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Are conservative Christian theology and liberal politics compatible?
Saturday, 20 September 2008
Repudiation of the dollar of hyperinflation: what the collapse will look like
Topic: Pure Satire

For those of you who think the coming collapse will look like 1929, think again.  Everyone--the government, American corporations and consumers--are WAY too far in debt for a deflationary depression to happen.  Deflation won't help the government get out of its debt.  Much more likely will be hyperinflation--in which the government prints money to pay its debts to ordinary people and American corporations, resulting in runaway inflation--or outright repudiation of the dollar and all dollar-denominated debts TO ordinary peons. 

The discussion below ASSUMES that two even more drastic events will NOT occur--1) it assumes that our government will not try to prevent economic disaster by starting the war to end all wars, and rendering the planet unlivable in the process; 2) it assumes that the foreign creditors of the United States will not repossess the country by military force or threat of nuclear destruction.  It's not that I consider either of these scenarios unlikely.  They are far too likely.  I am merely saving them for discussion in later entries.  

Hyperinflation happened most famously in Germany in 1923.   Germany had more reparations from World War I to pay than it had national economy with which to pay them.  So it printed marks to pay its own internal obligations, to save its metals and hard currency for foreign patyments.  As a result, the mark's exchange rate with the dollar fell from 4 marks per dollar to 4 billion marks per dollar in the course of only a few months.     Hyperinflation has also happened in the United States before-- the Continental Dollar, issued during the Revolutionary War under the Articles of Confederation, underwent hyperinflation and was ultimately repudiated--hence the saying "it's not worth a Continental. " More recently--within the last 20 years-- Yugoslavia, Ukraine, Argentina, Turkey and Zimbabwe have become examples of hyperinflation.  If you think $5 per gallon gasoline is bad, try $5 BILLION per gallon.  It may be coming. 

Historically, hyperinflation has been of benefit to all debtors who survived it--whether the debtor was the government or an ordinary citizen.  This was so because wages, for those who could find work, also increased--although they lagged behind the prices of goods.  However, debts, by their nature--at least in the past--always had a fixed principal amount.  So, using Germany as the example, a common person's 1,000 mark debt before the hyperinflationary episode would REMAIN only a 1,000 mark debt (plus interest, of course) throughout the period of hyperinflation.  During that same time, a days wages might increase from 100 marks to, say, 20 billion marks (remember that wages always lag behind inflation).  So, where the 1,000 mark debt might have taken several years to pay off on a reasonable budget before the inflation, at some point in the inflationary process wages will increase to the point that it now takes less than a day to pay the debt.  So the effect of hyperinflation in the past has often been to wipe out all fixed debts denominated in the hyperinflating currency.

However, ordinary consumer debtors, such as myself, should not expect to be relieved of their debts by a hyperinflated dollar, if this is what ultimately happens.  Our government--and the large multinational corporations and foreign governments that hold most of our debts--have undoubtedly learned too much from past eisodes of hyperinflation to permit that to happen.  If hyperinflation occurs, it will be allowed to wipe out all obligations of the goverment and the major corporations to ordinary Americans and American small businesses.  The degree to which inflation will be allowed to affect the debts of large American corporations to each other and to foreign corporations and governments will no doubt be a matter for intense negotiations and international threats (with the possibility of war).

On the other hand, we can be absolutely certain that, if hyperinflation occurs, it will not be permitted to help ordinary consumer debtors and smaller Aerican businesses.  The government will likely find some effective way to either index the principal of all ordinary debts to the inflation rate. Alternatively, the law may simply declare, when the panic is over, that ordinary debts repaid during the panic, in hyperinflated dollars, are really still owed, due and payable in specie, real property or indentured service at some statutory exchange rate.  The foreign multinational corporations, princes and governments that own most of our debts absolutely MUST NOT be deprived of their right to enslave us for our personal and national debts, simply because the government finds a way out for itself! 

Obviously, the government may ultimately decide to skip the hyperinflation and simply repudiate its debt, and the currency with it.  This, however, will be an invitation to war unless the debts owed to certain large foreign entities are adequately taken care of.  Taking care of these foreign creditors will undoubtedly require binding ordinary American debtors tightly to their debts, in one of the ways already discussed.  

So, what we are most likely to see is a hyperinflationary depression, or a depression including a repudiation of the dollar, not a 1929-style deflationary depression.  But noting that happens will be permitted to adversely affect the real value of ordinary debts, which will enslave most of us.    



Posted by ian_j_site2 at 10:22 PM EDT
Updated: Saturday, 20 September 2008 10:49 PM EDT

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