Paco Ahlgren, "If This Isn’t Inflation, Then What Is?"

"If This Isn’t Inflation, Then What Is?"

by Paco Ahlgren

"Over the last year, I have written extensively about the economic crisis on The Bottom Violation. I’ve positively flogged the proverbial dead horses of quantitative easing and impending dollar collapse to the point where my arm feels like it’s going to fall off. And many of you have politely — and sometimes not-so-politely — offered to tell me just exactly how wrong I am. So the debate rages. Are we in an inflationary or deflationary environment? Are asset-classes rising in price, or falling in price? Over the last couple of years, so many of you have taken the time to remind me that the collapse in housing prices alone mandate that we are experiencing massive global deflationary price pressure.

I still disagree, of course; the increase in the money supply — coupled with the lowest interest rates the globe has ever seen — conspire to create an extremely dangerous setting. Perhaps it’s true that some asset-classes have fallen in value — but that isn’t universal by any means. And perhaps the prodigious increase in the money supply and easing of credit offset some of the falling asset prices, but even if that is true, the balance certainly isn’t sustainable.

And then there’s the velocity of money. “Sure,” you say, “the government is printing more money than ever, but it’s not getting into the economy, because no one is lending.” And that’s true too, but it doesn’t change the fact that banks have to make money somehow, and the way they do that is by lending. Eventually they will have to start lending, and when that happens, it’s not going to be a quiet slow process; it’s going to be like a tsunami of cash hitting the economy.

Have a look at this sweetheart of a chart:

Theoretically, the Fed could pick the precise moment to reverse policy, taking dollars out of the system. But economic indicators are almost universally lagging, and by the time the Fed does realize it’s time to get dollars out of the system, it will be too late. Beyond that, the Fed is now, more than ever, a political machine. Even if Big Bad Ben Bernanke knows the precise nanosecond he has to turn the train around — and even if he were that skilled a conductor — do you think he would really do it? The absolute best-case estimation of unemployment is still over 10%, and most private-sector economists agree that it’s much higher than that (probably more realistically over 20%). Do you really think Barack is going to allow Ben to raise rates?

The answer: hell no. And it doesn’t matter anyway, because this week it has started to look like “The Helicopter” is going to get fired. Or at least not get re-hired. At any rate, you should get used to hearing the word hyperinflation, becase that’s what we’re about to experience. And it’s going to be as ugly as your wife’s fat cousin.

Here are my final thoughts, for all you pundits and naysayers who accuse those of us who believe such an unprecedented increase in the money supply, along with such easy credit are going to cause hyperinflation: we know the hyperinflation of the Weimar Republic happened. We know it happened in Argentina. We know it’s happening in Zimbabwe right now. It has happened countless times — to countless empires. Here are the real questions:

If printing and easing aren’t the causes of hyperinflation, then please do tell us what is? If Argentina, for instance, didn’t destroy its currency by printing, then how exactly did they destroy it?"

-Paco Ahlgren, http://www.bottomviolation.com/