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MarkGB 

"Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world" - Henry Kissinger

and yet...

"Sooner or later everyone sits down to a banquet of consequences" – Robert Louis Stevenson

Martin Wolf says only the ignorant live in fear of hyperinflation

In response to an FT article by Martin Wolf on 11th April 2014, entitled 'Only the ignorant live in fear of hyperinflation'

http://www.ft.com/cms/s/0/46a1ce84-bf2a-11e3-a4af-00144feabdc0.html#ixzz46a1lPdSz


Mr Wolf

It is not only the ignorant who foresee the possibility of hyperinflation; whether they are living in fear of it is another matter. There are potential scenarios that lead to hyperinflation just as there are for deflation. There is currently a 'war' going on between these two forces. These possibilities are not acknowledged in the analysis you present here, or in the hubristic tone you use to dispel such possibilities.

The crash of 2008 was the beginning of a market 'clear out' of debt, misallocated capital and speculative lunacy that had been encouraged and enabled by governments and central banks. The clear out was not allowed to happen because governments and central banks fear deflation, which they can't control and can't tax. They think they can control inflation through neo-Keynesian nonsense like 'optimal control' - there is no optimal control of large complex systems. 

So deflation was avoided and huge swathes of private debt became public debt, whilst the investment bankers retained their jobs and their bonuses, Hank Paulson got to pretend he knows something about economics and Ben Bernanke became the new 'maestro'.

Here's one POSSIBILITY - the Nasdaq bubble bursts when people finally realise that stocks with market cap of billions but no earnings, are not worth the paper they are printed on. This leads to an algorithmic avalanche of stops, the contagion spreads to the S&P and the DOW when investors have to face up to the reality that that they are leveraged beyond 2008 levels already and earnings are disappointing because CEOs can't borrow to do any more share buybacks, even at ZIRP. Janet Yellen ramps up the printing press because she believes that structural problems like unemployment can be solved with monetary solutions and the market place comes to the conclusion that the Fed hasn't got a clue what it's doing and never has. There is an initial stampede of US money into US Treasuries, but foreign investors, who realise that the US dollar is living on borrowed time, accelerate their move into gold and increase their trading arrangements with each other through currency swaps. The Chinese stop inflating their own economy by printing Yuan to buy dollars, and the 17 trillion dollars held overseas start to find their way home again. US imports are now becoming increasingly expensive and the government is no longer able to doctor the inflation figures…a loss of confidence takes hold…

I'm sure that you could find flaws in the above scenario Mr Wolf. I don't know, and I don't think you do either.

The two Eds need the economy far more than the economy needs the two Eds