Copyright 2012 by John T. Reed
The subhead on the 9/20/12 front page Wall Street Journal story was
Japan Follows U.S. and Europe in Stimulus Moves
I wrote an article that said defaulting on the national debt was actually a pretty good idea at this point. In that article, I said that other countries would probably do the same at the same time if we did citing the childish justification:
All the other kids are doing it.
Apparently, they are going to cite the “all the other kids are doing it” justification for both hyperinflating their currencies and subsequent explicit default.
Furthermore, the article says other countries “from Brazil to Turkey” are taking steps to prevent their currencies from going up in value—the opposite of hyperinflation.
This appears to be the monetization equivalent of a trade war.
I said inflation is one side of a 13-sided coin. And that you can change one side without the others all changing as a result.
Two of the other sides are imports and exports. If one country cheapens its currency, that makes its exports cheaper compared to other countries’ exports. Consequently, the hyperinflating nations see their exports and foreign tourism into their country go up and the non-hyperinflating countries see their exports go down, imports go up, and foreign tourism into their countries go down.
This causes unemployment to increase in the tourism, exporting, and manufacturing for domestic consumption industries of the non-hyperinflating countries.
I have recently written that this was happening in Switzerland because of the euro getting weaker and weaker. Switzerland has been fighting to prevent their currency from becoming stronger apparently to protect the competitiveness their manufacturers and tourism industries. They actually “pay” negative interest on bank accounts to discourage money from coming in from foreign countries. I bought Swiss franc cash rather than open a bank account there because Switzerland has deflation (which makes cash’s purchasing power grow) and negative interest rates (which cash in a safe deposit box need not pay).
And China, India, Brazil, Russia, etc. aren’t doing that great financially.
Folks, hyperinflation cause economic disaster. Worse than the Great Depression which was primarily a deflation.
Compound that with it happening simultaneously in three of the top five economies in the world and you have an unprecedented economic disaster.
Top five economies:
Country or economic zone
|Total||$42.5T (61% of world GDP)|
I am concerned this could prevent Americans smart enough to put savings in foreign currencies—even outside of these hyperinflated countries—from traveling to them during hyperinflation. I have already worried about Canada banning American tourists from coming there if we turn into $300 million starving hyperinflation victims and they are a mere 35 million doing-relatively-well, stable-currency folks. The combined populations of U.S., Eurozone, and Japan are 314 million + 332 million + 128 million = 774 million starving people looking for a place to go could restrict international travel like a world war.
There are 218 countries, so you can probably always find some to go to, but just be bopping down to your local international airport with you photo ID and credit card may not be enough to get it done during most-of-the-developed-world hyperinflation.
Store food and other necessities and put money in selected foreign currencies in selected foreign countries. I recommend Australia, Canada, and New Zealand savings accounts and also Swiss francs in cash held outside the U.S. as long as Switzerland has deflation and charges negative interest on their bank accounts. (They also more or less refuse to let Americans have Swiss bank accounts these days because of the IRS jerking them around so it’s Swiss cash or nothing.)
If the Eurozone or Japan goes hyper before we do, maybe, just maybe, the American people will wake up and say don’t let that happen to us. More likely they will go to the mall or tune into Breaking Bad or watch a TV football game.
Also, with 774 million people simultaneously suffering from hyperinflation, maybe it will end sooner for all three because more of the world’s experts will be on TV, radio, and the Net talking about it.
It is easy to end hyperinflation. The government in question just ends the legal tender laws (which prohibit use of any currency other than the hyperinflating one) and the hyperinflation-accompanying laws, namely: capital controls, wage and price controls, financial repression, rationing, and anti-hoarding laws. It goes away overnight. This is what happened with gas station lines in 1973. But when the politicians have exhausted their ability to borrow and their ability to “print” worthless dollars, they will be forced to cut annual federal spending so it is less than the annual tax revenues.
At present, that would mean cutting federal spending from $3.6T to $2.4T—a 33% cut. If we wait longer to do it, which is 100% certain, the needed cuts will be larger. Roughly speaking, if applied across the board, it would mean firing 1/3 of all federal government employees including military, cutting all Social Security and federal pension checks by 1/3, cutting all medical payments for Medicare, Medicaid, and federal employee and retirees medical care by 1/3, etc. Voters would scream bloody murder—to no avail. When you can no longer borrow or “print” the money to pay the bills, you have to cut spending down to the level of federal tax revenue. The laws of mathematics apply then, not politics.
Although so many suffering simultaneously will possibly shorten the duration of the hyperinflation, it will also deepen it. If we did not have hyperinflation, but the Eurozone did, Americans would suffer from loss of ability to sell to Europe. All three major economic powers suffering simultaneously will deepen the economic crisis of all nations around the world.
John T. Reed