Recently Freshman Congresswoman Alexandria Ocasio-Cortez (AOC) thrust Modern Monetary Theory (MMT) into the popular limelight by suggesting that MMT was how the U.S. could pay for her "Green New Deal". What is MMT and how is it different from good old "Money Printing"? History is rife with examples of countries that tried to print money without any “governor” on the quantity of money printed. Recent examples include Argentina, North Korea, Zimbabwe, and Venezuela. See: 27 examples of hyperinflation from ancient Egypt through modern-days. In today's article Charles Hugh Smith of Daily Reckoning looks at why Modern Monetary Theory Won't Work. We've reprinted the following article by … [Read more...]
How High Inflation Drives Countries Towards Crypto
What is CryptoCurrency? A cryptocurrency (aka. Crypto), is an alternative form of payment created electronically rather than through government fiat (decree). The idea behind it is that an algorithm creates a limited amount of currency that is available to individuals to use instead of cash, checks or credit cards. The technology behind it allows you to send it directly to others without going through a 3rd party like a bank. Initially, the untraceable nature of cryptocurrency led governments to suspect that it was being used for nefarious purposes. And some notable cases of purchases on the "dark web" were prosecuted like the "Silk Road" case which operated from 2011-2013. Since then … [Read more...]
Debt and Inflationary Pressures: A Lesson in Economic Interactivity
Does debt cause inflation? If so what kind of debt? Personal debt? Government debt? Corporate debt? And what exactly is inflation? In this article, we will look at all these issues. Price Inflation occurs when the cost of a representative basket of goods and services is rising. The key factor is the general trend that takes place in an economy, it is possible that individual items such as foreign automobiles, the price of coffee, or corn could rise while other items that require a larger portion of your disposable income are falling (or vice versa). So the Bureau of Labor Statistics uses a "weighted basket of goods" i.e. they calculate what percentage of an average person's salary goes … [Read more...]
Inflation Risk
What is Inflation Risk? Inflation Risk aka. "Purchasing Power Risk" is the risk due to "a decrease in purchasing power of assets or cash flow" due to inflation. A typical example would be a bond that generates a fixed rate of return. For instance, suppose this bond is worth $1000 and generates a 5% yield i.e. $50. Suppose when you purchase the bond that $50 will buy two tanks of gas for your car. Over time inflation will reduce the purchasing power of that $50 so it only buys one tank of gas. If you are counting on using the proceeds of the bond to buy gas there is an "inflation risk" that eventually you will not be covered. The worst-case example of inflation risk is if a country … [Read more...]
Hyperinflation: 5 Currencies that Self-Destructed
Over the years we have discussed Hyperinflation a number of times. We've explained that, "Hyperinflation is an extremely rapid period of inflation, usually caused by a rapid increase in the money supply. Usually due to unrestrained printing of fiat currency." Hyperinflation has been recorded as far back as Egypt 276 AD and is usually caused due to some sort of government mismanagement issue. Typically hyperinflation gets progressively worse until the curve goes hyperbolic and then something happens to end the progression. See What is Hyperinflation? for more information. Recently Commodity.com produced an Infographic of 5 currencies that were hit by hyperinflation so with their … [Read more...]
Effects of Inflation on Businesses
When we think of inflation we usually think of how it affects us as consumers. But the effects of inflation are wide ranging, including not only individuals but also businesses and even countries. Consumers and businesses alike have to deal with the impact of inflation, both good and bad. Here are some ways in which inflation affects businesses: 1. Consumer Purchasing This is the most obvious impact to businesses. Rapidly rising prices will cause consumers to (as Samuel Goldwyn famously said) "stay away in droves". There are ways for businesses to plan for inflation to reduce the chances of revenue loss. Gradually increasing prices will prevent a sudden price hike, and if your … [Read more...]
Hyperinflation and Government Debt
By Doug Casey The over-leveraging of the U.S. federal, state, and local governments, some corporations, and consumers is well known. This has long been the case, and most people are bored by the topic. If debt is a problem, it has been manageable for so long that it no longer seems like a problem. U.S. government debt has become an abstraction; it has no more meaning to the average investor than the prospect of a comet smacking into the earth in the next hundred millennia. Many financial commentators believe that debt doesn’t matter. We still hear ridiculous sound bites, like “We owe it to ourselves,” that trivialize the topic. Actually, some people owe it to other people. There … [Read more...]
Be Prepared If – Inflation Gets Out of Hand
By Jeff Clark, Casey Research The cheek of it! They raised the price of my favorite ice cream. Actually, they didn't increase the price; they reduced the container size. I can now only get three servings for the same amount of money that used to give me four, so I'm buying ice cream more often. Raising prices is one thing. I understand raw-ingredient price rises will be passed on. But underhandedly reducing the amount they give you… that's another thing entirely. It just doesn't feel… honest. You've noticed, I'm sure, how much gasoline is going up. Food costs too are edging up. My kids' college expenses, up. Car prices, insurance premiums, household items – a list … [Read more...]
Will Greece Follow Iceland or Weimar Germany?
In Iceland the bankers were told to stuff it. In Weimar Germany they resorted to the printing press. Which model will modern day Greece follow?It seems that the words Weimar Germany and Hyperinflation are almost synonymous. The Weimar Republic (Das Weimarer Republik in German) is the name of the democratic government which was established in 1919 when Germany was defeated in WWI and Emperor Wilhelm II abdicated the throne. The problem came from the War repairations that were foisted upon Germany by the winners and the growing internal unrest which was allowing the Nazi's to gain a foothold. In an effort to pay their debts, promote full employment, and fight back against growing competitive … [Read more...]
Inflation Definitions
Inflation Adjusted Prices What is the inflation adjusted price of common commodities? Historical Oil Prices Chart - This Chart compares Monthly Average Oil Prices with their Inflation Adjusted Oil Price. Historical Crude Oil Prices (Table) - The first table shows Annual Average Crude Oil Prices from 1946 to the present. Prices are adjusted for Inflation using the Consumer Price Index (CPI-U) as presented by the Bureau of Labor Statistics Inflation Adjusted Electricity Prices - Residential electricity prices in the U.S. have risen from an average of 7.83 cents per kilowatthour in 1990 to an average of 11.44 cents per kwh in 2010. This is a 46% increase in 20 years and sounds like a … [Read more...]
