The Daily Reckoning perspective is one of “soft-core deflationism”… where the economy looks likely to experience both less recovery and more deleveraging than most prognosticators probably now anticipate.
Yet, an international panic, political or otherwise, could instead lead the nation onto an inflationary path. Ambrose Evans-Pritchard at the Telegraph, himself a deflationist, looked yesterday at how historical precedents of inflation, and hyperinflation, also offer guidance for the future.
From the Telegraph:
“Each big inflation — whether the early 1920s in Germany, or the Korean and Vietnam wars in the US — starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.
“People’s willingness to hold money can change suddenly for a ‘psychological and spontaneous reason’, causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.
“‘Velocity took an almost right-angle turn upward in the summer of 1922,’ said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to ‘smell a government rat’.”
If all it takes is the whiff of a “government rat” to snap public patience we could indeed be closer to inflationary times than we’d like to admit. Further, Evans-Pritchard goes on to note the huge increase in the “US monetary base from $871bn to $2,024bn in just two years,” makes for quite the pool of “lighter fuel” in the event the velocity of money suddenly reverts back to more historically common levels. He describes more history of the Weimar inflation, and includes stories written in diaries at the time, in the Telegraph’s coverage of the death of paper money.
The Daily Reckoning
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let?s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
Here in Canada it is a $3,000,000 fine for starting a forest fire.
And if you folks burn down America?
I don't know how low the price of oil will ultimately go in the near future, but I do know that the seeds for an oil price recovery are already being planted by North American shale producers. These companies are dramatically slashing their capital spending plans for 2015, and I believe that the impact on production will surprise the markets…
Our discussions in these pages tend to freak new readers out. Dave Gonigam and Addison spent a fair amount of time last week discussing the implications of a deflationary environment and Fed policies on your existing portfolio. Dave sums up their conclusion in a neat gift box with a tight bow on it in today's essay.
Former editor-in-chief of Discover magazine Stephen Petranek has his eye on a special type of pharmaceutical company that has seen its stock price double since 2012. But the secret to this Midwestern company’s success is not based on drugs or innovation but something much deeper. Read on...
Yup, small-caps are setting up for a comeback year. In fact, I believe they'll retake a leadership role in the markets in 2015. So now's your chance to set yourself up for potentially massive gains before these stocks start grabbing headlines again. Or... you can simply wait until some ex-purt on CNBC or Fox recommends them - and miss out on half the party. Your choice...
"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...