Hyper-Inflation, the popping of the housing bubble and the gold stampede
Bruce Collins
April 25, 2006
Some commentators such as Jim Puplava of FinancialSense.com or John Rubino of DollarCollapse.com have talked about inflation as being somewhat of a ?secret? tax on society. This is very true.
Inflation in its? early stages is sometimes hard to detect. So, an explanation of inflation is necessary to understanding why the United States may be entering into a period of hyper-inflation in the next year or two.
Deuteronomy 25:15 says,? You must have accurate weights and measures??
Our founding fathers, working from a Judeo-Christian reference point, believed in honest money. Honest money that could not be manipulated for gain over its? citizenry.
So, what is inflation?
The simple definition of inflation is an increase in the price you pay or the decrease in the purchasing power of money. In the United States, inflation is measured by the Bureau of Labor Statistics using the CPI or Consumer Price Index.
What causes inflation?
Webster?s New Universal Unabridged Dictionary says that inflation is "An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.?
So, by looking at the above definition, we can see that inflation is an action taken by government. In other words, a rise in prices can be tied to supply and demand, but it also can be tied to government proceedings. Often, the anger and frustration is directed toward the price because who is behind the cause is clouded.
Many great societies were crushed and collapsed due to inflation. Most societies collapse due to a combination of issues that seem to run along parallel lines. It is commonly agreed that the fall of the Roman empire was due to a decline in morals and values, public health issues, military expenses, political corruption, unemployment and, yes, inflation.
Beginning after the reign of Marcus Aurelius, the flow of gold began to decrease as Rome stopped conquering new lands. Yet, the Roman families needed to have an increasing supply of gold to buy more luxury items. As they used less and less gold in their coinage, the merchants raised their prices until, finally, Romans stopped using the coins and chose to barter instead. Trust in coinage ceased and taxes were paid in fruits and vegetables, salaries in food and clothing.
You could easily substitute the phrase ?Roman Empire? with the ?United States of America? today.
To understand the course that the United States has taken and how hyper-inflation is destined to be the route (and how this will impact the entire world), one must go back to a time when the U.S. Dollar was tied to the gold standard.
The Gold Standard, or more accurately the International Gold Standard which was established in the early 19th century, was birthed by a silver currency crisis in England.
In 1871, the International Gold Standard was started by Germany when the Reichsmark became a strict gold standard currency. Following that move, by 1900, most global economic powers had followed their lead.
Under a gold standard, money cannot be distorted. It must be backed by a tangible asset. Life becomes very difficult for governments who wish to misuse money supply.
A gold standard also does not encourage war due to its? great expense and so, due to the enormous expense of World War I, countries like Britain bore a heavy financial burden and moved into the world of fiat currencies.
Under the Treaty of Versailles, which hammered out the conditions for surrender, Germany was forced to give up its? gold supply for reparations. This caused them to also move from the gold standard to fiat currencies.
In 1923, Germany entered an ugly period of hyper-inflation.
Before World War I, they were a prosperous country, their currency was gold backed and their industry was one to be envied- leading the world in optics, chemicals and machinery. The German Mark was very strong, trading at four or five to one U.S. Dollar. That was 1914.
In 1923, the exchange rate between the Mark and the Dollar was one trillion Marks to one Dollar. At its? worst point, a large bucket or wheelbarrow full of money could not even buy a German newspaper.
This financial storm took the average German completely by surprise.
How bad was it?
"My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread."
With its? newfound nightmare, Berlin was a sickening mix of crime and chaos. Gasoline was siphoned from cars. Prostitutes roamed the streets. Cocaine became a popular drug. People bought things and used them to barter. The currency had lost its? worth.
The aim of this article is not to instill terror on the reader but some mention of the decay in the social climate is necessary to explaining the devastating effects that inflation has on a society. A greater elaboration of what happened during the Weimar Republic can be found at your local library.
With the raising of interest rates, the Fed has been able to cool down the housing market. However, if ever could be the case, the worst is true. Not only are over-leveraged consumers facing deflating home prices but also a wave of inflation.
How is this possible? At the same time that the Fed has been raising rates, they have been flooding the market with massive amounts of liquidity.
Hence, in order to mask the inflationary effects, the secret tax, that they have unleashed upon unsuspecting taxpayers, they have banished M3 which is the reporting of money supply.
"Keep Spending" is the signal they are flashing as they know that slowly the false signs of wealth that excess liquidity betrayingly show will cause consumers to join the dance.
Meanwhile, the prices of tangible assets, most notably gold and silver, have been steadily rising to meet the upcoming financial storm.
The next year will prove to be most interesting.
In order to pay down government debt (which is at the unprecedented level of $9 trillion), the government can actually hyper-inflate it's way out of their situation.
Where does that leave the average consumer?
With rising interest only loans, expensive gas and groceries. In short, a heap of trouble.
Buy gold (and silver).
Inflation in its? early stages is sometimes hard to detect. So, an explanation of inflation is necessary to understanding why the United States may be entering into a period of hyper-inflation in the next year or two.
Deuteronomy 25:15 says,? You must have accurate weights and measures??
Our founding fathers, working from a Judeo-Christian reference point, believed in honest money. Honest money that could not be manipulated for gain over its? citizenry.
So, what is inflation?
The simple definition of inflation is an increase in the price you pay or the decrease in the purchasing power of money. In the United States, inflation is measured by the Bureau of Labor Statistics using the CPI or Consumer Price Index.
What causes inflation?
Webster?s New Universal Unabridged Dictionary says that inflation is "An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.?
So, by looking at the above definition, we can see that inflation is an action taken by government. In other words, a rise in prices can be tied to supply and demand, but it also can be tied to government proceedings. Often, the anger and frustration is directed toward the price because who is behind the cause is clouded.
Many great societies were crushed and collapsed due to inflation. Most societies collapse due to a combination of issues that seem to run along parallel lines. It is commonly agreed that the fall of the Roman empire was due to a decline in morals and values, public health issues, military expenses, political corruption, unemployment and, yes, inflation.
Beginning after the reign of Marcus Aurelius, the flow of gold began to decrease as Rome stopped conquering new lands. Yet, the Roman families needed to have an increasing supply of gold to buy more luxury items. As they used less and less gold in their coinage, the merchants raised their prices until, finally, Romans stopped using the coins and chose to barter instead. Trust in coinage ceased and taxes were paid in fruits and vegetables, salaries in food and clothing.
You could easily substitute the phrase ?Roman Empire? with the ?United States of America? today.
To understand the course that the United States has taken and how hyper-inflation is destined to be the route (and how this will impact the entire world), one must go back to a time when the U.S. Dollar was tied to the gold standard.
The Gold Standard, or more accurately the International Gold Standard which was established in the early 19th century, was birthed by a silver currency crisis in England.
In 1871, the International Gold Standard was started by Germany when the Reichsmark became a strict gold standard currency. Following that move, by 1900, most global economic powers had followed their lead.
Under a gold standard, money cannot be distorted. It must be backed by a tangible asset. Life becomes very difficult for governments who wish to misuse money supply.
A gold standard also does not encourage war due to its? great expense and so, due to the enormous expense of World War I, countries like Britain bore a heavy financial burden and moved into the world of fiat currencies.
Under the Treaty of Versailles, which hammered out the conditions for surrender, Germany was forced to give up its? gold supply for reparations. This caused them to also move from the gold standard to fiat currencies.
In 1923, Germany entered an ugly period of hyper-inflation.
Before World War I, they were a prosperous country, their currency was gold backed and their industry was one to be envied- leading the world in optics, chemicals and machinery. The German Mark was very strong, trading at four or five to one U.S. Dollar. That was 1914.
In 1923, the exchange rate between the Mark and the Dollar was one trillion Marks to one Dollar. At its? worst point, a large bucket or wheelbarrow full of money could not even buy a German newspaper.
This financial storm took the average German completely by surprise.
How bad was it?
"My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread."
With its? newfound nightmare, Berlin was a sickening mix of crime and chaos. Gasoline was siphoned from cars. Prostitutes roamed the streets. Cocaine became a popular drug. People bought things and used them to barter. The currency had lost its? worth.
The aim of this article is not to instill terror on the reader but some mention of the decay in the social climate is necessary to explaining the devastating effects that inflation has on a society. A greater elaboration of what happened during the Weimar Republic can be found at your local library.
With the raising of interest rates, the Fed has been able to cool down the housing market. However, if ever could be the case, the worst is true. Not only are over-leveraged consumers facing deflating home prices but also a wave of inflation.
How is this possible? At the same time that the Fed has been raising rates, they have been flooding the market with massive amounts of liquidity.
Hence, in order to mask the inflationary effects, the secret tax, that they have unleashed upon unsuspecting taxpayers, they have banished M3 which is the reporting of money supply.
"Keep Spending" is the signal they are flashing as they know that slowly the false signs of wealth that excess liquidity betrayingly show will cause consumers to join the dance.
Meanwhile, the prices of tangible assets, most notably gold and silver, have been steadily rising to meet the upcoming financial storm.
The next year will prove to be most interesting.
In order to pay down government debt (which is at the unprecedented level of $9 trillion), the government can actually hyper-inflate it's way out of their situation.
Where does that leave the average consumer?
With rising interest only loans, expensive gas and groceries. In short, a heap of trouble.
Buy gold (and silver).
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