Nate closes out the Great Inflation Debate with his final entry:
So at long last we understand how hyper-inflation works. It is caused
by hyper-velocity. Meaning folks are spending their money as soon as
they get it. I’m not going to go much into the differences in Weimar
and today… because honestly the differences are actually smaller than
Vox indicates. See we have the worlds leading reserve currency.
Companies and governments have enormous amounts of cash on hand ready to
dump. As I showed previously… the Fed has no idea how much cash is
actually out there in the international market. We know that there is
roughly 2 trillion in corporate cash reserves in the domestic market…
but we’re told its actually as much as 5 or 6 trillion in the
international market.. and that’s on the low end. Kids… that isn’t
even counting what the governments around the world are hoarding.
Remember one of the benefits of being the foremost reserve currency is
that oil is priced in dollars… so to buy oil you first have to buy
dollars. That’s important Its a big deal. So there is a lot of demand
for dollars out there. And a lot of dollars hoarded up.
And thus we see that the engine is certainly sufficient to put the
train in motion. In fact there is probably enough cash out there to
blow it to hell and gone. No.. its not like Weimar. Its different.
Its very different. But history doesn’t repeat. It rhymes.
A common, but often ignored, phenomenon is that even during
hyper-inflation the central bankers think that there isn’t enough money
to go around. Why? Because I have explained it is velocity driving the
problem. Not an increased supply in money. Remember that central
bankers are all worshipers of John Maynard Keynes. Damn his eyes. So
they see complex economic situations as simplistic equations that can be
manipulated with god-like precision. They have equations that they
really believe accurately can describe something as complex as an
economy. To much X? Add a little Y. To much V? take away some Q. I
know this sounds insane… because well… it is… insane.
Keynesianism is far more idiotic than you probably think it is.
I leave it to the readers to decide which case they found more convincing. Of course, time will be the only meaningful judge, as for all we know, the current state of monetary disinflation could, at least in principle, continue until the sun grows cold. In this regard, I somewhat disagree with Nate, in that if hyperinflation doesn’t at least begin to appear by 2016, I don’t think it would be necessary for him to concede. In any event, as one reader commented, there are no winners in this debate, everyone, including Ben Bernanke and Goldman Sachs, looks to lose out in some way. It is better to be a shopkeeper in peacetime than a king in chaos; those whose times are ignored by the historians because “nothing happened” are the fortunate ones.
It might be interesting, however, to learn if your views were modified at all as a result of the debate. By which I mean if you were formerly inclined to expect deflation but now consider hyperinflation more likely, or vice-versa.
Nate is putting the debate into epub format which will be cleaned up a little for typos and then made available as a free ebook for future reference.