Tag Archives: Hyperinflation

Don’t dismiss gold and silver… by Alasdair Macleod

After the fiat currencies collapse, which could be soon, they’ll be replaced by gold and silver-backed money, which would impose stringent fiscal control on free-spending and heavily indebted governments. From Alasdair Macleod at goldmoney.com:

There is worrying evidence that 2021 will see the end of fiat currencies, led by the US dollar. US dollar money supply has accelerated at an extraordinary rate, a process that will continue.

Signals from the markets that a monetary collapse is increasingly likely include a weakening dollar on the foreign exchanges, bitcoin’s price reflecting an growing disparity between the rate of its issue and that of fiat, rapidly rising commodity prices, and a bubble in non-fixed interest financial assets.

Current thinking is yet to link these events with a developing collapse in fiat currencies, but it is only a matter of a relatively short period of time, perhaps spurred on by a banking crisis, before a realisation that a John Law-style financial asset and currency collapse is on the cards.

While gold rose in dollar terms by 25% last year, it has yet to reflect an increasingly likely collapse in fiat currencies, which this article concludes is likely to happen in this new year.


We enter the new year with a growing realisation that fiat currency debasement is accelerating. It is hardly surprising that bitcoin bulls, who have learned about relative rates of currency issuance, are in the vanguard of those hedging increasing currency debasement. They are being encouraged by statistics in charts such as that shown in Figure 1.
Screen Shot 2021 01 07 at 12.35.13 PM

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When Money Dies, 100 Years Later, by Jeff Deist

Money can be devalued until its dead. Most people have no idea how modern money works, or that it can die. From Jeff Deist at mises.org:

When Money Dies, Adam Fergusson’s cautionary account of hyperinflation in Weimar-era Germany, is the book Americans desperately need to read today.

Ours is a nation willfully lacking in knowledge and understanding of money; a cynic might think this lack of apprehension is by design. Money is seldom discussed in schools, popular media, or politics. And almost a century after the stark lessons of 1923 Germany, the West is convinced it can’t happen here. In our overwhelming material abundance, aided by the natural deflationary pressures of markets, we simply have lost our ability to imagine a hyperinflationary scenario. Sure, there have been currency meltdowns since the two world wars in places like Yugoslavia, Zimbabwe, Bulgaria, and Argentina. Yes, Venezuela and arguably Turkey face currency crises today. But we need not worry about this, because modern central banks—especially the US Federal Reserve and the European Central Bank—have tamed inflation through sheer technocratic expertise and a willingness to use extraordinary monetary policy tools. Asset purchases and balance sheet expansion, ultralow or negative interest rates, and a determination to provide as much “liquidity” as an economy needs are the new normal for central bankers. Thanks to this open embrace of centrally planned money, former Fed chair (and likely future Treasury secretary) Janet Yellen assured us we need not expect another financial crisis in our lifetime.

To believe this, one has to believe policy is more important than production, and that an express policy of inflation is the mechanism to forestall too much inflation. This is a curious position.

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Hyperinflation is here, by Alasdair Macleod

By Alasdair Macleod’s definition, hyperinflation has indeed arrived. From Macleod at goldmoney.com:

Definition: Hyperinflation is the condition whereby monetary authorities accelerate the expansion of the quantity of money to the point where it proves impossible for them to regain control.

It ends when the state’s fiat currency is finally worthless. It is an evolving crisis, not just a climactic event.


This article defines hyperinflation in simple terms, making it clear that most, if not all governments have already committed their unbacked currencies to destruction by hyperinflation. The evidence is now becoming plain to see.

The phenomenon is driven by the excess of government spending over tax receipts, which has already spiralled out of control in the US and elsewhere. The first round of the coronavirus has only served to make the problem more obvious to those who had already understood that the expansionary phase of the bank credit cycle was coming to an end, and by combining with the economic consequences of the trade tariff war between China and America we are condemned to a repeat of the conditions that led to the Wall Street crash of 1929—32.

For economic historians these should be statements of the obvious. The fact is that the tax base, which is quantified by GDP, when measured by the true rate of the dollar’s loss of purchasing power and confirmed by the accelerated rate of increase in broad money over the last ten years has been declining sharply in real terms while government spending commitments continue to rise.

In this article it is documented for the dollar, but the same hyperinflationary dynamics affect nearly all other fiat currencies.

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The emerging evidence of hyperinflation, by Alasdair Macleod

According to Alasdair Macleod, we are not that way from a hyperinflationary collapse of fiat currencies. From Macleod at goldmoney.com:

Note: all references to inflation are of the quantity of money and not to the effect on prices unless otherwise indicated.

In last week’s article I showed why empirical evidence of fiat money collapses are relevant to monetary conditions today. In this article I explain why the purchasing power of the dollar is hostage to foreign sellers, and that if the Fed continues with current monetary policies the dollar will follow the same fate as John Law’s livre in 1720. As always in these situations, there is little public understanding of money and the realisation that monetary policy is designed to tax people for the benefit of their government will come as an unpleasant shock. The speed at which state money then collapses in its utility will be swift. This article concentrates on the US dollar, central to other fiat currencies, and where the monetary and financial imbalances are greatest.


In last week’s Goldmoney Insight, Lessons on inflation from the past, I described how there were certain characteristics of Germany’s 1914-23 inflation that collapsed the paper mark which are relevant to our current situation. I drew a parallel between John Law’s inflation and his Mississippi bubble in 1715-20 and the Federal Reserve’s policy of inflating the money supply to sustain a bubble in financial assets today. Law’s bubble popped and resulted in the destruction of his currency and the Fed is pursuing the same policies on the grandest of scales. The contemporary inflations of all the major state-issued currencies will similarly risk a collapse in their purchasing powers, and rapidly at that.

The purpose of monetary inflation is always stated by central banks as being to support the economy consistent with maximum employment and a price inflation target of two per cent. The real purpose is to fund government deficits, which are rising partly due to higher future welfare liabilities becoming current and partly due to the political class finding new reasons to spend money. Underlying this profligacy has been unsustainable tax burdens on underperforming economies. And finally, the coup de grace has been administered by the covid-19 shutdowns.

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Paper money eventually returns to its intrinsic value – zero, by Alex Deluce

If you needed any more convincing about the wisdom of owning physical precious metals. From Alex Deluce at goldtelegraph.com

In socialist Venezuela, the price of a cup of coffee has doubled every few weeks. The annual inflation rate could hit 1,000,000 percent by years end. People can no longer afford food, but that’s okay because there isn’t any food to be found. South America’s once wealthy nation has spiraled from secure and stable into an unimaginable state of hyperinflation. Venezuela is experiencing the results of government mismanagement, corruption, and socialist ideology. President Maduro’s solution to the problem is to proudly lob three zeros off the hyperinflated Bolivar and call it a “miracle solution.”

At one time, Venezuela had the largest oil reserves in the world, which provided steady revenues for the country and a good living for its citizens. Oil accounted for most of Venezuela’s exports. Life in Venezuela was excellent. Then, in 1998, came President Hugo Chavez. Chavez used the abundant income stream to go on a spending spree as he instituted a large number of entitlement programs using the oil revenues. A strike in 2003 interrupted Chavez’s plans and caused the GDP to crash by 27 percent in just four months. Chavez began nationalizing industries and instituting price controls, which was the beginning on Venezuela’s inflationary spiral as Venezuelans developed a reliance on their government for products and services.

The price of crude oil plummeted in 2014, and the economy shrank by 30 percent. Oil revenues, in the form of U.S. dollars, were dwindling, and Venezuela was unable to continue importing necessary goods. These days, in 2018, stores are empty as people attempt to survive on dealing through the black market.

Venezuela is printing currency at the speed of a copy machine. The more money that is injected into circulation, the more it becomes devalued. The cup of coffee that could be bought for 140,000 bolivars rose to over 1,000,000 within weeks. Today, that cup costs 2,000,000 bolivars. Hyperinflation has placed the purchase of everyday items out of the reach of the average Venezuelan, although President Maduro has granted four wage hikes this year alone.

Venezuela has lost most of its imports as it remains in a state of unprecedented crisis. People are starving, and the average weight loss is 25 pounds due to lack of food. Still, Maduro continues to print worthless currency. For Venezuela to reach this low abyss has taken a combination of corruption and mismanagement on every level of its nationalized industries.

Hyperinflation in invariably the result of government mismanagement and the printing of fiat currency. Venezuela isn’t the only country experiencing inflation. According to Steve Hanke of the Cato Institute, the value of the Iranian rial decreased from 98,000 rials to the dollar to 112,000 rials in one day. That’s a one-day devaluation of 12.5 percent. As in Venezuela, the black market currency business in Iran is thriving. While the official exchange rate to the dollar is 44,030, the black market rate is 112,00, an increase of 154 percent over the official rate.

Professor Hanke has previously dealt with hyperinflation in Bulgaria as adviser to President Petar Stoyanov. At that time, Bulgaria’s rate of inflation was 242 percent a month. Professor Hanke instituted a fixed rate of exchange for Bulgaria’s currency linked to an anchor currency, the German Mark. This prevented manipulation of the country’s currency and allowed market forces to determine its value. This stabilized Bulgaria’s currently quite effectively. Taking the government out of the equation was the prime move to successfully halt the country’s inflation. Bulgaria’s debt has decreased because it was forced to stop printing valueless money and continue spending money it didn’t have.

Professor Hanke sees this as the solution to Iran’s current inflation problem. He suggests gold as the best “anchor currency” because the value of gold is dependent on market forces instead of government manipulation and whim.

In 2017, Zimbabwe was another country with a daily inflation rate of 98 percent and an annual rate of 79,600,000,000 percent. Unemployment in Zimbabwe reached 80 percent. The country’s economy had broken down entirely due to its printing of fiat money and extreme socialist policies. In the 1990s, the government began to redistribute land from white farmers to black farmers. The inexperienced black farmers failed to produce enough food and caused a massive shortage and production fell sharply.

Like other socialist countries, Zimbabwe began to print fiat money and flooding the economy with it. The worse the economic situation became, the more money was being printed. As government debt increased, the money machines continue to crank out currency that became more devalued, thus making it even harder to pay off any debt. As the economic output declined, shortages were on the rise. People had money, but few goods became available. The combination of increased money supply and a higher demand for goods forced up prices sharply. Foregoing all economic logic, President Mugabe blamed the greed of manufacturers for wanting to raise prices. It is the printing of worthless currency that causes inflation and price increase, not greed.

In a repeat of Chavez’s move in Venezuela, Zimbabwe imposed price controls. But production costs increased quicker than prices, leaving producers with no incentive to produce. This increased the shortages and raised prices even more. Inflation invariably becomes a self-fulfilling prophecy. There was money to go around, but even a million dollars become worthless if the price of bread is two million dollars. The fare for transportation increased between the morning and evening commutes.

The causes of hyperinflation are always the same, yet countries are refusing to learn from history.

When governments begin to print money to pay off their debts, the money supply increases, as do prices. When goods become unaffordable, their demand increases, sending prices even higher. People begin to hoard goods, creating even greater shortages and higher prices. And governments continue to print money that keeps losing value. The formula is tried and true. Still, it continues. Since any articulate eight-year-old can state why a commodity that is rarer will be more valuable, it is a puzzle why central banks and governments can’t seem to grasp that increasing the money supply makes it naturally less valuable.

1930s Germany, of course, is the standard example of hyperinflation. During WWI, the number of Deutschmarks being circulated rose from 13 million to 60 billion as the government kept the printing presses busy 24 hours a day. While the Deutschmark became valueless, the nation’s debt rose from 5 billion to 100 billion.

The identical scenario has been repeated in Zimbabwe, and now in Venezuela. Governments have instituted the same solutions and have been met with identical failures.

No country, if properly mismanaged, is immune to hyperinflation. Gold and silver are the best counterattack for individuals faced with fiat currency and spiraling costs. Hard assets are beyond the control of government manipulation and retain their value during the worst of time. Especially in the worst of times.

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