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German hyperinflation 10 Milliarden note

18 - The Inflationary Collapse

The economics of disaster are as simple as the inflationary economics were complex. The government was the managing proprietor of the inflationary economics, but the economics of disaster are conducted by persons other than the government and are largely beyond the government's control. Inflationary economics required motive power supplied by the government, but the economics of disaster are self-propelled. It is the government that decides when and how fast the inflationary reservoirs shall be filled, but it is something else that decides when the dam shall burst.”14

Unsound Economics

The U.S. and U.K. economies are not built on sound fundamentals of production and savings. Instead they are built on debt fuelled government and consumer spending. It is impossible to perpetuate such a situation because we would have to borrow more and more and more in order to keep buying things. But the countries we are buying from, notably China, will eventually want to be paid back and when these nations realise that we cannot meet our debt obligations they will refuse to keep us afloat and the economy will collapse. Adding fuel to the fire, the U.S. and U.K. government response to the global financial crisis has been a massive injection of money into the financial system.

The problem is that the U.S. and U.K. are basically insolvent but their governments have now taken us so far down the inflationary path they chose to follow when the gold-backed money system ended, that the plain fact is that any future prosperity or boom will not be possible without more money printing and inflation. If the U.S. or U.K. attempt to stop the money and credit growth the resulting credit squeeze will strangle any signs of recovery, causing businesses and consumers to scream. Thus at every hint of trouble in the economy governments’ easy money policies will resume, the debt and money printing will accelerate and will never stop until the bitter end.

The Limit to Money Printing is the Credibility of the Currency Involved

The only limit to perpetual money printing is the credibility of the currency involved. As long as the government can sell its debt, or print more money to pay for its spending, or as long as foreigners are content to continue buying paper substitutes denominated in US Dollars or British Pounds, the inflation can continue.

But if trust in money is lost, citizens and foreigners will begin to dump dollars and pounds after decades of continuous theft from them. They will flee dollar and pound assets by selling stocks, bonds and by converting their dollar and pound cash holdings into real tangible assets. At this point the existing money which has been employed in capital markets will leave them for the national product market, dramatically inflating the price of food, fuel and other necessities of life.

China has the largest holding of US dollars, currently around $2 trillion, and is becoming increasingly vocal about its concern over U.S. money printing. Recently Cheng Siwei, a top member of the Communist hierarchy, stated that "The US spends tomorrow's money today”. "If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies". "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets".

I think we are getting close to that point where all trust is lost and the dollar and pound are dumped.


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