Jesse’s Café Américain: Episodes of Hyperinflation from Diocletian to Bernanke

Jesse exhibits some of the most mature writing anywhere in the blogosphere. It is why his blog is quietly read by everybody these days. A hyperinflation is coming and will change our concepts of money and saving.


Jesse’s Café Américain

“He promises you civil liberty; he promises you equality; he promises you trade and wealth; he promises you a remission of taxes; he promises you reform…

He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his.” J. H. Newman, The Time of Antichrist

16 March 2012

Episodes of Hyperinflation from Diocletian to Bernanke

While prices can certainly increase based on fluctuations in supply and demand, by definition a general price inflation is an increase in the money supply without a corresponding increase in real output causing an increase in general price levels.

War and other natural disasters and dislocations can cause temporary bouts of severe inflation and deflation, but endogenous episodes of hyperinflation or deflation are almost always the result of policy error in a genuinely sovereign currency, that is, not contingent on an external entity. Although that policy error can be precipitated as a response to some external stimulus, very often unfunded war debts for example.

War is a spectacularly unproductive expenditure, and a nation that engages in continual wars is almost always brought to eventual economic ruin, if for nothing else than overreach.

Hyperinflation is generally considered to be an increase of over 50% in price levels based on a monetary phenomenon. This increase is caused by decisions on the part of the central bank to increase the money supply at a high rate leading to a loss in its value.

Although it is a low probability event I have said that a hyperinflation, since it is a policy decision, is certainly possible in the US dollar. The most likely cause of it would be an inappropriate response to a threat to the banks because of an event in the derivatives market which is a major credit bubble, intricately interlocking almost all financial institutions. Critical Mass: The Mispricing of Derivatives Risk and How the Financial World Ends.

I think there is sufficient room for doubt that the Fed, the President and the Congress would ‘do the right thing’ for the public rather than their crony capitalists when it comes down to it. They are caught in a credibility trap, and are unable to police or reform the system without indicting themselves.

Here is a list of some of the more famous episodes of hyperinflation throughout history.

Episodes of Hyperinflation – San Jose State University

Here is my own list of of Serious Inflations Since WW II.

For the specific feel of a hyperinflation, there are few better books than When Money Dies: The Nightmare of the Weimar Collapse by Adam Fergusson. This is a link to an online copy of the book.

Some Common Fallacies About Inflation and Deflation is also worth reading if for nothing else than to find out ‘what works’ best in such circumstances as a hyperinflation.

And lastly there are my own recollections of a country on the cusp of a hyperinflationary episode, Moscow Memories of 1997.

If there is such a hyperinflationary episode in the US, it will almost certainly be covered by some false flag episode or similar story, blaming it on China or Iran, or some natural disaster, for example.

The Fed and the monied interests are unlikely to voluntarily accept responsibility for the disaster, for the same reasons that they are unwilling to engage in genuine reform. The way that the theft of customer funds at MF Global was handled may give you some idea of how it might unfold, except on a much larger scale. You would be fortunate to tithe only ten percent to the monetary powers.

If Obama obtains another four years, then his lame duck term will be pivotal. And if not, then we will know much more by the next President’s first 100 days.

Recall that when Obama was elected I said I would suspend judgement for the first 100 days of office. And I almost made it. His shocking economic appointments were an obvious signal that things were not what they had seemed, as they say.

Jesse at 1:56 PM

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