Copyright 2013 John T. Reed
I have benefited greatly in my research on how hyperinflation will affect the US in the 21st country by reading books translated from German about the 1920s hyperinflation there and in Austria.
But you always have those who say that was then and there. It is not relevant to here and now.
Bull! Most of it is. But I agree there will be some differences. One is discussed in today’s (11l20/13) Wall Street Journal in an article titled “Venezuela Leader Gains New Powers.” (Google the title to read it. I cannot give you a link.)
The 21st century difference maker is the Internet and other modern communications methods like cable TV and satellite communications.
Venezuela has the highest inflation in the world at present—because they are spending too much and “printing” the money to do so.
As always with hyperinflation, they have adopted the five laws that always accompany hyperinflation:
• capital controls
• price controls
• financial repression laws
• anti-hoarding laws
As always, the combination of hyperinflation and price controls causes goods and services to diminish in quality, be in short supply, and ultimately disappear from the store shelves altogether.
This always leads to a black market for the hyperinflated currency—the Venezuelan bolivar in this case, currency code VEF.
The existence of the black market tells the people of the country and the world that the currency is hyperinflating. The government causing the hyperinflation always denies that and blames greedy capitalists or foreign powers. Venezuela blames the U.S. and greedy Venezuelan businessmen.
All hyperinflating governments have an official conversion rate for changing their hyperinflated currency into other currencies. The official rate values the local hyperinflated currency ridiculously higher than the black market. For example, at present, the official Venezuelan government rate is 1 USD = 6.29 VEF.
In their Communist dreams.
What is the black market exchange rate? Just Google it. Here is a link showing it course since the government there started playing these games: http://www.scribd.com/doc/149236316/Venezuela-Exchange-Rate That ends in July 2013 and show 1 USD = 45 VEF.
The Venezuelan government asked Twitter to remove all accounts that show the black market exchange rate for VEF to USD. Twitter has not responded.
Venezuelan telecom regulator Conatel block 50 web sites that quote the black market rate for the VEF.
When they had hyperinflation in Austria and Germany, they never knew what it was. They just thought local prices were going up and the value of other currencies were going up.
Uh, yeah, those are precisely the symptoms of hyperinflation caused by “printing” too much money. But their 1920s governments swore their printing money (24 hours a day to the point where they had to stop printing on both sides to save ink) was not the cause of local and foreign prices going up. That was a lie.
In the 21st century it is harder to lie and keep the populace ignorant. In 1922, government could censor local periodicals and ban foreign ones. Ownership of radios by the general public was just starting to happen at that time. Radios were initially luxury items. Once they became widespread, dictatorships jammed foreign broadcasts by broadcasting noise on the channels used by the foreign broadcasters.
Today, of course, we have cable—which is unregulated in the U.S. because it does not use public airwaves. The same is true of satellite broadcasts which is why raunchy broadcasters like Howard Stern moved to Sirius.
The Internet and pod casting enable anyone to distribute print, audio, and video programs internationally for near zero cost. In short, other than in a crazy place like North Korea, it is virtually impossible for dictators and other repressive regimes to prevent people from knowing real market exchange rates and from hearing correct diagnoses about why their currency is losing purchasing power.
That is why I say 21st century hyperinflation in the U.S. will probably only last about 6 to 24 months. Because of massive numbers of sources of news and analysis, the U.S. public will learn rather quickly that the U.S. Federal Reserve is the one “printing” the money and that the elected officials in the Congress and White House want them to “print” that money because they have no other way of keeping the vote-buying dole going.
The public will also be told, at least by me, that the hyperinflation can easily end overnight by the U.S. government either replacing the USD with a new currency that they convincingly claim will not be “printed” in excess quantities or by allowing American residents to use whatever currency they want like gold, CAD, AUD, etc.
Capital controls will initially be imposed when the hyperinflation starts and those will outlaw possession or use of gold or foreign currency by Americans. Terminating those capital controls will end people’s problems buying goods and services with the money they earn or get by liquidating hard assets after the capital controls are lifted. But neither introducing a new U.S. currency nor lifting capital controls will restore the purchasing power lost in the old USD during the hyperinflation.
John T. Reed