Episodes of Hyperinflation from Diocletian to Bernanke - How It Might Unfold Today

Both hyperinflation and protracted deflation are extraordinary economic events. And it is telling that they are much more common in the 20th century and after than in all preceding recorded history. Ah, the joys of modernity.

While prices can certainly increase based on fluctuations in supply and demand, by my definition 'a general price inflation is an increase in the money supply without a corresponding increase in real output causing an increase in general price levels.'

War and other natural disasters and dislocations can cause temporary bouts of severe inflation and deflation, but endogenous episodes of hyperinflation or deflation are almost always the result of policy error in a genuinely sovereign currency, that is, not contingent on an external entity. Although that policy error can be precipitated as a response to some external stimulus, very often unfunded war debts for example.

War is a spectacularly unproductive expenditure, and a nation that engages in continual wars is almost always brought to eventual economic ruin, if for nothing else than overreach.

Hyperinflation is generally considered to be an increase of over 50% in price levels based on a monetary phenomenon. This increase is caused by decisions on the part of the central bank to increase the money supply at a high rate leading to a loss in its value.

Although it is a low probability event I have said that a hyperinflation, since it is a policy decision, is certainly possible in the US dollar. I have spent quite a bit of time trying to assess the probabilities, and in order to do that, one must understand the actual mechanism by which it would occur. I had been unable to find that described elsewhere, except in the most general of terms and the piling on of anecdotal evidence.

Based on my own thinking, the most likely cause of it would be an inappropriate response to a threat to the banks because of an event in the derivatives market which is a major credit bubble, intricately interlocking almost all financial institutions.  Critical Mass: The Mispricing of Derivatives Risk and How the Financial World Ends.

I think there is sufficient room for doubt that the Fed, the President and the Congress would 'do the right thing' for the public rather than their crony capitalists when it comes down to it. They are caught in a credibility trap, and are unable to police or reform the system without indicting themselves.

I have even entertained the thought that a few of the Banks have used their own precarious positions as leverage, a sort of soft extortion, or mutually assured destruction, to fundamentally do as they please. I am not alone in this. Mr. Max Keiser calls them 'financial terrorists,' and in his highly expressive way he may be right.    That was certainly evident in the passage of the TARP.

I would be prepared to say that most of the very powerful businessmen and politicians I have met, with a few notable exceptions, are not very nice people, and as they would themselves proudly attest, not ordinarily human. They tend to the emotional and spiritual depth of salamanders, or gekkos to borrow a meme. Hard to say where they might fit on Maslow's hierarchy. On par with toasters?

It is funny how often a society confuses the accumulation of wealth and power with wisdom and virtue, when history shows it to be most often quite the opposite.

I have often wondered at their propensity to collect beautiful things. Did J P Morgan really enjoy his wonderful collection of manuscripts? Did William Randolph Hearst rise to ecstasy with his art collection? I am sure that I understand Mr. Dennis Kozlowski's enjoyment of his $15,000 umbrella stand. I do have children you know.

Here is a list of some of the more famous episodes of hyperinflation throughout history.

Episodes of Hyperinflation - San Jose State University

Here is my own list of of Serious Inflations Since WW II.

For the specific feel of a hyperinflation, there are few better books than When Money Dies: The Nightmare of the Weimar Collapse by Adam Fergusson. This is a link to an online copy of the book.

Some Common Fallacies About Inflation and Deflation is also worth reading if for nothing else than to find out 'what works' best in such circumstances as a hyperinflation.

And lastly there are my own recollections of a country on the cusp of a hyperinflationary episode, Moscow Memories of 1997.

If there is such a hyperinflationary episode in the US, it will almost certainly be a massive theft of wealth, under cover of some false flag episode or similar story, blaming it on China or Iran, or some natural disaster, for example.

The Fed and the monied interests are unlikely to voluntarily accept responsibility for the disaster, for the same reasons that they are unwilling to engage in genuine reform. The way that the theft of customer funds at MF Global was handled may give you some idea of how it might unfold, except on a much larger scale. You would be fortunate to tithe only ten percent to the monetary powers, the dark rulers of this world, and spiritual wickedness in high places. Their only response is 'more.'

One Half of Italy's New Sales Tax Receipts Go Directly to Morgan Stanley in New York

Complex derivatives deal from the 1990s backfires on Italy.

Bankers win.  The people pay.

One of my less scrupulous bosses once told me, "The way I like to win a race is to punch the other guy in the stomach and then yell, 'Let's race.'"

And I replied, "Well that may be all well and good, but if the guy you punch is Italian or Greek, I would not stop running at the finish line."

He was a Irish lad,  who having enjoyed a temporary run of luck, was left terribly over his head, pretty much in everything.  And as you might suspect, he ended badly, and took a lot of his type, whom he had gathered into his contrivances, down with him.  Its the little things that make life worth living.

No wonder the American derivatives dealers are leaving Europe.   They are probably just a few steps ahead of the pitchforks and torches.  Europeans keep a ledger of wrongs that never expires until the debts are paid.

The bad news is that they are coming home.

These Wall Street hooligans remind me of an old acquaintance of German descent, (nice fellow although a bit cheap, confirmed bachelor, good card player, but an unbearable drunk), who had been banned from so many pubs around his modest country home that we used to have to go over forty kilometers to get a drawn beer on the weekend. It got so bad that he finally gave up drinking altogether, just to save on gas. Found a nice woman, or rather I think she discovered him, and got married at fifty. Found his happiness. True story.

Bloomberg
Italy Said to Pay Morgan Stanley $3.4 Billion
By Nicholas Dunbar and Elisa Martinuzzi
Mar 16, 2012 10:10 AM ET

When Morgan Stanley (MS) said in January it had cut its “net exposure” to Italy by $3.4 billion, it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.

Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasury’s payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private.

The cost, equal to half the amount to be raised by Italy’s sales tax increase this year, underscores the risk derivatives countries use to reduce borrowing costs and guard against swings in interest rates and currencies can sour and generate losses for taxpayers. Italy, with record debt of $2.5 trillion, has lost more than $31 billion on its derivatives at current market values, according to data compiled by the Bloomberg Brief Risk newsletter from regulatory filings.

“These losses demonstrate the speculative nature of these deals and the supremacy of finance over government,” said Italian senator Elio Lannutti, chairman of the consumer group Adusbef.

The transaction may prompt regulators to push for greater transparency and regulation of how governments use derivatives, said the head of the European Parliament panel that deals with market rules.

“This latest revelation shows that we need to know a lot more,” Sharon Bowles, chairwoman of the economic and monetary affairs committee, said in an interview today. “I’m reluctant to have quite as many exemptions for central banks and countries” from transaction-reporting rules, she said.

Morgan Stanley said in a Jan. 19 filing with the U.S. Securities and Exchange Commission that it “executed certain derivatives restructuring amendments which settled on January 3, 2012” and reduced its Italian exposure by $3.4 billion.

Mary Claire Delaney, a spokeswoman for the New York-based firm, declined to comment further. Officials at the Italian treasury in Rome declined to comment on the contracts...

Barclays and Others Seeks Bulk Claim Purchases from MF Global Customers

I have spoken to one customer of MF Global who has already accepted an offer of 91 1/2 cents on the dollar for his claims. He could no longer bear the waiting and the uncertainty, and wanted to move on. Others have indicated that they are going that to accept offers as well.

Although the sums of money involved may not seem substantial to those on Wall Street and in Washington, to the retail customers and their families it represents a significant amount of their savings and liquid net worth.

It was weighing heavily on their minds.

While I am glad to see the customers obtaining their funds, I cannot again help but note the disgraceful manner in which the government, the exchange, and the regulators, the CFTC and the SEC, allowed this theft of customer funds to unfold, especially the manner in which the Banks twisted the aftermath to their own advantage.

And Jon Corzine and his good friend Barack Obama should be ashamed.

Reuters
Barclays, Seaport eye bulk buys of MF Global claims
By Nick Brown and Ann Saphir
Mar 15, 2012 9:26pm EDT

(Reuters) - Barclays PLC and the Seaport Group have separately begun working to group together thousands of MF Global customer claims with an eye toward acquiring the claims in bulk, according to an attorney, and to a term sheet obtained by Reuters.

Barclays and Seaport, which have been in talks with customer groups to acquire claims at more than 90 cents on the dollar, are looking at ways to bundle smaller claims to make bigger bulk purchases, according to a term sheet from customer advocate group the Commodity Customer Coalition.

The coalition, which negotiated the offers, sent the term sheet to thousands of customer constituents this week, saying offers from Seaport and Barclays were contingent on the size of the claim.

Seaport has said it will only take on claims worth $100,000 or more, according to the sheet.

Trace Schmeltz, an attorney for the coalition, told Reuters on Thursday his firm, Barnes & Thornburg, will work with Seaport to find ways to bundle.

"They asked if we'd do it, and we have a team in place to help them," Schmeltz said.

Meanwhile, Barclays this week cold-called R.J. O'Brien, the futures broker with the most former MF Global clients, to seek the firm's help in reaching potential sellers.

"They asked to have a meeting with us to share with us the plan that they have in mind," the broker's chief executive, Gerald Corcoran, told Reuters at the Futures Industry Association's annual meeting in Boca Raton, Florida, on Tuesday. "If we can do it, we will facilitate" communication between Barclays and customers interested in selling their claims, Corcoran said.

Some $1.6 billion of customer funds originally parked with MF Global went missing after the broker's failure last October. James Giddens, the trustee charged with recovering client funds, has paid back about 72 percent of the money in commodity trading accounts.

Customers with foreign exchange claims have so far received nothing from the trustee.

More than 27,000 clients have filed claims with the trustee to retrieve the balance in their accounts, and it is these claims Barclays and others are after.

A spokesperson for Seaport did not return a call seeking comment. A Barclays spokesman declined to comment.

According to the coalition's term sheet, Seaport has offered 91.25 cents on the dollar to acquire claims for customers who traded on U.S. exchanges, and 66.25 cents for claims belonging to customers who traded on foreign exchanges.

Barclays has offered 91 cents and 66 cents, respectively, for U.S. exchange and foreign exchange claims belonging to institutions. It has offered 90 cents and 65 cents, respectively, for U.S. exchange and foreign exchange claims belonging to individuals.

Royal Bank of Scotland has made an offer for institutional accounts equal to Barclays', but the coalition is not touting RBS' offer to customers because the bank refused to take on individual accounts, according to the sheet.

A spokesperson for RBS could not be immediately reached on Thursday.

Bill Moyers Journals: 'Crony Capitalism' Part Two with Gretchen Morgenson

Here are a few of the reasons why there is no genuine financial reform, and as a consequence, no robust, sustainable recovery.



This is part of the same show in which Bill interviewed David Stockman.

I was looking at some figures today, and the Obama recovery is very weak compared to the performance of the Roosevelt Administration for example.

But this makes sense. Obama is more Hoover than Roosevelt, a moderate Republican, moreso than a progressive Democrat.

If Obama is a radical in the manner of Saul Alinsky, then Tim Geithner is a mathematician in the manner of Albert Einstein.