From the end of all fiat money
Each pure paper money system such as ours usually ends in a hyper inflation. Hyperinflation is caused by a flight from the currency and ends in a deflationary crash.
This article discusses the causes and the typical flow. This is far worse than deflation, is retained where the value of money, and still rising.
Wikipedia:
hyperinflation is a form of inflation, increases in the price level very quickly. There is no universally accepted definition, but a common rule of thumb called a hyper-inflation from a monthly inflation rate of 50%. Simply put, a hyper-inflation uncontrollable inflation monthly with an extremely high rate.
short hyperinflation occurs in a worthless paper money system (fiat money system) when the flight starts from the money of investors and consumers and the government / central bank try to stop following the crash by printing money.
Let's speak Ludwig von Mises, the great Austrian economist of the credit boom and its aftermath [21]:
An increase in the money supply is an absolute necessity for the appearance of a boom. The succession of boom periods with periods of depression is the inevitable result of repeated attempts to reduce interest rates by credit expansion. There is no way the final collapse of a boom through credit expansion to avoid. The alternative is that the crisis through voluntary abandonment of the expansion can come sooner or later to risk a final and total catastrophe of the currency system.
deflation & hyperinflation: A
deflation, where falling prices of all goods and assets (investments) over money, there are only two cases:
1.im classical gold standard, if the money is gold
2.When the currency from the outside held strong through flow
is the case of our "debt-covering" paper money systems (Fiat money) is usually not the case because the currency is usually sold off [5]. This reduces at every crisis, the external value of that currency.
In a hyperinflation, the sale of the currency is so strong that the entire money supply decreases relative to a stable currency. Despite sharply rising prices in that currency to decline in real terms but in a stable currency. Calculated in stable currency, actually occurs deflation.
The main time for Hyperinflation was in the 1970s and 1980s in Latin America and the crumbling Soviet bloc in the 1990s.
The current situation
Due to the stock crash in 2000 was actually a deflationary depression and the sogenannnte "Kondratieff Winter" will be initiated. This is initially happened though. Especially the high-tech exchanges such as NASDAQ and Neuer Markt (there is no longer present) are crashed hard. Also, there have been in countries like Germany a credit crunch (credit restriction) and a fall in house prices in some areas. In addition, some companies such as Enron, Worldcom, Parmalat, Swissair went bankrupt. Some banks and insurance companies have "wobbled strong." Otherwise, however, does not happen much.
The results of the reflation
particularly the U.S. with 9 / 11, wars, tax cuts, one-percent low interest rates and huge government spending opened an incredible global reflation in order to avert the threat of deflation spiral. Most other countries have not always been involved in the war, but for the low interest rates. The result today is that everywhere is increasing the money supply M3 between 9% (euro zone) and 18% (China) per year in the U.S. M3 is no longer published. Commodity prices have soared, but did not because of competition from Asia and Eastern Europe, unemployment reduced and the wages have barely budged. Hence it is not real to the desired reduction in the debt in a massive inflation caused by high wage increases. The situation is currently tilted in either direction deflationary crash and toward the open hyperinflation. Not an easy situation for investors.
real inflation rate, which is inflation really
What we call "inflation", ie the increase of consumer prices (including CPI = Consumer Price Index), and is simply an effect of monetary inflation, so an increase in money supply. studies show that the actual CPI increases in the U.S. currently accounts for around 10% per year in the euro zone and Japan at about 7%. but reported only 0.1% (Japan) to 3.5% (USA). Here it is a huge scam operated by the state. The goal is to keep the bond interest rates down, otherwise the system would at much higher interest rates reasonable implode deflationary.
The real interest rates are negative so all over the world, a condition which has existed in the 1970s and was ended by a flight into gold.
inflation expectations
An inflation as the current can run long without causing drastic effects such as a bond sale. Much is not the real price increases, but the future Inflation expectations. Thus, there are studies that say that the euro has lost since its inception been about 40% in value.
are currently kept inflation expectations low by various tricks:
falsification of economic data
threat of tipping into deflation
euphoria in financial markets (Goldilocks - Economy), everything is fine
low position in the gold price
These tricks are of course not forever endure.
deflationary crash triggers hyperinflation from
If so suddenly higher interest rates required to avoid a sale of the currency to break the heavily loaded with debt sectors of the economy. This can be very nice to see today in the U.S.. There had to the central bank (Fed = Federal Reserve Bank) under Alan Greenspan and now Ben "Helicopter" lift Bernanke short-term rates from 1% to currently 5.25%, to avoid a sale of U.S. dollars (Note the Red: The U.S. Federal Reserve Chairman Bernanke said: ". The U.S. government has a technology, called the printing press (or today, its electronic equivalent) to enable it to production as many U.S. dollars as it wishes - with no costs," he suggested, dollars to be shed in case of deflation actually a helicopter, so he in financial circles, also known as "Helicopter Ben" is). The problem of Americans is their enormous balance of trade deficit from its current annual $ 800 billion, the per day about $ 3 billion needed from outside. It has in the meantime already been several calling at clearance sales, such as the end of 2004 and in April / May 2006. Each of the influx was stopped by the other central banks again. How often?
It has caused by this massive reflation with negative real interest rates in many countries, real estate bubbles. The largest of its kind in the U.S. has burst by rising interest rates now. Within the territory assigned mortgage is already partially "under water", ie the property as collateral is worth less than the loan. These mortgages were mainly in bonds (Bonds) bundled (securitized) and sold worldwide. In Europe alone, holding central banks, institutions, funds and private investors some paper value of about 10 trillion (trillion) dollars. Does this greater bond failures, they fall in value and they are sold. This can be a huge sell-off not only of securities (bonds and equities), but also ausslösen the underlying currency. Therefore, any economic crisis for the currency concerned is extremely dangerous.
The fact that we in the middle, or appears to be the history of mankind at the end of the world's largest debt collection, suggests that the subsequent deflation and depression are in world history by far the largest deflation. A consequence of deflation will be a strong rise in the U.S. dollar, virtually present against all expectations. Credit expansion is a key reason why the stock rose steadily and continuously, the dollar fell, but when the air is let out of the bladder are subject to investment markets and the rising dollar. The period after the market crash will be the best for the potential of a hyperinflation-prone time. The end result will be the destruction of any bond values and the extinction of all dollar-denominated paper assets. "
Well, Hr. Prechter is a "deflationists. He expects a derivatives crash, go down to the banks and financial institutions through mutual, not satisfiable obligations. The 350 + + billion dollars (nominal value) in global derivatives, of whom the majority of loans / bonds and interest, can greet. (Do not hang by a thread?) For a big bankruptcy, such as General Motors or an interest rate jump it to start. There
stages of the sales
As everywhere in investment is also here three stages: 1.The
smart money gets out.
This particularly well-informed investors see instantly what is being played. This causes the currency to fall slightly. This
Smart Money is to be found primarily in foreign countries, has therefore no emotional ties to the affected currency.
1.The "Big Money" gets out.
They are mostly mutual funds and banks. Really large sums to be moved, so this really breaks the currency and interest rates explode. This money is at home and abroad. If this occurs, the situation is very serious.
1.The "Dumb Money" gets out.
Who is that? Usually their own, economically uneducated population.
If that happens, then be bought at top price foreign currencies or gold. Just silly things as well as 100 chamber pots in the Weimar inflation.
If this happens, is the currency most hopelessly lost and replaced. The economy finally breaks shortly together, as the money is not taken.
course there are still a "Dumb Money":
These are the people who believe to the end of the money and the equipment therein. Most of these people are found in the educated class, where status and prestige to go over everything. The swallow then, when, from a life insurance policy in which they have paid 20 years, received the equivalent of a loaf of bread - happened in 1923 in Germany.
The mass has no chance
who had no resources in foreign currency and only from the earned wages was dependent, hyperinflation was delivered mercilessly anyway.
During the German hyperinflation as the beer consumption in 1923 dropped to under half - a real sign of poverty. Farmers have more food is not sold for money, only for gold, foreign currency or goods. So the townspeople have brought all dragged up by grandfather clocks bear skins.
If the world no longer accepts our dollars as payment for goods or oil, then begin the real inflation. It comes down to a matter of trust. The question is, how long they will accept those dollars chimera.
Here we have the same situation as during the Weimar hyperinflation. It has the "giants of Germany" believed that such a currency can not go under. At some point (from about 1922) then most people have noticed what is going on and the right escape from the marrow has begun. Then the dam broke. But the government does not want to risk the collapse and has further inflated.
A major side effect of hyper-inflation is rampant corruption in government service. Because the government is trying to get only by printing money in life, it builds much from officials. However, their real income fall dramatically by the skyrocketing prices from. Therefore, they try their income on Bribes supplement. This corruption is the way, then the long-term problem. What's more, that all social values are practically reversed, triggering an additional moral decay.
You can see the effects of hyperinflation, even decades after this:
Russia, Latin America, Israel, former Soviet bloc, Africa, etc.
Source: hartgeld.com
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