If the government is printing trillions why is there no hyperinflation?

in #hyperinflation8 years ago (edited)

Some will say that the mere fact that the government is creating money is enough by itself to cause a surge in inflation - and if money creation is too much it will "definitely" lead to hyperinflation. Yet, evidently, trillions of dollars, euros, etc, are created and we know that this is not the case. 

The reason why this is not the case, is that there are various counter-measures employed which influence the effect of inflation. 


A multi-tiered strategy by the establishment

1. Inflating the big guy, deflating the small guy

The system operates in a way where it has a "split" strategy regarding "the rich" and "the average person". Most analyses you will hear pretend that there is either "inflation" or "deflation" (...or "stagflation") yet there is no uniform effect over the total economy.

The average person is experiencing a reality of "deflation" in the sense that he is burdened by loans and taxes that he must repay, while his income is steady or under threat (unemployment). He may even be forced to sell property or jewelry in order to find cash, which appears to become scarcer. This is like a mini-liquidity crunch for the middle class and below.

At the same time, the ultra-rich get indirect access to the Quantitative Easing (QE) and QE-equivalent funds. This money is used to purchase assets like bonds (allowing the states to refinance their debt) and stocks - which then rally on artificial fundamentals (corporate earnings are dropping and stock indexes are rising).

With this two-tiered system, the money is distributed in a way that prevents spikes in the consumer index, keeping inflation low, while also maintaining artificial levels of growth due to the bubble markets.

Is Helicopter money an option?

Many say that a solution to this problem would be the governments stimulating the economy by giving the money directly to the average guy, who would then spend this money on the economy and make it grow.

This approach would work for the establishment if it didn't have two issues:

-1- Some people would use the extra money to dump it and buy alternative currencies like gold, silver, bitcoins etc. Even if just 5% opted for something like that (while the rest 95% spent their money on Walmarts), it could be the trigger to unravel the highly suppresed alternative currency markets. They wouldn't allow that.

-2- There's a lot of work that has been done to increase people's enslavement through the debt mechanism. Helicopter money acts in the opposite direction and this is not very desirable.

The establishment could use a limited "helicopter money" in limited quantities or specific demographics to avoid issues with (1) and (2) - but mostly to prove that this system is "ineffective". 


2. Simultaneous debasement 

Most western nations debase their currencies in a synchronized manner. In this way they are managing the relative perception of national populations compared to other countries. Even countries who didn't really need to do so, did it to avoid the crack on the wall which would allow people to see through: That all currencies are being debased in sync creating a virtual reality of stability. 

Switzerland, for example, had promised to print as many Swiss Francs (CHF) as necessary in order to absorb all the euro inflows without them appreciating the CHF. At some point they abandoned that strategy, but by then they had already accumulated billions and billions of foreign currency that was dumped to them.


3. Precious Metals manipulation

As we've seen, managing perception around the value of money is key. Thus, next in line is the manipulation of precious metal prices. This is necessary to create the sensation of monetary stability. Financial institutions who have been active in this suppression have been caught red-handed in the past, but people shouldn't expect too much when these cases hit the courts. At most a few fines (like the interest-rate fix scandal) and it's all business as usual.



4. Crypto currency manipulation (emerging activity)

This is an "emerging" activity as crypto currencies increase their impact in the world and the perception of monetary stability needs to be maintained against all possible threats.

We can expect issues like "hacks", scams, bad actors at the various communities to seed division, negative media items, legal framework tightening around the use of cryptocurrency, etc.


5. Tampering statistics

This is probably one of the establishment's favorite activity: Manipulating the perception of inflation by under-reporting it. This is done through a constant shifting of what are perceived to be the needs of the consumer, always rearranged in a way that inflation is under-reported. 

Under-reporting inflation has a "nice" side-effect too. A nation's economic growth is measured by the rise of GDP minus inflation on an annual basis. If a nation under-reports the inflation, they can then overestimate the numbers for "growth". GDP is always an estimate, and the rise of GDP is also an estimate. So it is easy to produce convenient "estimates". False growth and false GDP numbers are then used to make debts and deficits appear smaller (relative to the GDP).


Conclusion

The establishment uses a multi-tiered approach to counter the effect of inflation that would be caused by extreme money issuance. They channel the money carefully in order to prevent the consumer index from rising too fast, they make the average citizen suffer with deflation-like effects, they debase global currencies in sync, they suppress precious metal markets to increase perception around monetary stability and they are also vigilant to suppress emerging threats like cryptocurrencies.


Related Resources:

3 years ago I wrote a small e-book on the subject of Dollar Hyperinflation, directed mainly at the American audience, and motivated by the fact that most Americans get false information from both mainstream ("the economy is fine") AND alternative sources ("there is a looming hyperinflation and dollar collapse") on the subject. I've uploaded it on Steemit. I'm pretty certain that readers can expand their perspective on the issue.

Sort:  

theres actually a really easy answer to this question. The "money supply" theory of inflation is a myth -- one that was debunked around the same time as physiognomy .

Actually, if you go way back, when gold and silver were money, the exploitation of big deposits could affect inflation as new gold or silver entered the market. So, in that regard, people had historic precedents that acted to shape their future expectation (more precious metals rapidly entering the market = greater inflation).

Even the relative value of gold and silver (the ratio between them) could fluctuate depending the nature of the deposits found... if you found more silver, gold would go up in relation to silver...

In the fiat money world, things are somewhat different because there are multiple strategies to mitigate (or conceal) inflation.

Has anyone read Faust Part I and II? More people should read that in today's world. It is a counsel or forewarning about Debt and basically money printing (one part of it at least).

I haven't. I guess I need to find some time to do so.

Why no hyperinflation? Simple answer is that the money is inflating asset bubbles rather than being spent and increasing consumer prices. Guess what? Bubbles burst! Don't know when, but these chickens will come home...

This. All the newly printed money simply never reaches the "real" economy. Upvoted.

The amount of money is only one factor that determines the rate of inflation. The velocity of money also needs to be known. If people are nervous of their economic future they will hild onto money for longer i.e. not spend it so quickly, and this will be deflationary.

Yep.. but velocity is also multi-tiered because different categories of people have different ways of moving money and different effect on the market. Those who are into debt, for example, or with very low income, always have their velocity maxed out (they have to spend their money as fast as they get it anyway to cover debts, pay rent, buy fuel and put food on the table etc). At the other extreme, say a large fund who is shifting investments, stocks etc, may move money around pretty fast but not move the consumer index at all.

At the lower to mid-end of society an increased velocity is also an indirect way to remove liquidity from the system due to taxation. If most purchases have some level of tax associated with them, then if the money moves too fast, it is also taxed too fast (and liquidity is reduced). It's like trading fees impacting the trader - but on steroids, because taxes are not 0.2% per trade. In some cases VAT could be 20-25% per trade.

In general it needs careful analysis of the patterns (what type of money is moved around and for what purpose) to understand the impact... Last year Greece had an explosion in velocity of money due to capital controls. As the money got locked into the bank accounts and almost no cash could be withdrawn, people fearing a bail-in started spending the amounts on their bank accounts for purchases, tax and debt repayments, buying property, etc. Despite the rapid increase in money velocity the impact was minimal on the inflation. It actually went down a bit (annual index 100, june was at 100.69, july -when the capital controls were implemented- down to 98.91).

Great point(s) ! just wanted to add: When cash is pumped into the system the velocity is also restricted at loan level because of reluctance to incur more dept and only those large enough to be "bailed out" are willing to risk more loans (debt) ..
"Yeah, well, that's just, like, MY opinion, man"

You have forgotten the most important reason the dollar is not in hyperinflation: USD is reserve currency in the world trade, and most of the inflation is exported. As long as US military can enforce USD reserve currency status and the PetroDollar deal (that USA can buy oil by USD they create out of thin air), there won't be any hyperinflation in USD.

However, there are many signs that USD won't hold that reserve currency status for long, like China and Russia getting out of USD's and rise of cryptocurrencies. :D

It's not forgotten I'm just using a more generic approach that involves a lot of currencies, not only the USD. For a more USD-centric approach, I've written a small ebook (the link is the bottom of the article) and it also mentions the relative strength of the dollar and why it is the currency of choice for the whole planet - but also the currency of global external debt (countries owing to other countries in foreign currency). And as such (a currency that sustains the global debt enslavement mechanism) the USD will not be allowed to be greatly devalued, otherwise the debt enslavement scheme crumbles. If the billions of USD that the various countries owe are devalued significantly in some kind of spike then they will also be easily repayable.

A big drop in USD value (compared to other currencies) or a sharp upward revaluation of precious metals will create circumstances that will allow countries and individuals to escape their debt enslavement. I predict that this will not be allowed to happen. I do hope that I'm wrong though.

China , Russia AND India using gold or own currencies in trade pacts ... instead of USD

At the same time, the ultra-rich get access to the Quantitative Easing (QE) and QE-equivalent funds

That's completely false. Nobody gets "access" to funds. The central banks are injecting QE funds in the economy via the markets, by buying assets. It's the strategy they employ when buying assets that decides who gets to benefit from the QE. If they purchase government bonds (a staple of central banks), the gov gets to get plenty of funds to pursue whatever policy it intends on doing, and which social classes this will benefit most depends on what the government's political inclinations are. If they purchase foreign currencies, this allows to pump the price of these currencies, which helps exporters but hurts importers. If they purchase equities, they keep pumping the stock market, and benefit everyone with equity portfolios, mostly upper middle class, wealthy people, investment funds and large corporate share holders. If they purchase junk corporate bonds, they support money borrowing efforts by struggling companies which could help them make the ends meet. But there is no such a thing as "wealthy people having access to QE funds". The reason the lower middle class and lower class don't benefit much from QE is because they don't have enough money to invest in securities, and hold the little reserves they have as fiat, when they are not burdened with debt.

The reason the lower middle class and lower class don't benefit much from QE is because they don't have enough money to invest in securities, and hold the little reserves they have as fiat, when they are not burdened with debt.

Say I have a family business or a store with turnover of 5mn per year. The government won't be pumping my business. They'll be pumping some big corporation instead by buying their stocks (because the small and mid-sized companies aren't even listed). Why should I, as a medium-to-large size business owner, be forced to buy stocks of some big corp, in order to be pumped by QE? I want to invest in my own business (or receive investment for it) - not go through a circle-jerk pumping round involving big corp stocks that I don't even care about. There is a very clear selection process on what is going to be pumped, and it's not small or mid business.

Likewise, QE money or liquidity injections that find their way into commercial banks, to be loaned, who are they benefiting? If the commercial bank gets access to cheap funding and they are selling it with a good premium on me, who's increasing their money? Me or the big banks? They get 1mn and return 1.01mn to the central bank, I get 1mn from the commercial bank, they want 1.1mn back.... so naturally, the money is working in someone's favor but it's not the little guy here (he loses money, the commercial bank makes money).

I understand your viewpoint that if poor and mid-income people front-run the purchases made by QE funding they may make a buck, but we also have to remember that this requires - as you say - for the low/mid class to actually have money in excess that they can spare, in order to invest. So if they don't (which they don't), then who's getting all the profit? The richer people. The richest you are, the more you can gain from this pumping. And this is by design.

I totally agree that QE benefits disproportionately the wealthy, and even actually takes from the poor to give to the wealthy, and there is very little someone who barely earns a living can do to hedge against that. That's entirely true. I was just reacting to your sentence "the ultra-rich get access to the Quantitative Easing (QE)" that seemed to imply that they had directly access to the funds, and clarifying that the way the ultra-rich benefit is indirect. Of course that doesn't make it any less outrageous.

Thanks for the critical review. I've clarified it accordingly.

That's true for the immediate benefits. However, if those corporations go belly up, jobs are lost. And that affects the little guy in a huge way.

I wouldn't worry that much about it. I mean if a big corp doesn't get pumped on the stock market it doesn't automatically mean it'll fail. Whether a government chooses to buy apple or intel stocks, people will still continue buying iphones and CPUs.

On the other hand, there are quite a few small to mid size businesses that could be improved through investment funding.... (btw these also cause lost jobs if they go belly up - and they are way more vulnerable to extinction).

No hyperinflation - yet. The main driver is a lack of wage pressure because we've shifted from a labor driven economy to a capital driven economy. Without wage pressure, a vital link is lost. At the same time, capital assets have appreciated considerably or at have at least been held in check since 2008. Housing, college, healthcare, property taxes, quality groceries - all are becoming prohibitively expensive, while savers lose the ability to earn income or exert wage pressure. This loss of purchasing power is less obvious but very real, and the inflationary process has been slowed considerably. That doesn't mean the end game (hyperinflation) won't come. We'll likely see it accelerate if the current proposals for fiscal stimulus are pursued in scale. That will bring wage pressures back into the equation - especially for skilled trades.

Central banks in the US and EU actually have had the opposite problem = creating a normal level of inflation of 2-3%. This level of inflation is a product of a healthy, growing economy.

As for why there is no hyperinflation since QE started in 2008, lack of wage pressure due to immigration and automation is one reason. But the main reason is that inflation comes not from M0, but from M2 money banks create and lend via fractional reserve. Banks have been sitting on this and very stingy with loans... except among themselves and corporate partners.

http://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp

Also, a big reason is that the USD is the world's reserve currency. Guess what Venezuela's main currency is today? Right, the USD. Guess what people want in a war zone? Right, the USD. Guess what many central banks are holding in reserve? Right, the USD. By being the world's reserve currency one can "export inflation" to a large degree.

So the Armageddon, hyperinflation, permabear, gold bug, survivalist crowd has been dead wrong for almost a decade while world stock markets have staged a record rally since 2008 lows . Maybe their day will come, but it's not around the corner unless terror attacks go nuclear.

Hubris is not a strategy. One can "export inflation", until the rest of the world adjusts, and it always does. Every system reverts to equilibrium.

I truly belief that the Bitcoin-blockchain-cryptocurrency revolution will force a more honest discussion on the state of the world economy. Right now, we have a hub-and-spoke model in terms of collecting economic data. Central Banks are the gateways for economic reporting. Where I really see blockchain technology driving the central bankers crazy is when the reporting nodes distribute their info to a wide variety of economic analysis points. When for-profit or academic data "nodes" can work with the raw data without central bank interception, we'll be at a whole different plane.

You mean something like people putting food, rent, gasoline, grocery prices on the blockchain (by various sources) in order to create independent indexes? (That's just an example of decentralized reporting I can think of - but you may mean something different?)...

Bankster s create cryptocurrencies, watching the future falling of dollar, banksters have supercomputers that could hack any type of crypto website, and steal many bitcoins, then they push guverment for regulate the use of them.

what happens if the Chinese decide to sell off the QE bonds issued by the US government?

I guess the answer heavily depends on how they use the money from the liquidated bonds. As far as the debt is concerned, most of US debt can be re-purchased indirectly by the US itself - in other words, it's not going to become unserviceable.

government, only I wish they were printing my currency

Coin Marketplace

STEEM 0.35
TRX 0.12
JST 0.040
BTC 70733.96
ETH 3563.16
USDT 1.00
SBD 4.76