Tag Archives: HyperInflation

Iran’s currency plunges 40 percent, riot police called out

From earlier this month:

open quoteMany bazaar merchants had closed their shops the day before and authorities reported arrests amid efforts to clampdown on black market money exchangers, who effectively set the rates around the country. Trash bins were set ablaze during sporadic confrontations with security forces.

The Prosecutor’s Office in Tehran said 16 people have been detained for “disrupting” the currency — an apparent reference to speculators trying to take advantage of the rial’s declining value.

Iran’s rial has lost nearly 40 percent of its value against the U.S. dollar in the past week. The rate Thursday — about 32,000 rials for the dollar — was a bit higher than the record low earlier this week.close quote (Read more)

German Court Allows Germany to Be Plundered

Patrick Barron:

open quote“This decsion is a disaster for the German people and a disaster for the world. The flood gates of unlimited monetary inflation have been opened. German capital will be plundered by its neighbors. This is NOT a victory for Europe but a defeat for the original post war European vision of a peaceful and prosperous Europe. Now it is up to the German people to throw out Merkel and the Euro federalists and return to the original vision of a Europe of free trade, free mobility of labor, and free mobility of capital.”close quote

“Rejoicing” Markets

Patrick Barron‘s letter to the Philadelphia Inquirer:

open quoteDear Sirs:
It is a misnomer to claim that markets “rejoice” due to interventions by monetary authorities, in this case by the European Central Bank (ECB), to drive down the interest rate artificially. True, the world’s stock markets went up and the targeted interest rates did go down, but this is strictly the result of money printing and not the result of market fundamentals, such as increased profits. When a central bank intervenes to lower interest rates, it buys bonds at above market prices, which is the flip side of the interest rate; i.e., when bond prices rise, interest rates go down (and vice versa, of course). One may view this as nothing more than a counterfeiter paying more for a good than the free market price; there is no market force involved. Consequently, when bond interest rates are forced down by such action, these bonds become less attractive investment instruments. Money that would have been invested in bonds will now flow to stocks, where one may get a better yield. The resultant increase in stock prices is not some sort of rejoicing by the market, but simply arithmetic by investors who have nowhere else to go. This game of ever larger injections of funny money will come to an end when price inflation gets out of hand. Simply stopping the increase in the monetary spigot will cause the whole, corrupt house of cards to come crashing down.close quote

Fed Official Calls for Bond Buying


Patrick Barron: open quoteEric Rosengren, President of the Federal Reserve Bank of Boston, calls for an “open-ended program” of bond buying that will entail even “more substantive action than we’ve taken to date,”. Ominously he states that the bond buying program would continue “until we start seeing some pretty significant improvements in growth and income.”

The Fed engaged in Quantitative Easing One in 2009 and 2010 to the tune of $1.25 trillion. That didn’t do the trick, so it engaged in QE2 in 2011 for another $600 billion. So, we have had $1.825 trillion dollars of monetary stimulus so far and Mr. Rosengren, obviously a disciple of Paul Krugman, thinks that the Fed just hasn’t done enough.

If Mr. Rosengren has his way–and he simply may be sounding out public reaction for a policy already endorsed by the Federal Open Market Committee–the Fed will print money until the purchasing power of the dollar is destroyed.close quote

Here Come QE3…

open quoteDisappointing U.S. economic data, new strains in financial markets and deepening worries about Europe’s fiscal crisis have prompted a shift at the Federal Reserve, putting back on the table the possibility of action to spur the recovery.

Such action seemed highly unlikely at the central bank’s April meeting, when forecasts for growth and employment were brightening. At their policy meeting this month, Fed officials will weigh whether the U.S. economic outlook is deteriorating enough to justify new measures to boost growth, according to interviews and Fed speeches. close quote (Read more)

EU = all 17 countries can print money at the expense of others

Patrick Barron

open quoteRe: Spain Pours Billions into Bank

The central bank of Spain accepts Spanish debt and uses that debt as collateral at the European Central Bank for euro loans. So, all seventeen countries of the European Monetary Union have a back-door method for monetizing government debt. This is the structural flaw in the European System of Central Banks–there is no real, enforceable prohibition to massive printing of euros, as we see here. The other sixteen members of the EMU had no say in the matter. Each member can counterfeit euros ’til the cows come home. There is talk of a one trillion euro bailout of European banks.close quote

The Eurozone: A Moral-Hazard Morass by Philipp Bagus

Very comprehensive & insightful:

open quoteThe Misconstruction of the Euro

In the eurozone, there are fiscally independent sovereign governments coexisting with one (central) banking system. This is a unique construction as normally there is one government with its own banking system.

Governments can finance their deficits through the banking system and money creation. When governments spend more than they receive in tax revenues, they typically issue government bonds. The financial system buys an important part of these bonds by creating new money. Banks purchase these bonds because they can use them as collateral for new loans from the European Central Bank (more precisely the European System of Central Banks).

New money flows to governments that monetize their deficits indirectly. The cost of the indirect monetization is born by all users of the currency in the form of a reduced purchasing power, i.e., inflation. If there is one government per central-banking system, the whole nation bears the cost of the deficit monetization. However there are in the eurozone several governments running their own budgets.

Imagine that all governments but one have a balanced budget. The one deficit government can then externalize onto other nations part of the costs of its deficit in the form of higher prices. This monetary redistribution is the already-existing transfer union in the EU.

A government like the Greeks’, with high deficits, prints government bonds bought and monetized by the banking system. As a consequence, there is a tendency for prices to rise throughout the monetary union. The higher the deficit of a government in relation to the deficits of other countries, the more effectively it can externalize the costs of a deficit. The incentives of this setup are explosive as governments benefit from deficits higher than those of their eurozone neighbors.

The Stability and Growth Pact designed to contain these incentives utterly failed because governments themselves judge whether sanctions are imposed on them.

. . . .

The EMU provokes conflicts between otherwise peacefully cooperating nations. Redistribution is always a potential cause of social stress. The monetary redistribution in the EMU was not understood by the bulk of the population and, thus, did not cause conflicts. The bailouts, the rescue fund, and the interventions of the ECB that were ultimately caused by the setup of the EMU have made the redistribution between countries more obvious.
Murphy, Robert P.

$25.00 $22.00

Germans do not like maintaining the Greek welfare state. In the German media Greeks are called “liars” and “lazy.” The Greek media, in turn, demanded reparations for World War II. While the Germans do not like paying for the periphery, people in peripheral countries blame Germans for austerity measures. They feel that the unpopular measures are imposed on them by foreign (German) pressure. Within the EMU, these clashes and conflicts will continue and probably increase. Remaining in the EMU implies living in such an atmosphere and the risk of escalation.

To make an understatement, the costs of the Eurosystem are high. They include an inflationary, self-destructing monetary system, a shot in the arm for governments, growing welfare states, falling competitiveness, bailouts, subsidies, transfers, moral hazard, conflicts between nations, centralization, and in general a loss of liberty. In addition, these costs and risks are rising day by day. Considering all this, the project of the euro is not worth saving. The sooner it ends, the better. Alternatives exists. A return to sound money such as the gold standard would boost responsibility, harmony, and wealth creation in Europe.close quote (Read more)