Thanks, Chris. It still amazes me that people who buy 30-year debt make so little effort to envision the world in 30 years. It truly seems like they envision simple trading instruments rather than claims on the future world.
All-
First, the Fed owns a small fraction of the outstanding public & private debt. Its less than 10%.
TCMDO (total debt, all sorts, US) = 58.7 trillion
WALCL (Fed balance sheet) = 4.5 trillion
Hyperinflation is ultimately about confidence, not about money supply. That was the common thread all the way through the podcast. Hyperinflation is an accelerating lack of confidence by the participants in the economy in the perceived ability of the money to hold value. That drives various behaviors - each waypoint marks a new behavior, whose root cause is yet another drop in confidence.
So what is that first cause of a drop in confidence? Rising price levels. Costs increasing in the general economy.
So there are some pre-conditions for our 6 steps to hyperinflation:
- new money is spent in such as way as to result in a rise in the overall price levels
- then, wages must rise too - and for wages to rise, workers must have pricing power - in other words, there must be relatively full employment.
- new money must be enough to overwhelm any countervailing forces - such as debt deflation.
Yes I guess that 's technically correct, the Treasury issues the debt, the Fed buys it with nothing, so the government is the counterparty to the Fed. That's like Bert being Ernie's counterparty. The Fed isn't going to revolt against the government and demand that the debts be paid back. It's a revolving door between government and the Fed and Wall Street, the idea that any of them act independently of each other is merely theater.
It seems that demand for US debt already is waning but it makes little difference; interest rates are not determined by demand for bonds. Here you see that demand for Treasuries by foreign countries dropped from $4.9 billion net selling in Nov 2014 to $54 billion net selling in Jan 2015. Over the same period foreign demand for total US long term securities dropped from $59 billion buying to $39 billion selling. That's huge. We're having a bond revolt yet inflation has been negative over the last few months and interest rates remain rock bottom. Demand for the dollar is high.
All the authorities have to do to combat inflation from banks speculating on the money printing is allow a little bit of deflation to happen, and simultaneously juice the sensitive derivatives markets to keep them from blowing up in the process. Despite demand for bonds dropping over the years, and exponentially more bonds being issued, the dollar has actually strengthened, it's all very complicated and involves carry trades unwinding, Europe's NIRP and who knows what else, beyond my understanding.
The whole world could sell their treasuries and I doubt it would blow up the bond market, the Fed can just take them. The only thing that's going to blow up the system is if foreign countries cease accepting dollars for trade and confidence is lost and money velocity subsequently increases, or if America intentionally blows it up first. I guess IMHO I don't think any of this is going to (be allowed to) follow a classic hyperinflation because control would be lost in that scenario. Some other cataclysmic event will be brought forward to bring the whole system down overnight. It will be an official reset or destruction, this isn't Zimbabwe. But what do I know.
I did a little more digging regarding my numbers above. I found this page which lists Treasury sales and purchases by foreigners all the way back to 1977. It shows net sales in Jan 2015 of $55b which agrees with the other table linked previously. As a percentage of total purchases by foreigners that is only 4.2%, so not a major bond revolt yet. Sales go negative like this every once in a while and the last time they rose like this was in Nov of 2008 when net sales reached 3.7% for only 1 month, so this is fairly unusual. We will have to see what happens in the next few months. Of course what this table doesn't show is how much more of the government debt is being funded by QE, which would show an interesting trend over the last few years. Also, we are taking their word for these numbers, which could be cooked.
My first thought as well, the wage part is irrelevant, not only have actual increases been trivial, in real terms they have been falling behind. The fact is that, despite all this so-called money "creation", practically none of that money is in circulation. There is no pathway for that money to flow into the real economy so it doesn't matter whether the bottom 90% wants to spend now before its income loses more value, they don't have the money so they can't spend it, let alone chase prices higher by bidding more than they are worth.
The Chinese have finally woken up to that fact which is why public servants are being given 60% pay increases as the fastest way to inject new money into circulation.
I disagree totally with keelba's assertion that inflation is psychological, unless you have the cash in circulation there is no chance of any inflation, let alone hyperinflation. Its why people like Steve Keen or Nicole Foss etc have been predicting the deflation that central banks are struggling with right now throughout, including the mockery from the hyperinflation people. We have been lined up in the crosshairs of deflation for over a decade and it is now rolling out; any strategy designed to deal with inflation is going to have its ass kicked.