all you are spot on in telling us that the most important role humans have is to innovate – and, as such, to make evolution, and survival, possible.
Unfortunately not so many people see things as you do – that everybody should have the opportunity to express his self – and too many are convinced that they, individually, are the only capable ones. Hence a lot of economic and political moves that tend to conserve the status quo, jeopardizing the ability of the society at large to evolve. One of them being the choke hold the banking sector has currently over most of the economy.
And this brings me to how hyperinflation might appear. You say that a natural or man made catastrophe (like war) is needed to trigger it. It might be so only I fear that hyperinflation might also be triggered by masses loosing faith in banks/fiat money. And that is going to be ‘flash’ inflation, not hyperinflation, 1000% in a matter of weeks.
I hope I’m wrong.
“First of all you are spot on in telling us that the most important role humans have is to innovate – and, as such, to make evolution, and survival, possible.”
This may or may not be true, but that doesn’t matter one way or another.
Attempting to control that which lies outside you yourself is best left up to the gods and other supernatural creatures. If you seek balance within, you will begin to see that you have no control of anything on the outside, yet the infinite number of factors that dictate even the simplest of processes.
Survival is not an intellectual process, but instead, clearly seeing what needs to be done. Seems to this observer, that the imbalance caused by the over-consumption of every damn thing has caused a great deal or dis-equilibrium, and this the primary area that needs to be addressed.
Getting rid of debt would appear to be the number one solution in the long trek back to balance, something that Mankind will either accomplish on His own or will be imposed from without.
I think the more likely outcome is that Central banks continue to engage in easing to prevent hyper deflation from occurring. QEinfinity.
I can explain hyperinflation using many different theories. Check it out:
http://howfiatdies.blogspot.com/2013/09/hyperinflation-explained-in-many.html
You know gold is a fiat currency?
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