A Look at Hyperinflation
Lately I see many people pointing to this that and everything else but
especially rising home prices, gasoline prices, and commodity prices as if those
constituted "hyperinflation". It is a word being bandied about without anyone
having a firm grasp as to what it really means. Hyperinflation involves a
complete and sustained collapse of faith in currency.
If you want to understand hyperinflation please look at
Zimbabwe.
The BBC is reporting that Public hospitals fees have gone up from Z$300 to
between Z$800,000 and Z$1m (US$10) with immediate effect, the state-owned Herald
newspaper reported. The costs of consultations, maternity services, surgery and
intensive care are also increasing.
The 333,200% increases come a month after the government lifted a freeze on
private health care charges.
333,200% increases is (no ifs ands or buts) hyperinflation.
Back in the US, gasoline prices soaring 100% in response to peak oil has
nothing to do with hyperinflation. In fact, soaring oil because of "peak oil"
has nothing to do with inflation at all.
Oil soaring because of loose monetary policy does have something to do with
inflation. Unfortunately it is very hard to see the difference.
Yet it is critical to understand the difference. Please review:
Inflation: What the heck is it?
Inflation Monster Captured
In Praise of Saville
In case you do not believe me or Saville perhaps you might believe Marc
Faber. Please consider the article
Marc Faber shatters prevailing market myths.
Q: How important is it to understand the role of the Federal Reserve to
understand the world economy?
A: I think it is very important to understand the fact that we have a central
banking system where the central banks can indicate, theoretically drop dollar
bills from Helicopters. You wont be able to do that because all American
helicopters are in Iraq. But they can print money, that is a fact and they can
flood the system with liquidity.
Then you have to find a measurement of inflation. We measure inflation by
rise in money supply. It would be wrong to think that the inflation is just
consumer price increases. Inflation is a loss of purchasing power of your
currency, dollar or Rupee. It can manifest itself by rise in consumer price but
it can also manifest itself by a loss of purchasing power of money against real
estate, or against stocks and real estate.
Q: What is the public enemy No 1 in your book, would it be inflation, or
deflation?
A: In my book public enemy No 1 are the central banks. I think the world
will be much better off under a gold standard. Other than that, I think the
asset inflation is much more dangerous than consumer price inflation because
asset inflation is driven by a huge credit bubble. Then asset prices become very
expensive and when asset prices go down it leads to recession. So the Central
Banks will support asset prices and see to it that they keep on going up. So
they will inflate more and more and eventually you will come to an economic
collapse.
Point blank, if the US was anywhere close to hyperinflation, Centex and other
builders would not be knocking off $100,000 on the prices of their houses. I
would not be able to buy chicken legs at .49 a pound on sale. Round roast would
not be $1.69 lb on sale. I bought several roasts and had the store make ground
round for me, paying zero% extra for the service. I recently bought whole
turkeys at .69 lb and turkey breasts at .99 lb. Over Easter I bought a butt ham
for .98 lb. Center cut pork chops not on sale are $5.49 lb. Phooey. Who needs
that? At least once a month they are on sale for $2.29 lb or less. Seriously we
are talking 1970's prices. I know because I worked as assistant manager in a
grocery store back then. Heck I have no idea how they can even raise chickens at
.49 lb. If you know then please tell me!
Yes, you can complain about medical prices, property values etc. But... If
you have lived in your house for the last 5 years your expenses have gone down
(assuming you were smart and refinanced anywhere close to the bottom). You can
also complain about car prices but that will fall on deaf ears. We bought a
brand new and very well equipped Hyundai Elantra (in 2005) for $10,500. Anyone
paying $30,000 or whatever for an SUV and is now complaining about insurance
costs and gasoline prices was simply asking for trouble in the first place.
Speaking of gasoline prices....... The US has some of the lowest gasoline
prices in the world.
Is that hyperinflation? Where? To the extent that those prices are rising
because of peak oil and not loose monetary policy, gas price hikes are not even
a symptom of inflation at all.
Please do not mistake this post to mean I believe the CPI. I do not. It
seriously understates energy prices, medical prices, education costs, property
taxes, and a whole slew of other things. But the bottom line is that any talk of
hyperinflation in the US is seriously misguided.
As for me, I am waiting for a turn down in credit expansion which is what the
focus should be on. The threat is not where everyone is looking, and I guarantee
you everyone is looking at inflation running out of control. Flashback 2002:
does anyone remember the deflation threat? That the FED is now concerned about
inflation after 15 consecutive rate hikes smacks of the same wrong way thinking
of the Fed in 2000.
The Fed is almost always fighting the wrong battle so I agree with Faber that
it should be abolished. A return to the gold standard and elimination of
fractional reserve lending is just what we need. It would be a very painful
adjustment to make, but a serious adjustment is coming anyway. We may as well
make it the right one.
Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/
