We have Deflation, don't we? Don't count on it <G>
A rather SHTF situation in which both private and
public US debt is very, very high as a proportion
of GDP, because Keynesian remedy was used too many
times to blow the debt bubble even bigger. The public
debt is important in context of inflation and/or SHTF
(currency melt, capital run)
This is interesting... Speculators are dumping the dollar
and blew oil to da sky last year, now driving gold there. -g-
mises.org
No Inflation in Germany
The most amazing economic sophism that was advanced by eminent
financiers, politicians, and economists endeavored to show
that there was neither monetary nor credit inflation in
Germany. These experts readily admitted that the nominal
amount of paper money issued was indeed enormous. But the real
value of all currency in circulation, that is, the gold value
in terms of gold or goods prices, they argued, was much lower
than before the war or than that of other industrial countries.
Minister of Finance and celebrated economist Helfferich
repeatedly assured his nation that there was no inflation in
Germany since the total value of currency in circulation, when
measured in gold, was covered by the gold reserves in the
Reichsbank at a much higher ratio than before the war.[2]
President of the Reichsbank Havenstein categorically denied
that the central bank had inflated the German currency. He was
convinced that it followed a restrictive policy since its
portfolio was worth, in gold marks, less than half its 1913
holdings.
Professor Julius Wolf wrote in the summer of 1922: "In
proportion to the need, less money circulates in Germany now
than before the war. This statement may cause surprise, but it
is correct. The circulation is now 15–20 times that of pre-war
days, whilst prices have risen 40–50times."[3] Similarly
Professor Elster reassured his people that "however enormous
may be the apparent rise in the circulation in 1922, actually
the figures show a decline."[4]
The Statistical Bureau of the German government even
calculated the real values of the per capita circulation in
various countries. It, too, concluded that there was a
shortage of currency in Germany, but a great deal of inflation
abroad.
Of course, this fantastic conclusion drawn by monetary
authorities and experts bore ominous consequences for millions
of people. Through devious sophisms it simply removed the
cause of disaster from individual responsibility and thus also
all limits to the issuance of more paper money.
The source of this momentous error probably lies in the
ignorance of one of the most important determinants of money
value, which is the very attitude of people toward money. For
one reason or another people may vary their cash holdings. An
increase in cash holdings by many people tends to raise the
exchange value of money; reduction in cash holdings tends to
lower it. Now in order to change radically their cash
holdings, individuals must have cogent reasons. They naturally
enlarge their holdings whenever they anticipate rising money
value as, for instance, in a depression. And they reduce their
holdings whenever they expect declining money value. In the
German hyperinflation they reduced their holdings to an
absolute minimum and finally avoided any possession at all. It
is obvious that goods prices must then rise faster and the
value of money depreciate faster than the rate of money
creation. If the value of individual cash holdings declines
faster than the rate of money printing, the value of the total
stock of money must also depreciate faster than this rate.
This is so well understood that even the mathematical
economists emphasize the money "velocity" in their equations
and calculations of money value.[5] But the German monetary
authorities were unaware of such basic principles of human
action.
...........................................................
Speculators Did It
When all other explanations are exhausted, modern governments
usually fall back on the speculator, who is held responsible
for all economic and social evils. What the witch was to
medieval man, what the capitalist is to socialists and
communists, the speculator is to most politicians and
statesmen: the embodiment of evil. He is said to be imbued
with ruthless and fickle selfishness that is capable of
wrecking the national economy, government plans, and, in the
case of German inflation, the national currency. No matter how
blatantly contradictory this explanation may be, it is most
popular with government authorities in search of a convenient
explanation for the failure of their own policies.
The same German officials who denied the very existence of
inflation lamented the depreciation caused by speculators, or
they blamed the Allied reparation burdens and simultaneously
denounced speculators for the depreciation. Dr. Havenstein,
the President of the Reichsbank, embracing every conceivable
theory that exculpated his policies, also pointed at the
speculators. Before a parliamentary committee he testified:
"On the 28th of March began the attack on the foreign exchange
market. In very numerous classes of the German economy, from
that day onwards, thought was all for personal interests and
not for the needs of the country."[12]
In a chorus the newspapers chanted the charge:
According to all appearances the fall of the mark did not
have its origin in the New York exchange, from which it may be
concluded that in Germany there was active speculation
directed towards the continual rise of the dollar.
We are witnessing a rapid increase in the number of those
who speculate on the fall of the mark and who are acquiring
vested interests in a continual depreciation.
The enormous speculation on the rise of the American
dollar is an open secret. People who, having regard to their
age, their inexperience, and their lack of responsibility, do
not deserve support, have nevertheless secured the help of
financiers, who are thinking exclusively of their own
immediate interests.
Those who have studied seriously the conditions of the
money market state that the movement against the German mark
remained on the whole independent of foreign markets for more
than six months. It is the German bears, helped by the
inaction of the Reichsbank, who have forced the collapse in
the exchange.[13] |
