-Dwight D. Eisenhower, April 16, 1953 Something often missed in discussions of hyperinflation is that it's a brutally effective way to eliminate foreign debt. In amongst that list of hyperinflators are Brazil and Russia, half of the BRIC countries. Hyperinflation was, arguably, a reason why Germany was able to rebuild a war machine while simultaneously avoiding reparations for WWI. Economy mismatch is a troubling problem for economists. They rarely model it correctly. The plot of Goldfinger (irradiate all the gold in Fort Knox, thereby destabilizing central banks and causing world mayhem and rocketing gold prices) was basically the plot of the Nixon Shock which ended Bretton-Woods. There was decidedly not panic in the streets.Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.
Can you expand on this? It seems to me that the creation of money is an excellent way to eliminate debt, yes, but that hyperinflation and less debt are two results of one cause (money creation ex nihilo), rather than one cause and one result. EDIT: so ideally Venezuela walks that fine line where it creates money to throw at its debt to the United States, assuming that exists, while still maintaining a manageable inflation rate. Unfortunately instead Venezuela is fucked for tangentially-related reasons. EDIT2: as far as the Nixon Shock, I thought the Frum column mentioned in the Wikipedia article had some good bits.Something often missed in discussions of hyperinflation is that it's a brutally effective way to eliminate foreign debt.
John Mauldin spends several chapters on Hyperinflation in Endgame. The statistically-significant phrase you're looking for is "foreign denominated debt." http://news.goldseek.com/MillenniumWaveAdvisors/1318786155.p... (a leak from Mauldin Economics, which requires registration) As far as your edits, it's rare that I like reading David Frum, but you're right: he makes a case.Can you expand on this?
"In 1993 Brazilian inflation was roughly 2,000%. Only four years later, in 1997 it was 7%. Almost as if by magic, the debt disappeared. Imagine if the US increased its money supply which is currently $900 billion by a factor of 10,000 times as Brazil's did between 1991 and 1996. We would have 9 quadrillion USD on the Fed's balance sheet. That is a lot of zeros. It would also mean that our current debt of thirteen trillion would be chump change. A critic of this strategy for getting rid of our debt could point out that no one would lend to us again if we did that. Hardly. Investors, sadly, have very short memories. Markets always forgive default and inflation. Just look at Brazil, Bolivia, and Russia today. Foreigners are delighted to invest in these countries."
Okay, I'm still having trouble with the concept specifically quoted above, and yes I did read the rest of it. Hypothetical: Brazil owes the US 10 dollars -- dollars, not Brazilian reals. In 1993 one dollar is worth say five reals. So 50 reals owed. The Brazilian government decides to print some extra reals to pay the US back. However, it seems to me that if they print a few more reals, they've devalued the real in relation to the dollar by inflating their own currency -- and so instead of owing us 50 reals like they did before, they owe us more, because 50 reals isn't worth ten bucks anymore. So they haven't changed the status quo. I must be missing something obvious. Is it that Brazil's debt to the US is measured in reals not dollars no matter what? So as their currency hyperinflates the US can't demand more reals as payback? If that's the case why the hell do we loan money to countries that may ever become economically unstable? I mean, I obviously know that inflation aides a debtor in general, but I figured that rule stops applying when only one currency in the equation is inflating. (You have no obligation to teach me economics.)
And for fun, let's say Brazil owes Brazilians 250 Brazilian reals. In 1993 one dollar is worth say five reals. So 50 dollars owed. Sounds great. Let's say in 1995 one dollar is worth say 50 reals. So Brazil owes The US 10 dollars (or 500 reals) and Brazilians 250 reals (or $5.) Brazil's debt load has dropped from $60 to $15 through a mere factor-of-10 inflation! You missed the sleight of hand. 'cuz I'm printing reals for the explicit purpose of fucking my country. I can pay the fuck out of my domestic debt. That was the point. It's now nothing. All that cash you were hoarding? Yeah, eat shit. It's worth ten cents on the dollar. 'cuz my next move is to introduce La Nueva Real by lopping off a zero. I'm gonna exchange Reals for NRs at 1:10. And I'm going to peg the NR at 1:1 for dollars. So even if I hadn't paid off my pensioners, I'd only owe them 25 NR. But I have. And even if I hadn't paid off the US, I'd only owe them $15. Make no mistake: it's pure monetary destruction. It usually involves riots, unrest, panic in the streets, an upended social order, hoarding, all that superfun Weimar Republic shit. But then you get through to the other side and you're an economy again. Think of it as a hard reset for an economy - a three-finger-salute for a kernel panic. Recovery is likely to be a bitch, and you will have lost data… but once you reboot, the system will run again. Make sense?Brazil owes the US 10 dollars -- dollars, not Brazilian reals. In 1993 one dollar is worth say five reals. So 50 reals owed.
The Brazilian government decides to print some extra reals to pay the US back.
I must be missing something obvious.
Yes, it does. What I wasn't getting was that the benefit came through ducking out of domestic debt as opposed to foreign. Yes, you could certainly use hyperinflation to screw your citizens out of all their real wealth. Couldn't simultaneously screw your creditors in the US out of theirs, at least not this way. Thanks for bearing with me.