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Inflation AND Austerity

6 April 2011 3 Comments

Excellent article from WSJ that really makes sense (especially as gold and silver skyrocket and the economy continues to be stagnant).

Here is an excerpt:

All this, let’s make plain, is setting the stage for a potential inflation solution to the developed world’s vast debt overhang, both official debt and unfunded promises to future retirees. Think it can’t happen here? It can, especially when countries representing more than 60% of the world’s GDP, including Europe, Japan and the U.S, are seeking the same escape from unaffordable commitments.

Central bankers like Weimar’s Havenstein or Peru’s Coronado or Zimbabwe’s Gono didn’t set out to become hyperinflationists. They made the best of a bad dilemma, financing the state through money printing rather than letting it collapse into anarchy. Many investors lately have had recourse to “Lords of Finance,” Liaquat Ahamed’s depressive book about the 1920s, in which he observes that Rudolf Havenstein, faced with a choice of evils, took a central banker’s pride in executing hyperinflation well.

A wise short seller once told us the secret of his profession: People always underestimate how bad things can get. That is, they see the cliff coming and put faith in decision-makers to avoid the cliff. The problem with the metaphor is there is no cliff, just a succession of decision points in a worsening situation. Have no fear that our decision-makers will impose both fiscal austerity and inflation on us when it becomes absolutely unavoidable. The momentous question is whether they will do anything productive in the meantime.

3 Comments »

  • @piratecents said:

    Hyperinflation would be 'interesting.' Savers will be wiped out, literally, overnight. Those still owning property will be partially shielded.

    My question is, in a hyperinflation scenario, what happens to the equity and job markets? I imagine the implications are that they crash after a meteoric rise (the equity markets, at least) that is a result of people trying to avoid the inflation. Gold to $4000, $40,000, $400,000/ounce before crashing to $125/ounce once no one can afford the $1,250,000/loaf bread.

  • exchangerates said:

    Is that thing written at a 3rd grade level? The first three pages are so repeat themselves quite a bit. Austerity is the best way forward, huh? Tell that to Prince Charles and the other "Tory scum."

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