Topic: Why don't we see US$ hyperinflation? (Read 14692 times)

Dinner with friends in a restaurant : 1$ bill :
https://ca.news.yahoo.com/blogs/daily-buzz/eighty-old-man-dined-dashed-10-finally-pays-164626895.html?vp=1

   It's an interesting perspective. Likening the breaking with the gold standard to a default is interesting.

 However, what the author fails to recognize is that Wedgie has been protecting all of the kids from becoming vassal states of Russia for decades, and if you think that being bullied by the US is worse than being bullied by Russia, just ask the millions who are still flocking from Eastern to Western Europe.

   I am not coming out on the side of capitalism or communism- it's definitely between a rock and a hard place- but many Europeans and a lot of Americans sadly don't seem to get that the economic prosperity and social systems of countries like Sweden are very much dependent on the fact that they have not had to maintain a military of a size sufficient to protect themselves for decades. This enables their governments to focus on education and social services. The value of the trade deficit reflects the value of the service that the US provides as the global police force.

   Just like national government or the mafia, you get the protection and pay the protection money whether you want to or not. The wars are like turf battles.

At least Wedgie gave them papers instead of pushing drugs, like some other guys in the history.

Here is an incredible read. It doesn't exactly explain the OP's question of "Why don't we see US$ hyperinflation?" but it does an incredible job of explaining in very, very simple terms why the US has been able to get away with everything it has done to prevent it. It was written by Rickard Falkvinge, leader of the Swedish Pirate Party. This guy is not American so it is very interesting to get his take on American policies from an outsider's point of view.

http://falkvinge.net/2011/06/17/the-imminent-dollar-collaps-explained-to-an-8-year-old/

The Imminent Dollar Collapse, Explained To An Eight Year Old

It’s the elephant in the room. The United States is utterly bankrupt and has been living off of borrowed money since 1971, when it defaulted on its loans — though of course, it wasn’t worded like that. Not even an income tax of 100% is enough to cover the expenses, and the US is about to go the way of the Soviet Union.

A while back before the dollar’s dead cat bounce, I wrote a story in Swedish explaining the issue to an eight-year-old. I think it’s time to repeat it in English.

So imagine we we’re a bunch of eight-year-olds. There’s Anna, Wei, Jesús, Felipe, Maria, Sven, Jean-Pierre and Sergei.

Oh, and there’s Wedgie.

His real name is Eddie, but everybody calls him Wedgie because he’s such a mean bully. Nobody really wants to play with him, but if we don’t, he’s mean to us. So we do anyway.

We collect nice shiny things. We build other things out of them sometimes. And then we sell the things we find and make to one another. And playing with Wedgie was okay after all, because he was buying a lot from all of us. Candy, jewelry from smooth stones, shiny seashells. Everybody was happy. Or at least nobody wanted to protest, because as fun as it was that Wedgie was buying, he could get very threatening when people would doubt him.

The thing was, Wedgie had been buying more than he had been selling for quite some time now. He was always in the red, living “above his means”, like they say. Wedgie had stopped paying in money altogether, because he never had any. He would pay with little pieces of paper instead, where it said how much he owed us, and he promised to pay for real later. He was writing those small pieces of paper in his room at night, and paid the rest of us with them, promising to replace them with real money later. He never said when that “later” would actually be.

Nobody else could pull this off. Only Wedgie. Because if somebody were to stand up to him… Wedgie was rather large and could look mean. Could be very mean, too. And besides, everybody wanted their money back the day Wedgie would have real money to pay us back, so everybody kept accepting the small pieces of paper that Wedgie was making in his room. “Five Wedgiemoneys”, they would say.

We even started trading directly in Wedgiemoney. Everybody had collected so much, it was just simpler that way. Some of us had almost as much Wedgiemoney as we had real money, or more.

Wedgie also made sure, in his threatening way, that some things could only be bought with Wedgiemoney. This forced us to change our real money for Wedgiemoney first, between each other, before we could buy what we wanted. Or we could Wedgiemoney directly from Wedgie, of course. In exchange for real money.

But it was fun too, in a way. Everybody had more money. Well, the price of everything went up too, of course, because we couldn’t find or make more things, we only had more money. But several of us had gotten much richer thanks to all the Wedgiemoney we had. We were very glad over that.

Then… something happened. We started thinking about the fact that Wedgie almost never sold anything. First, we were just looking at each other, as if we knew what we were thinking. Gradually, when Wedgie was not around, we started to look worried among each other.

Then somebody, I don’t recall who it was, said out loud what everybody was thinking:

What happens if Wedgie never pays back?

Suddenly, like a strong flashlight being turned on in the night, everybody realized that the Wedgiemoney could be completely worthless. Everybody was just pretending that they were worth as much as real money. If Wedgie didn’t pay back, everybody was sitting with a pile of stupid paper that wasn’t worth anything. But since nobody wanted to say out loud that “my money isn’t worth anything”, and suddenly be very poor compared to everybody else, we kept on pretending that Wedgiemoney was worth as much as real money.

Felipe was the one to carefully try to get rid of all his Wedgiemoney. He offered all of us to buy his Wedgiemoney for less than they were worth. Or less than the worth Wedgie claimed, anyway. Felipe wanted four real moneys for every paper that said “Five Wedgiemoneys”, the Wedgie-fivers.

Then, Anna asked for three real moneys for every Wedgie-fiver. Anna and Felipe soon only had real money, for the rest of us had bought their Wedgiemoneys. For Wedgie would pay back soon, wouldn’t he? It would have been a good deal.

But it wasn’t. All of a sudden, everybody was trading the Wedgie-fivers for two and fifty. Nobody really wanted Wedgiemoney any more. We agreed that they were only worth half of what they said. Nobody said it out loud, we all knew it anyway.

This didn’t worry Wedgie at all. He just started writing Wedgie-tenners instead, so he would continue buying things that cost five real moneys. When somebody asked when he was going to pay back, he just looked mean like Wedgie could do, and that everybody knew that Wedgie could do.

Then, that day came.

The day when we realized that Wedgie never had had any intention of paying back in the first place, and we realized he had been playing us for fools. We had paper, and he had all the nice things. He had been writing pieces of paper for us that we had accepted as real money, and didn’t want to lose.

But it was too late. We had realized he was never going to pay a single money back, even though the Wedgiemoney said he would.

So we put all our Wedgiemoney in a large pile, that we knew were garbage. And we didn’t accept any more from him. They weren’t good for anything, he was never going to pay back. He became really angry, and really mean, but it didn’t help him this time. We knew that we had been played for fools, and were going to keep our nice things to ourselves instead.

But only then came the real shock.

None of us had any money to buy things from each other any more. We had gotten so used to things costing both twenty and thirty moneys, even though they had only cost one or two before Wedgie had started writing his stupid pieces of paper. We thought we all had a lot of money, but we didn’t. We had gotten used to paying for a thirty-money item with five real moneys and 25 Wedgiemoneys.

Suddenly, nobody could afford the thirty-money items at all. Nobody had any money. Nobody could buy things as the prices remained where they were, and nobody could lower their prices, as everybody needed the money for what they wanted to sell.

We realized, even though we didn’t really want to, that it wasn’t only Wedgie’s fault that we had become poor. It was just as much our own. We had been dumb enough to believe him, even though we knew he was lying. It was always too expensive for us to say out loud that he had been lying the whole time, and therefore, we were in a much worse situation now.

We entered a very poor and rough time where nobody could afford anything. Everything was very, very expensive, all because of Wedgie’s stupid pretend money. They had made everything expensive, when nobody really had any money in reality. We had to get used to buying things for maybe one money instead of the things that we had bought before for ten. We weren’t used to living like that, day by day, and it was really rough. But nobody had any money and everything was still expensive.

Let’s end the story here and jump to today:

The United States has had a negative trade balance since 1976. The United States has lived above its means every year, year by year, after 1975 — and at a rapidly accelerating rate. Five years prior, the United States had unilaterally terminated the Bretton-Woods agreement that tied the dollar to gold, following a rapid decline in gold coverage during the Vietnam War. Charles de Gaulle of France demanded that the United States made good on its loan contract, and demanded gold for France’s dollars. The unsolvable situation caused President Richard Nixon to default on the US debts and say they weren’t going to pay any back. This event has been called The Nixon Shock and happened on August 15, 1971.

Of course, it wasn’t called a bankruptcy; it was spun as a reform of the international monetary system. Had anyone else done it, it would probably have been called a bankruptcy. In any case, after that point, all the United States had to do was to fire up the dollar printing presses. And boy, did they.

The last few years, the United States has had a trade deficit of over 500 billion US dollars, peaking at over 800 billion. That is eight times more than the country in second place and is growing rapidly. The United States is simply buying vastly more than it is selling, and has done so for thirty-five years. It compensates for this by selling IOUs, and at the same time pointing at its huge military powers for an implied threat in the case of non-acceptance of the IOUs — a military force which is unsustainably funded by these same IOUs.

Today, there are over three trillion dollars in currency reserves outside the United States. More specifically, there are 3,144,256,000,000 US dollars. That’s one portion of those IOUs. They have roughly halved in value in the past ten years.

In 2008, people were talking about a “financial crisis”. As if the bottom was reached, as if it was a temporary glitch, as if things were under control.

We have only reached the point in the story where people look at each other and ask “what if Wedgie doesn’t pay back?”.

There’s only a seed of doubt necessary to let loose the snowball in the avalanche slope. In 2008, the seed came from financial institutions that went belly-up. Unwisely, the US absorbed their huge losses into the government and so created an even worse situation for today, even though it created a dead cat bounce.

Some of the most prestigious financial analysts — Standard & Poor and Moody’s — have warned the US that they may downgrade the United States’ credit rating. The European ratings firm Feri Euroratings went ahead and actually downgraded the United States on June 8, right after Republican Paul Ryan said right out that the United States should default. That is quite extraordinary.

Many brokers have as a stability rule that they may only trade in triple-A bonds, the highest creditworthiness. With the US Treasury Bonds now downgraded, these brokers need to sell these bonds, accelerating the process. This was unthinkable — the US Treasury bonds have been the norm for credit grading, axiomatically being the triple-A rating.

The world has been buying IOUs without coverage to maintain the value of the previous IOUs, with no other creditworthiness than an assumption that the US will pay back some day. That day is not going to come, and we’re all going to be poor for a while.

The situation will stabilize, but not without Wedgie ceasing to buy things for pretend money. On the other side of that fence is another world economy, that I know very little of.

Very interesting thread, I would add that we will see probably see hyperinflation in the US but it is hard to predict if it will start in a year, in 3 years or more; you probably cannot increase the money supply by 2digits every year without going into hyperinflation at some point when you have a low one digit growth ect.

Austrian, not Australian ...

There are plenty of alternatives, albeit not right now.
The most realistic one being a gold-backed CNY (Renminbi) as this is the only country actively preparing and pushing for exactly that, even in a very open manner.
All other nations aware of the impending and unavoidable paradigm change only repatriate their gold holdings from abroad to prepare.
To some extend they stopped buying US treasuries (which they know can and will never be repaid, this is already mathematically impossible) or even became limited net sellers of these, while increasing their gold holdings.

BTC is entirely out of the question, in the big scope of things I personally view it as a temporary, technological and social experiment.

The only thing keeping the US Petrodollar still alive is the US military force & NATO proxies and the Federal Government's clear message that it will use it indiscriminately against anyone who opposes the US Dollar's role of global domination.
Since operating this insane amount of military might is budgetary suicide and unsustainable over the next decades, the empire running it will eventually fall like many others before it.
My personal opinion is that China is preparing and patiently waiting for exactly this moment.
I also come to think that - given the intensity of US preparations domestic & abroad - the US itself projects its downfall to occur maybe already this decade.

The only question about the end of the US Dollar dominance is in what way it will vanish - with a blimp or with a bang.
I count on the latter, unless the powers that originally crafted it have already prepared to abandon ship at the right time, while sabotaging the old dying empire at a critical junction.
Some argue they - behind the curtain - are exactly doing that already and are just looking to jump ship when the time is right, in the meantime running the USA into the ground economicaly.
These rats behind the curtain that fear the daylight will never stand & fight, they always lead proxy wars and will disappear the second they face direct and life-threatening opposition.
But before they can do that, they need a petsy to blame. Usually, then while their muppets are fighting their wars, they'll silently switch sides.

In theory, however, it's also possible that the US will attempt to maintain and enforce its dominance over at least the western hemisphere, while the eastern hemisphere may look towards China. For as long as they are able to maintain military control over the most important global resources to feed its empire, this could play out to be a realistic scenario for quite some time.

AirForce Vision : Global Vigilance, Global Reach, Global Power For America
( http://www.airpower.maxwell.af.mil/digital/pdf/articles/2014-Mar-Apr/SLP-Welsh.pdf )

Greek rural societies used to work this way, using a reputation/status system, where they gained status within the community by caring for the community, it's like storing your wealth in the network, instead in your wallet.
Funny thing one could say bitcoin works like that if
1. you buy bitcoins with every fiat you have (increasing bitcoin's capitalization - network's value)
2. only convert to fiat when you absolutely need to

but i think speculation spoils it, you can't speculate with reputation.

I wonder if a coin could mimic a gift economy network

The money in circulation (coins/paper) for usd+eur are in the 2.5trn usd range. If you go the M3 route, it's somewhere near 25 trillion usd.

Above ground gold at 180ktons and a price of 40mn per ton is like 7.2trn usd in worth. With a revaluation of gold at 10x (as demand will skyrocket for monetizing it) we are talking about 72 trn usd for above ground quantities, half of which is investment grade gold (bars, bullion coins etc). So there's plenty of gold. And there's also plenty of silver and platinum that can also be monetized - as has been done historically.

The thing is that there is no alternative to the US dollar so the situation will remain until there is. Think about it, gold is not practical and there is not enough of it. Btc is not used widely enough and can be difficult to trade for other currencies, the euro is too risky especially with crimea etc and the rmb is pegged to US dollar and has too much political risk associated with it. So the question is which government is least likely to default either explicitly or by stealth. The answer is the US, we may not like it but that is the situation. If you don't believe it ask yourself if you had to move all your wealth into one fiat currency (outside your home currency if you are not a US citizen) which would it be. If your answer is something other than $US then I would like to know which one and why?

True in a way, hence the many colonies and the hunt for treasure abroad.

I was basically referring to this image :


The way I understand it, the empire with the largest fleets (military and trade ships) was able to maintain control over most of the "sweet spots" (colonies) and thus defined as a dominating world power with the ability to dictate certain terms onto other nations.
As this was definitely far more difficult in the past on a gold (or silver) standard, the present US Dollar dominance IMHO is already much overstretched. In the old days, that couldn't have lasted so long.

Historically, gold was the world's reserve currency. Gold coins from the "top" nations were more widely circulated and accepted because of their reputation, but other than that, it was worth precisely the same as any other gold coin of the same weight and composition.

For example in the 19th century, whether one was trading in gold sovereigns (uk), gold francs (france), gold rubles (russia) or gold dollars (usa), it was all the same. No country in particular enjoyed any advantage due to minting a globally recognized coin. The ratio between these coins was pretty much fixed due to the content/composition they had. If a country wanted to devalue they had to lower the metal content or weight of their national coin.

The monopoly-type-money scam and the huge benefit of its issuer in global affairs is a rather new phenomenon.

Well written, this is what is happening.

IMHO :

The US Dollar has had (and still has) the enormous advantage of being the world reserve currency.

That unique attribute permits the FED to export and distribute its inflation to other nations.
Or described in other words forces other nations to devalue their domestic currencies in pair with the US Dollar in order to remain competivite in world trade according to their respective import/export requirements and desired trade balances.

Since inflation is already running relatively hot since many years, this allows for a unique cushioning effect, as the inflationary developments can be distributed worldwide PLUS they seep through very long channels before becoming effective. Where needed, all western-oriented central banks worldwide act in perfect harmony to ensure the distribution is averaged amongst their respective nations.

In comparison, any other nation inflating its domestic currency at the rates i.e. the FED does it , would eventually suffer the same consequences - BUT they'd arrive far quicker and in a far more linear fashion. This effect can (and occasionally is) only be countered by individual "friendly" central banks increasing their reserves of that currency in their foreign currency reserves basket in order to stabilize that affected currency in question.

Other than that, in today's bizarro FX markets, having the right "talking heads" issuing the right prepared statements as a promise for future action often is enough - even if they're empty promises and based on nothing but fairytales and unicorns.
(i.e. ECB's Mario "Goldman Sachs" Draghi stating to "do whatever it takes to save the Euro" or Ben "Shalom" Bernanke stating "no bubble there" or "sees no significant risk of inflation")

In short :
It's already developing but it's highly assymmetric and delayed by many factors - however, it is still unavoidable if the present course is kept.
However, the entire above mechanisms will be bypassed and inflation kicked into high gear as soon as the US Petrodollar monopoly is abandoned by sufficient countries.
And this is exactly what we're seeing since about 2 years now.
(previous attempts of bypassing the US Dollar in international trades so far resulted in governments being toppled and/or nations being destroyed/invaded by US forces to install a Dollar-friendly muppet regime - but now it's China and Russia that openly challenge the Petrodollar, which is a whole new playing field).

Historically, nations enjoying the status of issuing the world's reserve currency became great and wealthy empires - however this luxury never lasts forever and all of these empires imploded more or less after losing this status. When the day of reckoning comes, I assume the US is fully prepared for it (just look at its military, foreign/domestic policies and intense foreign/domestic preparations. This is what a country looks like that is preparing domestically for a complete loss of prevailing social order and ready to commit to a very large war abroad)

   Hoarding food leads to a vicious cycle- people think there is going to be a food shortage, which causes people to buy a bunch of food- demand for food increases, which raises prices, which causes more people to think there is going to be a food shortage...

   If things get really bad, gold will not save you, food will not save you, bitcoin will not save you. I fpeople see you have something to eat while everyone is starving they are going to notice... The only thing in that situation that could help is social networks- having a support network of real life people in a region that all band together and suport eachother. For most of human history these were tribes, and tribal identity was cemented by rituals, language, and geographic origin- in other words, shared experience.

   Now nations have come to replace tribes. What we need is a truly global identity that transcends national boundaries, to create a global force more powerful than any nation. This has to be based on compassion and generosity, or what some call the gift economy. When you give gifts social capital builds up.

   Holidays are a big part of national identity- this is why holidays that are specific to a certain area cannot be part of a global identity- easter is originally a spring equinox celebration, and christmas a winter solstice celebration.

  Nationalism is making artificial divisions between people based on ethnicity and language. Divide and conquer- the global elite profit.

  What is the only force really presenting a credible threat to the dominion of the elite?

  What is the largest single group that declines to participate in the global financial system?

  How long would the governments of Afghanistan (12.9 billion/y), Israel(3 billion/y), Egypt(1.4 billion/y), Jordan(850 mil/y), Somalia(278 million/y), Indonesia(252 mil/y), Sudan(921 mil/y) and Pakistan(1.7 billion/y) last if they stopped receiving US tax dollars?

You are correct, but...
I try to forget about all that.
Bitcoin can change some things for the better.

I have pleded with so many people to buy food... I have a bad feeling I will end up fleeing or risk getting raided for food :S.  No one is ready for any sort of problem with the system..

The other scary thing is FEMA's ability to take over litterally everything and make N.A. a dictatorship in less than a week.. :S.  In the 60's they ran adds against the Russians about how they would determine your pay, your mate, where you live.. In 2010.. FEMA was signed the ablity to do all of this...  ... Such failure.. such failure.

Actually the US govt has figured it can stay in business stimulating the economy with QE and other measures. The problem, let me put it in a small story.

Say you have a corporation call it the USA Corp and they issue 1 trillion shares of stock and in fact make all shares bearer shares. Then distribute these shares to people who actually do work or trade items for these shares.

Let us say 1 share = $1 get the picture your dollar bill is really a receipt for a "dollar" that does not have any basis in reality. (it used to be based on gold and or silver at a fixed unit to $ value ie $35 $ to one ounce of gold.

With QE and such the govt simply prints more shares in the company and they spend them into existence buying things like stocks and overpriced toilet seats for NASA. let us say the QE is 10 billion a month at the end of the year they have stimulated the economy with 100 billion or 1/10th of all shares in existence.

The govt did not produce a product or manufacture anything they simply printed more shares of the corporation and sold them and they got the profit. While at the same time there is now 1.1 trillion $$$ in existence.

So say you had 1 dollar bill or share in the corporation  and your share represented 1/trillionth well now your 1 dollar in your pocket was just devaluated to 1 of 1.1 trillion you just lost 10% of your value they robbed you and yours for 10% of your savings.

So each month the govt prints more shares and injects them into the market, ie keeping stock prices high for the rich f***s .

In reality if you were a private company and you wanted to issue more shares you would have to do a stock split and compensate all other stock holders a equal percentage of all stock issued. ie in the scenario above they would have to issue you 10 cents in addl stock for free bringing your shares to 1.1 up form one. otherwise it would be THEFT.

Why do we let the country get away with this fraudulent practice?

The Dollar was indexed to something of value until 1965 when they took the silver out of the coins. Right now silver dime from 1964 in crappy condition just the silver value is $1.45 http://www.coinflation.com/ look near botton of page for older coins, this is the actual melt value of the metal in coins. So I ask you did the silver in a dime gain weight or has the government debased the currency over 14x using this as an example.

This is THEFT without a gun. The pen can steal much more than the sword in the long run and this is the game our politicians play, give the image we are a great country but make it on th ebacks of the little people by stealing anything they save through devaluation and printing money. you cannot print somehting of value and get away with it...

Next you get the finances of Zimbabwe of the 1990's an germany post WWI id a wheel barrel full of money to buy a loaf of bread.

And for others Hyperinflation is not 10-20% a year. it is 10-20% a day, people ask bosses for pay daily as by the end of e the week thier paycheck cannot keep up with the cost of food!

Stock up on beans and rice now... its coming this summer or next winter...

George

With my limited knowledge, I believe, its because USD is hegemony currency of world. Government sucks money out of you by printing. Similarly, US government sucks money out of other countries by by printing, which compensates inflation that was suppose to occur on homeland.

Alex Jones was wrong.

There is a huge amount of capital investment into US dollar assets from foreign countries. The keeps the dollar high no matter what (unless they default)

The vast amount of money printing is offset by the even larger quantity of debt created by the banks before the crash. In a fiat system debt=money. So when the debt (mbs, etc) creation by the banks stopped we had a deflationary shock in 2008. Then the Fed stepped in to reflate. On top of this, to achieve hyperinflation the velocity of money must increase. However the velocity has been decreasing since the latest crash (this data is available on the 'fred' website of the st louis fed, yes ironic I know). The decrease in money velocity is partially offsetting the increase in the monetary base. The rest of it goes into the stock and bond markets via reverse repo's and borrowing at the discount window.
While we're not seeing hyperinflation, we are experiencing inflation at a higher than reported rate. The way the BLS calculates inflation is crazy. They basically under report inflation (look up 'hedonics'). There's a website called shadowstats where you can learn more about this.

Then they run the risk of deflation like the Japanese Yen strangely enough
Depends on how much people borrow I guess

Hence the need to call upon the FED to absorb it.
I wouldn't count though that there is a system where there is no depression. Optimism and pessimism are intrinsic to humans, regulation or not.

That's sort of true. Interestingly, banks can lend up to the limits of a certain multiplier of their capital (assets). That's what fractional reserve means. It's a multiplier of assets, above the assets. They never state it that way though. The statement is that capital must be at least 10% of outstanding loans, or that the capital ratio must be at least 10%.

The funny thing is that loans on an item with a known market price, say a house, become an asset to them. They have created a contract that gives them access to that asset. So the loaned amount becomes an asset on the books.

So the really nice thing for the bank that can loan at 10x assets is that when you borrow $100.00 from them, they have given you $100, but their asset base now allows them to loan another $900. They love you! They'd like thousands more like you to walk in the door. There is no end!

There is no end that is unless the assets begin to decline in book value. When they decline, for every $1 the assets decline, they must remove $10 from their capital.

The contract only allows them to take the current principal amount plus any interest owed from the asset. So as you pay the loan off, their assets decline slowly, giving them time to recover from that by creating more loans.

When the market place reprices bad assets, like when house values rapidly decline, this affects the bank more drastically. That creates a rapid asset (and capital) decline, which can easily cause a bank to go under, mainly because at the same time, no one is borrowing anymore. It's a crash!

Interestingly, during a crash, the money supply is declining and more of the physical asset is becoming available. If this is allowed to take it's normal course, the normal market system will re-adjust pretty rapidly. Money is able to purchase much more than it did before, so the bad assets will be sold off (although at lower prices). And then the market discovers the real price for the assets, as well as the real price for money (interest rates).

Unfortunately, during this process, many banks might go under. I say unfortunately because most people trust banks for their savings and essential monetary needs. This means that the banks "must be saved" in the minds of country leaders and the very wealthy. You can see where this leads...

What I'm really saying here is that the banking system has the seeds of recession and depression built right into it.

A better answer is free market money. Which is why we are all here. 

-MikeMark

And if we look at the interest rates, I doubt you are going to see inflation any time soon.

http://www.federalreserve.gov/releases/h15/current/default.htm

Most of the printed money is ending up in the hands of fewer and fewer people, thus the massive and growing wealth inequality.

A few rich people can't create hyperinflation because they are a tiny percentage of the population and have only a limited net demand for real goods where hyperinflation would be measured (how many steaks can they eat?)

The rest of the printed money is ending up in a continuous string of housing, stock and bond asset bubbles ... or soaked up by banking losses from previous burst asset bubbles.

Brief answer: The money "printed" by the Federal Reserve Bank (this is NOT the US government BTW)
can only, for all practical purposes, go to the 12 primary banks. The Federal Reserve is also restricted in
what it can buy, and it buys Mortgage Backed Securities, and it buys Treasury Bonds, from these banks.

There are a few problems - the Fed now owns over 35% of 10-year equivalent Treasuries - the good
stuff, and the toxic stuff is still on someone's books. Besides that the FIRE economy is still trying to
inflate debt by lending to anyone willing to pay high rates of interest so the $53 Trillion of credit market
debt (two thirds of which just keeps funding bonuses) is getting bigger.

A longer explanation is here:
http://www.zerohedge.com/news/2013-09-22/what-shadow-banking-can-tell-us-about-feds-exit-path-dead-end

This whole situation really just proves why macroeconomics itself needs to go away.

The world can actually endure hardship not because of an actual dearth of resources and productive capacity, but simply because of the side effects of how a bunch of pedantic sophomoric assholes in power decide to organize things.

I think it's just a matter of time. Russia and China both have a lot of USD and by dumping them they could destroy people's trust in USD.

On the issue of the Op, see, for instance, http://en.wikipedia.org/wiki/Liquidity_trap.

That is why they (the masters of the fiat) makes sure nothing is written off. Hence the bad banks, where obviously lost loans are parked ad infinitum.

I agree.  Some of us here is looking at the issues at the macro level.  While most bitbugs are looking at it from a micro level.  The purpose for QE is for liquidity.  Inflation doesn't matter as much as long as production levels increase and that debt can be paid off (money destroyed).

The bigger problem is liquidity trap.  When businesses don't have access to credit they have to downsize.  Then unemployed workers can't consume and the business have to do more downsizing.  When the population saves too much there is no demand for goods & services.  Deflation is bad for economy unless we are trying to counter balance a period of too much inflation.

Most economists recognize this, however, it's not easy to influence the economy merely from monetary policy.  "Pushing on a string" is the term they use

there is the factor of the fractional reserve though involved here, as by writeoff the bank cannot lend the money that would get by repayment again.
 

No you can go on and trust an algorithm by a guy who prefered to stay anonymous

Wow! You really got me thinking there. I guess I am the idiot here. I don't know why I thought Bitcoin would be the solution to the world's problems. I suppose I'll go back to trusting the government and the banks with my money and hope, while I look the other way, that my hard earned money doesn't evaporate through inflation. Thanks for pointing that out!

Exactly, to be more precise, money and debt is not created at the same time, before FED lend out the money, they must have the ownership of those money (You can not lend others something that does not belong to you)

So for the last 7 years, the 'stupid' people have been right, and you've been wrong?
Perhaps they aren't so stupid after all?

Inflation, regardless of the rate, and no matter how extreme, is an economic problem.

Hyperinflation is a socio-economic problem. What I mean is, hyperinflation is in the minds of the people. When massive amounts of currency are injected into the money supply, you have massive inflation. When people lose faith in their currency, then you have hyperinflation.

Currently, we are seeing effects of inflation. Prices are rising across the board. I certainly have notice it over the past few years. However, prices are not rising as fast as the money is being created. I believe this is in part because there is also deflation offsetting the effects of the money infusion. And also because this money is being used to prop up banks' balance sheets and not really getting in the system ---- yet. This is not good economic policy in the long run, but it kicks the can down the road until they figure out how to kick it again. One other thing that I think is slowing the perceived rate of price increase is that companies are challenged to keep their prices as low as possible or risk losing their business altogether. They all work together, not necessarily on purpose, to keep prices as stable as they can. They are losing profits for fear of losing customers. But when one large company such as Walmart or McDonald's raises their prices, the smaller companies will quickly get in line.

So the question is: why has the population been so stupid to keep faith in their currency and stave off hyperinflation so far? Maybe it's because they know of no alternative. Maybe because, in general, people really are that stupid. I've been studying this since 2007 and never thought we'd make it this far. Everyday I am amazed at the stupidity of the common man and, at the same time, thankful for every day of this "normal" life that we have left.

I don't think any of the answers given so far are the reason there's not rampant inflation.

The reason is that the fed offers a competitive interest rate on excess reserves to serve as a magnet to "suck" all the new money back onto its own balance sheets as soon as the bond purchases are made, so that it doesn't get out into the economy.

Look - all the money (mainly in the form of US T-Bonds), is sitting backed up on the feds balance sheet... http://qz.com/157198/the-federal-reserves-balance-sheet-will-hit-a-mind-boggling-4-trillion-any-day-now/

Read this wiki article which states how the law was changed in 2008 to allow the fed to do this. The express purpose was so that they could start doing QE without it causing rampant inflation. http://en.wikipedia.org/wiki/Excess_reserves#In_the_United_States_.282008-.29


(Actually, this poster is saying the same thing)

Inflation is caused by an increase in BOTH the money supply AND the velocity of money.  Your points only address supply.

USD is too big too fail
many countries around the world using USD as their currency pegging and using USD for export-import trade
if USD fail, many countries will get its effect too
Economic Crisis everywhere 
A good policy when goverment (in another country) reducing dependence on the dollar

It's happening as other countries try to reduce their dependance on the US dollar and switch to other currency baskets
Also why the Chinese do not want more American debt but want commodities instead

Exactly.  But actually, do we really know about this stuff?  Not really.  It's only hearsay (well, for me anyway as I am not involved with any of these incidents).  With public currencies we can *really* know how much is out there.  At least an upper limit.  With the old stuff, we have to rely on hearsay and drawing conclusions using reason.

     

I suspect hashman was referring to credit creation in the shadow banking system, but even the runs of the printing presses are an open question.  Whence the supernotes?  The 2.3 trillion misplaced in defense budgets, as per Rumsfeld's testimony to Congress on the 10th of September, 2001?  Whence the Air Force cargo jet  load of pallets of $100 bills which went missing in Iraq?  And that's just stuff I know about.
 

its all crazy how much they print

Interestingly, it doesn't matter whether by write offs or repayments. Either case is deflationary. This is due to the fact that money is created when credit/debt is created. When the debt is paid off, or the credit repaid, the money is then destroyed. The same occurs in write off.

The sad part about write offs is who ends up with the real property. It usually ends up in the hands of the bank. That's the same people who loaned out nothing and called it money, in exchange for a claim on real property.

On the flip side of that is what happens when the market discovers that something has been produced that is completely unneeded. Sometimes these real things get destroyed. As an example, during late 2009, many new homes in California were literally bulldozed under. That's inflationary. However such a small amount of that happened compared to other occurrences that has little to no effect.

The interesting thing about the fiat system is that nobody knows the money supply. 

Sure there are some nice charts here, and people like to repeat 85b per month..  but there is really no way to know.  Even the secret bosses of Yellen and Bernanke who think they know the truth about M1 really don't know.  Cool eh?   

The situation becomes more precarious with each passing day.
That was true 10 years ago, 15, and even 25 years ago.
Someday the economy will crash, but they have been able to delay for a long time.

Velocity of money is plummeting.  The result is balancing the oversupply.  They are doing a really good job at something which is a very very bad idea, and likely to explode in their faces at any moment.  The situation becomes more precarious with each passing day.

"Various bubbles"
Real estate, stocks, silver, Bitcoins   
We have inflation, just not obvious hyperinflation at this time.

It's extremely simple: I print one trillion dollars for myself, but I spend only 1 billion dollars. No inflation will happen, and at the same time my wealth increase 999 billion dollars

add to all the good replies here, the fact that the world currencies other than the dollar are also inflating their quantities of currency in unison for the most part so it makes everything look hunky dory, so prices dont go up much. (ie the price of the dollar vs the price of the yuan, or the euro, is some what stable due to them making more euros and yuan at about the same rate as the dollar, keeping everyone thinking the value of the money they hold has not changed, and that is all fiat is, perception of value, just like bitcoin. the only two things different about bitcoin over fiat that really matters at this point, is that you can not easily counterfeit it, and the banks don't get first crack at it making the rest of the world come begging for a dole out of it. with bitcoin (and other crypto) the people make it a reality, so really we should work much harder to build an all crypto community system by learning skills that we can use to produce goods in exchange for crypto, and nothing else. only use fiat for things that we can not get with crypto like shipping (anyone up for building a network of transportation to do this? lol)

Good explanation.  I would add that the ultimate goal of Quantitative Easing is to create liquidity in the near term.  The problem is that when private balance sheets are underwater, you can flood the market w cheap money but the private sector still have no choice but pay down their balance sheets and deleverage debts.  QE by itself is not enough to jump start the economy.  Richard Koo describes this as a "balance sheet recession"

Household debt declined by writeoffs not by repayments, hence money supply was destroyed correct?

Ask Japan, they've been trying to inject some inflation for over a decade.  The reason is that many following pop-economics dont accept/understand that inflation is a measure of price increases, not increase of the monetary base.  This may lead to inflation due to excess money supply, but its not a certainty.  cf Japan...


And that's the other point ignored.  Quantitative Easing isn't printing money - the clue is in the use of different words.  People think it's just a fancy way of saying the same thing, and it is very similar in principle.  But in detail, its different.  The money is going in to bonds to effect bond prices change, and into bank balance sheets.  This is key, it answers "where is the money going".  Another detail over looked is the bonds are not cancelled, the Fed/BoE have a large stash of bonds which they can sell back to the market to remove excess supply in future. If in some future years they don't do this, that when you may begin to see significant inflation problems.  There's another factor of exporting the inflation abroad, mostly to emerging markets where they have lots of growth to soak it up and its largely hidden (but that's complicated I don't really get that whole aspect).

That said, running such a massive deficit as we in the UK and US are is bonkers, though as far as i can tell half the problem in the US is tax breaks from previous administrations that haven't been reversed.  You'd be amazed how quickly the deficits reduce with even a few % increase in tax revenues.  But the anti-taxation Austrian school don't want to say anything about that.

Here is a link that a user on these forums shared.

https://www.youtube.com/watch?v=dQdmsL147j0

I think this guy does a stellar job in explaining why those dollars that they have pumped haven't been in the market. Over 81% of it sits with the Fed collecting interest for the banks that were bailed out in the first place. Crazy.

Its Austrian Mate. And the only thing keeping US alive is , the faith of other countries in US dollars and its military capabilities. Som it will remain same for quite some years, unless people start realising. and come face to face to the truth.

So the interesting thing about our money system is that it is Debt (or Credit) based. Money is created at the bank, when you borrow it. People usually think that they are borrowing someone else's savings, but that hasn't been true for over 100 years.

GDP is increased by government spending in the standard calculation, however that's a horribly bad way to look at government spending. Governments create nothing, so saying that they increase GDP by spending is wrong. In fact, Governments take what could be used by the people and re-direct it into places that the people might not choose. This is actually destructive to overall GDP. Getting a handle on how much is the hard thing to do.

Now thinking about inflation, inflation occurs when either more money is created than goods or more goods destroyed (or used up) than money is destroyed. Deflation is the opposite. And yes, money gets destroyed. That's what the FED wants to prevent, believing that deflation is bad.

So consider two graphs below:

In a credit based system, total money is basically cash + credit. The funny thing is that one person's credit is someone else's debt. Now the next number is subject to speculation, but I believe I'm giving the right range. Credit in the US is something like 4 - 7 times larger than cash.

So when household debt declines as it has been, that is deflationary to the total money supply. The FED saw this beginning to happen in the end of 2008 and wanted to inflate. Always the best and easiest way to inflate is to give money to the big banks which in turn buy government debt or pay off bad debts. Deflation in a credit based system with high credit levels will cause exactly what we saw happen: high price items, like homes, lose their value rapidly due to price contraction effects of deflation in the money supply.

The really interesting thing about it is that people are required to look at the value of their "owning" in terms of price instead of in terms of the value of the item itself to them, when they have borrowed money on it. If the sale price goes down, the people and the bank both want to either re-negotiate or get out of the obligation. So the credit based system becomes a feedback loop that brings the prices down rapidly, in an attempt to remove the unneeded products from the market place, or at least reprice them at their needed level.

The government sees this as destructive to the market (and especially to the banking system) and attempts to prevent the declines. That's why there has been so much additional government spending from 2008 to now.

So the short answer is actually two-fold: government spending as a percent of total GDP is low and household debt has been declining, which is deflationary.

Enjoy,

-MikeMark   

The only way the US goes bankrupt is when bond holders of US Treasuries has to be paid and they refuse USD as payment.  Unlikely to happen.  If this happens probably war breaks out. 

and Debt

Is is safe to assume that the US Gov sucks up overflowing debt this way? I wonder if US Gov can go bankrupt, or is it like a debt black hole and can go infinitly indebted?

That's true, as far as it goes. But the Fed also buys Bonds directly from the Federal Government, and that creates new money.

Yes, of course. They are not doing that either though.

an excerpt from some quick google search result:

When we say the govt is printing money, we are not really talking about the paper notes in circulation, rather electronic money (digits in a computer screen) that exists in bank accounts.

The Fed is not printing money, from what I understand.

that, most of the newly MB goes to support existing overreached M# supply. I see no problem here as the supply already exist (in whatever shady way). The Central bank simply is called to support it.
I see it like a Pull, rather than Push

The long answer is here: http://www.scribd.com/doc/157370969/Hyperinflation-Dollar-Collapse-Precious-Metals.

The short answer in bullets:

1) Hyperinflation is one thing, large inflation is another. Hyperinflation is end-game scenario / doomsday scenario with prices escalating so fast that it's not even funny. You could wake up in the morning and bread costing 1$ and by noon it could cost 10$. This has been blown out of proportion as being a realistic possibility right here, right now, without a catastrophic event.
2) Manipulation of the markets regarding precious metals, energy, etc keep currencies like USD artificially "stable".
3) Western countries are in competitive devaluation - which make things in USD terms seem stable. Even switzerland promised to print as much as they can in order to keep their value steady and prevent inflow of capital to their currency from people fleeing EUR / USD etc.
4) The global-debt control mechanism through which tens of countries are indirectly controlled through a USD-denominated debt, would essentially be set free by a worthless USD debt that could be repaid easily. This will not happen.
5) The USD is still much better than most national currencies out there, especially of developing nations, which have no international demand and thus their printing is producing actual inflation much larger than the USD. Think of it as a bitcoin inflation vs altcoin inflation type of situation.
6) While the money quantity is inflating, at the same time ordinary people do not get access to this extra money. In fact people are experiencing deflation, in that they have a decreasing amount of money to spend for things due to increased cost of life, taxation, stagnant or reduced salaries etc etc. Banks are also regulating the flow of money to/from society in that they decide when to loan or when to gather past loans. If the government is on an expansive monetary policy, commercial banks can (and do) reduce liquidity on the market to counteract the effect that this would have if suddenly everyone went on a buying spree. For example if banks stop loaning out and start collecting past debts in a larger percentage than the issuance of new loans, society will experience a liquidity crisis and deflationary tendencies - no matter if the money supply of the central bank goes 2-5-10x.

I live in the Eurozone so perceptions may differ. Regardless inflation will not be a problem if it is simply by money supply, I fear more for a food crisis looming ahead.

Still the fear of hyperinflation is irrational, it is noones interest to enter that territory, and lessons are learned from the past painfully, right now the world's problem is deflation, take a look at interest rates. Right now money is artificially overpriced.

I guess your point still stands thou  

hyperinflation is a terminal condition, you have passed the point of no return you are heading to a social meltdown. Normal inflation hidden or open is when you are still in orbit. Not the same thing not to be confused.
You will know when you are in hyperinflation when bitcoin reaches "the moon".

enough with this hyperinflation meme, do you guys even know what hyperinflation is? it is when you append a 0 every other day in the prices. Do you see that comming? 10% or 15% heck even 20% inflation is not hyperinflation.

In my own humble opinion the best answer is at:

http://howfiatdies.blogspot.com/2014/01/how-we-know-inflation-is-coming.html

But the key really is that the new money the Fed made has not left their building yet.
They started paying interest on excess reserves and got the banks to leave the money at the Fed.

http://howfiatdies.blogspot.com/2013/02/excess-reserves-is-like-government-debt.html

1) Most of the world's oil is traded in US dollars, so any country that needs oil must have USD. This keeps demand high for those dollars. (Offsetting some of high supply.)
2) A lot of the dollars that were created for the huge bank bailouts haven't yet been spent out into the economy yet. The banks are still sitting on the money.
3) Some of the excess money, looking for a place to go is artificially inflating stock prices.

These don't prevent hyperinflation, they just delay the inevitable.

It isn't happening because they were wrong apparently or maybe it will happen in future. I guess it is normal with "predictions".

It's because the recipients of the monetary base expansion in this go-around are disproportionately corporate financial instituions.

In the current scenario household incomes are dropping even in nominal and not real terms. That covers the effect on prices because of a contraction in demand.

If anything, we're most likely going to be in a deflationary spiral due to collapse of demand for a while before you start seeing the direct monetary effects eventually work through to prices.

It is happening, its just that right now the inflation is in the stock market as thats where most of the QE3 money went.

us debt isn't that massive and australians don't know shit about money

Almost anybody surfing these forums is familiar with Austrian economic school views and the drill that goes along following lines:

- massive US debt
- even bigger unfunded liabilites
- massive FED printing of money
- mismanagement, debasing of currency has led (across space and time) to one thing and one thing only which is hyperinflation

Sitload of books predict the financial doomsday - some of them now almost a decade old.

So how come US and it's counterfeited dollar are still afloat? Why isn't it happening?