blog.milesfranklin.com / By Bill Holter / January 3rd, 2013
As a continuum to “Hyperinflation 101” I will try to wrap it up with this piece. If you agree with what I wrote yesterday regarding the “cause” of hyperinflation at its most basic being a break, or lack of confidence in a fiat currency then you are ready for what follows. If you do not agree and instead have the view that dictionary definitions or the pablum spoon fed to you by Washington and Wall Street (CNBC) are correct then please keep reading, you may have an “a Ha” moment.
Just to backtrack a little, “fiat” money by definition is a currency that is not “backed” by anything real or tangible. It has value, whatever value, based on confidence or the belief… that it has value. This “confidence” or “belief” at its most basic and primal level is that the currency will SPEND. Once a population believes that a currency will one day NOT “spend”… this is exactly what they will do… spend it as fast and furiously as they can! They will spend EVERY last currency unit that they have for “stuff”… any “stuff” because “any stuff” can either be used or bartered and at least has SOME value and “some” value is more than NO VALUE. THIS is effectively what hyperinflation is… to the man on the street.
Another way of saying “loss of confidence” is to use the word “panic”. In the case of hyperinflation, a panic involves exiting a currency. In today’s world, please remember that there are no currencies anywhere on the planet that are “hard” currencies (backed by Gold or Silver) other than Gold and Silver themselves. Years ago when money WAS backed by Gold, a “panic” would involve a run on the bank where it would run out of Gold and be forced to close their doors. This happened in the 1930′s and resulted in mass “deflation” where Dollars (which 20 of them were readily exchangeable for 1 ounce of Gold) became scarce and people hoarded them. The reverse situation exists today. (Yes I know, the banks are hoarding them which is why velocity is so low). This is a very very important distinction, back then Gold and Dollars were officially interchangeable as where today they are officially “mortal enemies” and the exact opposites of each other.
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