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A thought on hyperinflation

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necrovore
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I've been reading a lot about hyperinflation, and how it makes life more difficult for a lot of people, because it makes prices go up, and it makes cash lose its value, which punishes savers, and so forth.

But there is one perspective I haven't read about lately, and it just occurred to me: hyperinflation isn't bad for everyone. It's not bad for you if you're the one printing the money. It's not bad if you're friends with the ones printing the money, or friends of those friends, or so forth.

Many of the people running the banks, the Fed, and large parts of the government, graduated from the same Ivy League universities (there was an article to that effect a few years ago, maybe around the time of the 2008 financial crisis), and they're spreading the loot among themselves. They also have a decidedly Leftist slant.

This is not really new. What's new is the scale of it. The money supply in 2020 increased by 30%, or so I've read.

The Left is basically parasitic and can't survive without subsidies from somewhere. They used to try to rely on taxes for that, or their monopoly on unions, but now they are largely using the printing press, instead. Now taxation is not a means of raising revenue for them, it's just a means of control. Their main way of getting what they want is the printing press, either through government spending or through the banks.

The reason they have all the power right now is because they have all the money. They're the ones printing it. They're distributing it among themselves and using it to buy up whatever they want. If you're not a Leftist, you don't get any free money. You have to work for it, or sell something, and then you're a sucker, because in order for you to get money, you have to give up something else in exchange. They don't.

Even if your productivity amounted to millions of dollars per day, and even if you moved that money out of cash as quickly as possible and bought gold or land or something, there would still be people who can make at least as much money as you do, and they can buy all the same stuff as you, but they don't actually have to do anything, because they have a fountain of free freshly-printed money, and you don't.

This is happening across international borders, too. There are gangs of Leftists using the printing press in many "free" countries, careful to proceed in lockstep so that the exchange rates don't move too much.

I also think they are using the money to try to control the culture, such as by buying up media companies and so forth. This affects both news and entertainment. They can play the king-maker and choose which things will succeed by deciding which to promote and which to bury, which to produce and which not to produce. In a free economy, a king-maker would still have to listen to audiences in order to avoid going broke, and so would also have to be an innovator. But people who are getting free money from the printing press don't have to worry about going broke. They don't have to work for their money, whereas their competitors do. This gives them an advantage. They can claim that they're "succeeding in the marketplace," and it will look like they actually are succeeding in the marketplace. This influences others, who may be unaware that the game is rigged.

The Leftists don't actually have to twist any arms in this. Nobody can tell the good money from the bad. All the Leftists have to do is buy whatever they want, and it's theirs.

The more currency they print, the larger their advantage over everyone else. Lately they have been printing more money than ever before, and that explains their outsized influence right now. However, even though they have lots of money and can buy whatever they want, they aren't producing anything much of value (because they don't need to), and since the people who are producing things have to work harder and harder, eventually "supply problems" happen, and that drives prices up, and so the Leftists have to print even more money. That's about where we are now.

There will be a crash eventually -- but even after the currencies collapse, the Leftists will still own whatever they managed to buy earlier with the money they printed, whether it be land, businesses, or whatever -- and that will give them an enormous advantage in whatever happens after the collapse.

That worries me.

Edited by necrovore
Moved "the money supply increased by..."
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23 minutes ago, necrovore said:

But there is one perspective I haven't read about lately, and it just occurred to me: hyperinflation isn't bad for everyone. It's not bad for you if you're the one printing the money. It's not bad if you're friends with the ones printing the money, or friends of those friends, or so forth.

It's unlikely that governmental control of the money supply will be relinquished.

Governmental controls are good for cronies. It's also good for the administrators that work in Government.

Until the money runs out and the side show has to stop.

As far as the crashing goes, another currency would become the currency of choice. It could be sudden.

Ultimately this country could break up similar to other empires that came and went. But as long as there is mostly law and order and a slow incremental downfall, it can be repaired if the institution of free speech is respected. Sweden is the best example, they became heavily socialist twenty years ago, and then they voted against it because they saw how bad it got. They spoke out against it freely.

So as long as there is no violent civil war, or an authoritarian system preventing free speech, the country can in fact correct it's bad behavior.

Edited by Easy Truth
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  • 3 months later...

necrovore,

It is in the interests of Objectivists to be a witness to the government's attitude that they can continue to print money every day, as much money as they deem necessary according to their Keynesian formulas.

But the United States will never experience hyperinflation because smart investors are still interested in the bond market.

As more and more people learn about bonds, and as more people in the United States secure higher-paying positions that allow them to buy bonds, the more of a counter-balancing effect there is on the government's money printing.

Hyperinflation is not caused by printing too much money. It is caused by an acute or chronic faltering of confidence in the dollar.

The dollar gets its strength not by what it can buy in the hands of citizens and residents of the US,

it gets its strength by how it trades on the international market.

The strength of any commodity is how well it trades with others. Money is no exception.

If the government stops issuing bonds domestically, foreign countries take it as a sign that the US government is not confident in its ability to pay for the bonds when they reach maturity.

What that does is it freezes the extensions of foreign loans to the United States, and at the same time it causes short-selling of dollars by foreign nations.

As soon as dollars begin to get short-sold, it is a sign to everyone in the international market that the dollar is weak.

The select nations that continue to loan money to the United States raise their interest rates,

and the government is forced to print more money to pay the interest.

Commodities which are traded internationally begin to sell for more dollars.

Only then do commodities at home become more expensive, because they are produced by international supply chains.

Printing money is not the cause of hyperinflation. Hyperinflation is the cause of printing money.

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The answer is they don't.

Market forces dictate uniform raises in prices.

The simple matter is that producers raise prices because the parts in the supply chain are more expensive.

The parts in the supply chain are more expensive because foreign companies raise their prices when the dollar is weak.

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Sound money is ultimately our goal. But why?

Because when the government promises that a dollar can be exchanged for 1/1000 of an ounce of gold,

in effect this is the same as a bond.

It is just a promise of value.

As long as bonds continue to be attractive, our money, while it is deteriorating, will never completely fail.

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Ultimately, what we will see in the course of history

is that the United States will return to sound money.

Why?

Because gold and silver will always, always be desirable.

Just look at a gold coin and tell me you don't want it.

As more and more people can afford gold and silver, and also learn about Objectivism and also Austrian Economics as well,

there will be a greater and greater push for a sound money standard.

It's just going to take a little bit of time before we get there.

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2 hours ago, Sebastien said:

The important thing to remember is that fiat currency is defined

when the dollar is backed by the taxing power of the federal government.

Nowhere does this definition say the dollar is backed by the power to print money.

Fiat currency is defined by the government forcing people to accept it.  This does not automatically result in printing money, but it gives the government free rein to print money. 

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Sebastian,

Next time you should combine all your posts into a single post.

The value of the dollar comes from the illegality of counterfeiting. That's all.

However, the government can legally print money, and if it does, and enters that money into circulation, then that diminishes the value of the dollar.

Of course, the government doesn't want to be seen printing money directly, so there is some genius-level fraud at work. Somebody had the great idea that a central bank would print the money, and the government would then borrow it, and theoretically have to pay it back with interest, which is a great deal for the central bank.

Prices go up during inflation when people receive the newly printed (borrowed) money and use it to bid up the price of supplies. Everybody else has to bid higher, too, or else they don't get the supplies. The effect is uneven because the newly printed money is not distributed to everyone evenly, and because the people who get the money first (usually the government and its beneficiaries) might want some supplies more than they want other supplies.

It doesn't make any difference whether these trades cross international borders or not.

I don't buy the idea that a "loss of confidence" causes hyperinflation. The loss of confidence is an effect, not a cause. Hyperinflation happens when there's a feedback loop: when inflation causes the government to have to pay higher prices, they print more money to cover the higher prices, and this causes more inflation, which causes even higher prices, and so forth. Technically this feedback loop happens with regular inflation, too, and is already happening now, but it is very slow at this point. It will speed up if the government decides to spend more. This will cause problems, the government will decide that even more spending is the answer, and so forth.

The Federal Reserve is itself one of the biggest bond buyers. It buys the bonds with freshly-printed money. The Fed does accounting tricks to conceal this (I think it's actually illegal for the Fed to do it directly, so they do it indirectly.) The Fed encourages banks to buy bonds and then deposit the bonds in a reverse repo facility which temporarily (but repeatedly) exchanges them for cash. That way the banks are the nominal owners of the bonds but actually the banks are swapping the bonds right back to the Fed. If the repo facility were closed then the banks would not have enough cash for their operations, and bonds are too illiquid to serve as a substitute.

Also, you seem to be contradicting yourself. "Legal tender" laws mean that the government forces creditors to accept dollars as payment for debt. The creditors cannot legally say, "No, we want you to pay in gold or something other than dollars."

----

My original post wasn't really about hyperinflation per se, it was about the idea that government money-printing can be used to influence the culture. If you have access to free freshly-printed money then you can buy up book publishers, record companies, movie studios, and so forth, and make them churn out propaganda, and buy huge ad campaigns for it. Even if audiences leave in disgust, the fountain of free money can keep the companies in business anyway (when normally they would go out of business). It can even create the illusion that the material is popular (because the ads are everywhere). Competing businesses, seeing the "popularity," may also try to cash in on it by imitation, and may refuse good work because it doesn't "follow the trend." I think this is happening now.

I suppose what this boils down to is that, if you're worried by the way certain Leftist ideas seem to be taking over the culture, you shouldn't worry. When the money runs out, the illusion that this stuff is popular will vanish.

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