Copyright 2012 by John T. Reed
Here is an email from a reader linking to three articles that show hyperinflation type stuff going on right now in Iran and Iceland.
I've been a fan of your work for some time, especially regarding hyperinflation and deflation. I thought these articles might be interesting for you to comment on, regarding hyperinflation and deflation.
Recently, there was an article in the New York Times about how Iran's economy isn't doing so well- except for currency speculation. The guy in the NYT article, "Manoucher", is a factory owner, and blames himself for not pursuing currency speculation when he had the chance. This reminds me of the widow, Anna Eisenmenger, who should have converted her money to Swiss Francs, that you've discussed in your other articles.
Another interesting article from Iceland, which shows what happens when you default on money that you owe to other countries and entities- life goes on, and you do OK.
My comment is thanks. They are having inflation in Iran and as in Germany, Austria, Latin America, people are fleeing to and making profits from foreign currency trading. Ironically, they are going into the U.S. dollar, the currency I am urging you to get out of. The Iceland article supports somewhat what I said about defaulting on the national debt making a lot of sense.
The Iceland article also has some illustrations of what it means to owe money when you have deflation. My book How to Protect Your Life Savings from Hyperinflation & Depression
is partly about deflation, which is another word for depression. The Icelanders have discovered as I made clear in the book that you do not want to owe fixed-rate money during deflation especially denominated in a currency which is appreciating against your own currency.
The Iran articles sound just like books about Austria and Germany in the 1920s and Latin American in the late 20th century. One thing I had not heard before was the government trying to discourage people from buying foreign currency—mainly U.S. dollars—on the black market because there was a lot of counterfeiting. Iran today is also reminiscent of hyperinflations in the American colonies and the French revolution with death penalties for not respecting the hyperinflated government currencies!
As throughout history, the problems in Iran from inflation are caused and exacerbated by the federal government trying to force people to use an inflating currency. So if you thought those problems that happened in Germany in the early 1920s could not happen in the 21st century, think again. It is the age-old combination of human nature, the Law of One Price, Gresham’s Law, and government interference with free markets. If you want to see your future, you can look at Iran today or Vienna 90 years ago or France 222 years ago. Forcing people to pretend government money too much of which has been printed always visits the same insanities on the population.
I especially commend the two articles on Iran to readers. If you just read my articles on the Economics of Inflation and Stefan Zweig’s autobiography, you will think you are seeing a re-run. Yet those books were written in the 1930s and 1940s and the Iran articles, in July 2012! Thank you, Iranian government for behaving as stupidly as the U.S. government will almost certainly behave when the world bond market stops giving Congress the money to fund deficit spending. It’s a nice preview for my readers who are still in denial, still thinking my analysis “can’t be right.”
John T. Reed