Hyperinflation is a Process
by Dr. Jeffrey Lewis, Silver-coin-investor Reserve currency or no, hyperinflation is a process. And we are fully entrenched in that process. History defines the parameters for us. Too much debt, too much money created from nothing. And ultimately, the loss of confidence, leading to panic. Those who deny it are not looking, not measuring correctly, or both. Much of the confusion comes from the unnecessary use of jargon and euphemism. Counterintuitively, confidence in the near term will drive the demand to print more. The more we eat away at what is left of the real economy, the more money will be demanded to quiet the masses and bail out the banks again and again. The ongoing, growing liabilities and ever diminishing tax base from which to service the cost of keeping debt manageable by desperately keeping interest rates artificially low (and self immolating debt monetization) is a reality – buying and churning our own debt over and over is a temporal phenomenon. During hyperinflation, with the money supply rising, the velocity of money is accelerating and real GNP is going down in one tightly wound grand singularity. But this is a process; ultimately a market response. Studies show that sometime after government debt is more than 80% of GDP and the central bank is monetizing more than 50% of the annual deficit, more printing must be employed to keep interest rates under control. In the desperate attempt to manage interest rates, less entities desire to hold bonds; which means more desperate printing until the feedback loop is out of control. The longer we distort, the further we fall. The further we fall, the harder we step on the debt monetization accelerator. The more we monetize the shortfalls, the closer we get to the point of the no return – the supernova where confidence is lost. The popular assumption of many in the sound money camp is that it will go down as a currency reset. A benign overnight revaluation. We can only hope that it will happen overnight. However, by the time we see velocity, it will be too late for the masses. An example of when a shadow of this process is cast was the 2014 Q4 revised personal consumption data. Fourth quarter spending gives a glimpse of where we are headed and how far down the road we’ve gone. Health care spending far outpaced any other category. Financial services spending came next. This was perplexing. Not only is health care spending massive in Q4, financial services were just behind. These two entities are tied directly to the government subsidy. The financial services and health insurance spending is such a huge portion of personal spending; it tells an even more compelling story about this massive Ponzi we are experiencing. It also points to the future of spending — long awaited health care subsidy, financial services and to a lesser degree, insurance spending contributes very little (if anything at all) to organic economic growth. From Zerohedge: Here Is What Americans Spent Their “Gas Savings” On – http://www.zerohedge.com/news/2015-02-27/here-what-americans-spent-their-gas-savings “Last quarter, in “This Is What Americans Spent The Most Money On In Q4” we showed that according to the first estimate of Q4 GDP data, the American consumer spent a whopping $20.4 billion in nominal dollars on healthcare, which also resulted in the biggest consumption contribution to GDP in years. Today, following the first revision of consumer spending, we learn that in the fourth quarter Americans spent even more on healthcare, pushing the total up by $1 billion more, to a whopping $21.4 Bn, or 18% of all spending on goods and services in Q4. What this really means…” We are already seeing the great trickle down – health care is fully slated — added on to the enormous pile of existing liabilities. Coming in second was spending on financial ‘services’— which should also be no surprise. The government will spend to keep the financial system alive — trillions upon trillions in subsidies to rebalance balance sheets in bailouts. The people will demand it. Too many are dependent on the status quo, as long as the toxicity can be masked by the bread and circuses, or perceived as an impossibly long way away. Spending for health care was the dominate category. No big surprise. Here again is the process: Hyperinflation is a process; a positive feedback loop that once entered is very hard to get out of. This process can go on for years. In the feedback loop the more the central bank prints money and buys bonds, the less other people want to hold bonds. Enter widespread loss of confidence. At the same time, the less other people hold bonds, the more the central bank has to buy them so that the government has enough money to spend. This feedback loop can also be called a death spiral, chain reaction, tipping point; like an avalanche, slippery slope, or a debt bomb. Once the conditions are right, it can just go off. There is no such thing as a free lunch, no matter how much we all enjoy the idea of one. And eventually we all pay the piper. Thus, the effect has its greatest effect on the everyman.