German cartoon explains "Inflation Monster"

I heard about this on a segment of NPR, and decided to look up the cartoon. Most of the names in the credits at the end seem to be German. The Germans know a lot about hyper-inflation, because it destroyed their currency in the 1920s, with devastating consequences, so it's not surprising that they want to teach about that danger to the rest of the EU.

This cartoon is also promoting the European Central Bank. It makes them seem ever-so reasonable, working to contain inflation and deflation. But I have to wonder about all Central Banks everywhere. Are the problems they are working to contain, problems that they created in the first place? Like printing too much money and debasing the currency? Some of the comments that were made on the Youtube page, posted beneath the video, offer food for thought:

ECB Inflation Monster Cartoon

[...]

Propaganda doesn't have to be lies. But it's subtly implying that the ECB is actually good for europe...

[...]

its not propaganda everything is true what it says but the ecb isnt explaining why they printed 1000 billion euros for the banks last year in this cartoon

[...]

That's a great question. Greenspan "talked" free market capitalism. The problem is, the Federal Reserve is NOT part of a free market. Controlling the price and amount of money (interest rates and inflation) is NOT free markets. A free market hasn't really been tried since 1913. It's a fallacy to say what we have today is a free market, when a central bank controls the money supply, along with government access to that "unlimited" supply, and while government is in partnership with big business.

[...]

This video is very misleading. Keynesian economics and central banking is now being proven out that it doesn't work! Free market economics (also known as the Austrian school of economics) is the way to prosperity for all! Also, deflation is a natural occurrence as technology increases and the cost of making things goes down, which is good for everyone!

[...]

This is banking propaganda rubbish. You don't need to fight off these "monsters" if you have "real" money, like silver or gold. A central bank is justified in existence because governments want to be able to spend without restraints, and big corporations want cheap loans from the central bank. That's why we get these freaking boom and busts!

[...]

So how does the Stockmarket feed this "Inflation Monster" thingy? With Futures and Futures of Futures leading to Concealed Inflation (4:54), once profits are cashed out of the Casino Stockmarket scene, and real world business become commodities, along with real estate, the Inflation Monster looks like Punch in a Judy show run by the "Stockmarket Index" monster, and Oliver twists in his grave, by Dickens!

[...]

Related Links:

Commentary: Stimulate the economy, not government

What would a U.S. currency collapse look like?

Argentina's Example: Are we heading there?

Our true national debt: $130,000,000,000,000.

The Literal High Price (or prices!) of QE3

Has US Currency already "collapsed"?

"The psychological pain will be much greater than the Great Depression, even though the physical conditions will be much better."

     

The Literal High Price (or prices!) of QE3

 QE3 Will Further Destroy U.S. Dollar

  [...] The actions of the Federal Reserve have a dramatic impact on the lives of every single American. The central bank essentially controls the value of the money that we have in our pockets. QE1 and QE2 can be blamed in large part for the skyrocketing price of food at the grocery store. The same supply and demand rules apply to money. The more dollars we have in the circulation, the less valuable the money becomes. The Fed is a main reason why it’s costing us more dollars to fill up our gas tank nowadays.

For decades, Rep. Ron Paul (R-Texas) was the lone voice in Washington speaking out against the Federal Reserve. He writes that “the inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money... dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real — the individuals who suffer most from cost of living increases certainly pay a ‘tax.’” QE1, QE2 and QE3 are nothing more than stealing wealth from the people through the hidden tax of inflation.

Our Founding Fathers would surely be outraged by the existence of the Fed. These great men believed in a limited government that was held accountable to the people. The Federal Reserve, which is generally regarded as a quasi-governmental entity, has less oversight than even the Central Intelligence Agency (CIA). The most powerful central bank in the world makes all of its decisions without even a single vote from our elected representatives in Congress.

You can bet that the Fed is up to no good behind closed doors. Due to a provision under the misguided Dodd-Frank financial overhaul law, the Government Accountability Office (GAO) conducted a one-time, watered-down audit of the central bank back in July. It gave the American people their first peek into the central bank’s books but prevented investigators from peering into their deliberations on interest rates and the most crucial transactions of the Fed. We still need to pass a true audit the Fed bill like Ron Paul’s Federal Reserve Transparency Act of 2011 that would require comprehensive audits on a regular basis.

The first ever audit revealed that the central bank “loaned” out $16 trillion at a zero percent interest rate to corporations and banks around the world during the height of the financial crisis. To put that number into perspective, the Gross Domestic Product (GDP)—the value of all economic activity within a country— of the United States is only $14.12 trillion. It’s no wonder that the Fed is desperately trying to protect their privileged secrecy. 
[...]

There is much evidence to demonstrate that the Federal Reserve is a major part of the problem, not the solution:

Fed Up with the Fed?

[...] The policies of this administration make it risky to lend money, with Washington politicians coming up with one reason after another why borrowers shouldn't have to pay it back when it is due, or perhaps not pay it all back at all. That's called "loan modification" or various other fancy names for welching on debts. Is it surprising that lenders have become reluctant to lend?

Private businesses have amassed record amounts of cash, which they could use to hire more people— if this administration were not generating vast amounts of uncertainty about what the costs are going to be for ObamaCare, among other unpredictable employer costs, from a government heedless or hostile toward business.

As a result, it is often cheaper or less risky for employers to work the existing employees overtime, or to hire temporary workers, who are not eligible for employee benefits. But lack of money is not the problem.

Those who are true believers in the old-time Keynesian economic religion will always say that the only reason creating more money hasn't worked is because there has not yet been enough money created. To them, if QE2 hasn't worked, then we need QE3. And if that doesn't work, then we will need QE4, etc.

Like most of the mistakes being made in Washington today, this dogmatic faith in government spending is something that has been tried before— and failed before. [...]

Sowell goes on to show how history is repeating itself.

Owning a business is similar in some ways, to raising a child.  You have to anticipate all of it's needs in advance, and provide for them.   When the economic climate is uncertain, you have to maintain cash reserves to plan to deal with the unexpected, to insure that your business will continue to survive.  The current Administration seems to have no clue about this, just as it has failed to learn the lessons of history.

Germany in the 1920's learned a very hard lesson about Quantitative Easing, as the article at the following link demonstrates, with pictures of the actual currency in the final months. Absolutely horrific:

Quantitative Easing, Weimar Edition

Would it not be better to learn from the mistakes of those who have gone before us, instead of repeating those mistakes ourselves?    

The book "When Money Dies" is back in print

When it was out of print, only used copies were available, and were selling for more than $900.00. Now the book has been republished and is available for a very affordable $10.00 on Amazon.com:



When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany

Product Description

When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake.

Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, “quantitative easing,” that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit—necessity or profligacy, unwillingness to tax or blindness to expenditure—it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.

“Engrossing and sobering.” —Daily Express (London)

Chilling, because it really happened. A timely lesson from the past for us all. There are some interesting comments about the book in the customer review section too.

Also see:

Has US Currency already "collapsed"?

What would a U.S. currency collapse look like?

What happens when Tax Cuts Expire in 2011?

Our true national debt: $130,000,000,000,000.

Argentina's Example: Are we heading there?


   

The Argentina example: are we heading there?

Argentina's Kirchner Targets the Press
As the state-run economy hits the skids, the government responds with a crackdown on the free press.

One way a president can boost poll numbers in a bad economy is to wrest control of the central bank and start printing lots of pesos. There's nothing like cheap financing to restore the market's enthusiasm for buying all sorts of stuff—from stocks to houses—already on sale at fire sale prices.

The great reflation will make people feel rich again. A weak currency will also be a short-term boon to exporters, whose profits can then be taxed at ever higher rates. Complainers can be denounced for their greed.

Of course this perpetual motion machine will eventually conk out and when it does, a government that expects to survive will find it necessary to silence its critics. Just ask Argentines, who are living all of this in real time.

After more than five years of heavy state intervention in the economy, Argentina is again sliding into recession. Double-digit inflation is spiraling north and the government is running out of money. In response, President Cristina Kirchner is cracking down on the free press. Argentines are wondering if their democracy will survive.

The story of how Argentina got here is important to recall. The economy was flat on its back after the 2001-2002 collapse of "convertibility," the monetary arrangement that pegged the peso to the dollar. A demoralized nation was looking for a savior.

It thought it found one in Néstor Kirchner. He became president in 2003 and set about to restore the state-run economic model of Juan Peron; the market, he maintained, had failed. Mr. Kirchner took control of the central bank. He demonized the private-sector and investors. Using price controls, subsidies and regulation he made himself a Robin Hood to the masses. The legislature granted him extraordinary powers.

The economy bounced back as one would expect after a harsh contraction, and in 2007 his wife was elected president with 45% of the vote.

Now the illusionists are losing their touch. Not only is the economy going sour, but according to polls, the nation is growing intolerant of what many consider to be the first couple's abuse of power. [...]

Read the whole thing. I wouldn't say that it's exactly like what is happening here in the USA, but there are numerous parallels. Many. You have to wonder how similar the results will be, too.

I read about a book recently that sounded interesting, it's written by an Argentinian author, Fernando Ferfal Aguirre, about how he and his family survived the economic collapse Argentina has gone through:



The Modern Survival Manual: Surviving the Economic Collapse (Paperback)

Product Description
My book is a Modern Survival Manual based on first hand experience of the 2001 Economic Collapse in Argentina. In it you will find a variety of subjects that I consider essential if a person wants to be prepared for tougher times: -How to prepare your family, yourself, your home and your vehicle -How to prepare your finances so that you don't suffer what millions in my country went through -How to prepare your supplies for food shortages and power failures -How to correctly fight with a chair, gun, knife, pen or choke with your bare hands if required -Most important, how to reach a good awareness level so that you can avoid having to do all that. These are just a few examples of what you will find in this book. It's about Attitude, and being a more capable person and get the politically correct wimp out of your system completely.

I've posted before about other books that deal with currency collapse scenarios. While interesting, those books can be heavily theoretical. Aguirre's book is based on actual experience, which I think gives it added authority. So often, experience is the best teacher. Here is one of the comments about his book, posted at Amazon.com:

34 of 34 people found the following review helpful:

5.0 out of 5 stars Best Book for Ordinary Preppers, May 7, 2009

By Faith "Faith" (North Carolina) - See all my reviews

If you are considering buying this book, you are probably looking at the current economy and worrying about the future. You want to know how to protect yourself and your family from the effects of this downturn.

If you read other survivalist books, you start to think that it's useless to prepare. They make you think that you have to be a sharp-shooting tactician who can improvise a hand grenade using peanut butter and Band Aids. This is not true, as Ferfal explains in his book.

Ferfal is an ordinary person (with a wife and two kids) who is living through the day-to-day struggle of a failed economy, with all of the attendant crime and struggle. He gives advice that real people can follow. The book covers home security; personal security; Depression-proof jobs; basic defense techniques for ordinary people; what to buy in advance; legal issues and (my favorite section) advice from his wife. The site I bought it from allows you to preview the Table of Contents.

I am an ordinary wife myself, with minimal self-defense skills, no tactical training, and no "live off the land" knowledge. I found this book useful, informative and helpful, and after I read it I added many things to my shopping list that other "survivalists" never seem to mention.

A minor caveat: English is Ferfal's second language, and his writing reflects it. (The book is self-published, and it seems that he did not have an editor.) The writing is easy to understand, but sometimes amusing (he types "embrace yourself" instead of "brace yourself," for example.) Ferfal also uses cusswords sometimes; he explains why in the book. Neither of these caused me any pain, but you are warned.

The site at Amazon.com let's you read the index and several pages into the book as well, where Aguirre describes what happened when the collapse came. Fascinating reading.

At $25.00, the price is a bit steep for 252 page paperback, IMO. But if he really is self-publishing it, perhaps he has to charge that much. Anyway, read the sample pages and decide for yourself if it's worth it. I'm still thinking about it, it's on my Wish List.
     

Is Obama compounding Bush's mistakes?

I'm talking about financial mistakes, such as inflating our currency by spending money we do not have. It makes no difference what the money is used for; the end result will be the same: inflation, and all the dangers that entails. From George Melloan at the WSJ:

Why 'Stimulus' Will Mean Inflation
In a global downturn the Fed will have to print money to meet our obligations.

As Congress blithely ushers its trillion dollar "stimulus" package toward law and the U.S. Treasury prepares to begin writing checks on this vast new appropriation, it might be wise to ask a simple question: Who's going to finance it?


That might seem like a no-brainer, which perhaps explains why no one has bothered to ask. Treasury securities are selling at high prices and finding buyers even though yields are low, hovering below 3% for 10-year notes. Congress is able to assure itself that it will finance the stimulus with cheap credit. But how long will credit be cheap? Will it still be when the Treasury is scrounging around in the international credit markets six months or a year from now? That seems highly unlikely.

Let's have a look at the credit market. [...]

He goes into detail about out trade relationships with China and Japan, who hold the majority of U.S. Treasury securities that are held by foreign owners. But our financial relationship with them is changing. The dynamics will not continue as they have, and the results to us will be dramatic.

[...] The Congressional Budget Office is predicting the federal deficit will reach $1.2 trillion this fiscal year. That's more than double the $455 billion deficit posted for fiscal 2008, and some private estimates put the likely outcome even higher. That will drive up interest costs in the federal budget even if Treasury yields stay low. But if a drop in world market demand for Treasurys sends borrowing costs upward, there could be a ballooning of the interest cost line in the budget that will worsen an already frightening outlook. Credit for the rest of the economy will become more dear as well, worsening the recession. Treasury's Wednesday announcement that it will sell a record $67 billion in notes and bonds next week and $493 billion in this quarter weakened Treasury prices, revealing market sensitivity to heavy financing.

So what is the outlook? The stimulus package is rolling through Congress like an express train packed with goodies, so an enormous deficit seems to be a given. Entitlements will go up instead of being brought under better control, auguring big future deficits. Where will the Treasury find all those trillions in a depressed world economy?

There is only one answer. The Obama administration and Congress will call on Ben Bernanke at the Fed to demand that he create more dollars -- lots and lots of them. The Fed already is talking of buying longer-term Treasurys to support the market, so it will be more of the same -- much more.

And what will be the result? Well, the product of this sort of thing is called inflation. The Fed's outpouring of dollar liquidity after the September crash replaced the liquidity lost by the financial sector and has so far caused no significant uptick in consumer prices. But the worry lies in what will happen next. [...]

Remember the late 1970's? Something like that is coming, only potentially even worse. The chickens will come home to roost. Then what? stagflation? Look what we have done already:



And we are going to compound this mistake further? And when that fails, then what? Print up even more money? What goes up must come down. The higher that blue line goes, the sharper it will fall. It's already taken a sharp turn straight upward. Now we are going to push it up even further? Has everyone gone mad?

At the very least, it's making our currency fragile. A large terrorist attack or some other event that disrupts our economy could cause a run on our banks. Because of FDIC, the Feds would be required by law to print up even more money. Then what... Hyper-inflation, like Zimbabwe? What ARE we doing?


Our current National Debt is $10.7 Trillion!

Related Links:

Commentary: Stimulate the economy, not government

What would a U.S. currency collapse look like?

THE GREAT BUST AHEAD
     

What would a U.S. currency collapse look like?

Since the '70's, our government has steadily been printing more money:


This graph in a recent post by Pat (Inflation and our "funny money" supply) is startling in it's implications. Neither Republicans nor Democrats have done anything to stop the devaluing of our currency since the 1970's. In fact, they all have been printing even more money and devaluing it even further. When will it stop? Will it stop? And if it doesn't stop? Where will it lead us?



I've been reading a book called "PATRIOTS: surviving the coming collapse. It's a novel, in which a severe economic meltdown in the USA takes place. It was the description of the understated "crunch", the economic collapse when the dollar fails, that really gave me the creeps. What would the collapse of the American dollar actually look like?

The story starts with the US having 19 trillion dollars of debt, with interest on the national debt consuming 96% of government revenue. Most of it is "off budget", like the debts for the Iraq war, but it's still national debt. There is still interest to pay on it.

Ok, at this point you might say, "19 TRILLION DOLLARS of debt? No way, it could never happen." I would hope it wouldn't. But if you told me 10 years ago that we would even be talking about trillions of dollars of debt today, I would have said "No way, our government would never be that irresponsible". Yet, here we are. And our government has been taking debt "off budget", and borrowing from Peter to pay Paul. If they think it's ok to run debt up another 1 trillion, or 3 trillion... once you say it's alright to go down that road, then where does it stop? How much is too much?

In the story, European bankers start to express doubt that the US government can make the interest payments on it's growing debt, with serious results: foreign central banks and international monetary authorities began to dump their trillions of dollars in U.S. Treasuries. Foreign investors begin liquidating their U.S. paper assets.

The value of the dollar plummets. Businesses fail. Unemployment goes to 20% and higher. Ultimately it leads to a stock market collapse, and domestic runs on U.S. banks begin. Like in the Great Depression of the 1930's long lines of people form at the banks, wanting to withdraw all of their money. But unlike the 1930's, this time there is the promise of FDIC, "All deposits insured to $100,000." But the only way to let everyone withdraw their money, is to print even more money. This leads to hyper-inflation; the more money the government prints, the less it's worth. Think of Zimbabwe as a recent example.

In the novel, the government can't stop the inflation unless they stop printing money, but they can't stop printing more, because people are demanding their FDIC protected cash. With the resulting hyper inflation, soon a can of beans costs $150.00.

Now this is, to me, where the story really gets scary. I figured that if a 1930's type "depression" happened, it would be bad, but we would all somehow muddle through it, just as we had in the 1930's. But there are some significant differences between then and now.

In the 1930's, the government hadn't over-borrowed and raked up trillions of dollars in debt. In the 1930's, roughly half of American families lived on farms. They may have been made poor by the Depression, but they still had means to grow their own food and scrape by.

Nowadays, the population of the United States is much larger. The majority of U.S. citizens live in cities. Only 2% of the population lives on farms anymore. The majority of Americans must buy their food at stores. Think what would happen if they could no longer do that?

The story goes on to describe a situation where American cities are gripped with rioting and looting. The National Guard and the Army Reserve are called up to quell the rioting, but many of them don't report in, because they are staying home to protect their families.

Inner city areas are burned to the ground, and no one can stop it. Factories near cities close down "temporarily", but never open again. The Freeways that run through the cities become impassable, due to the riots, and due to fuel shortages, with people running out of gas and leaving their cars on the roads.

Most of the goods and fuel shipments in the US are transported on 18 wheel diesel trucks that use the interstate highway system. They all pass through cities. The cities become impassable, so the shipments of goods and fuel stop.

Trains pick up some of the slack, but not enough, and even they are vulnerable; mobs soon learn they can rip up the tracks to derail the trains, and loot them.

Without fuel shipments to power plants, the electrical grid begins to shut down. The few remaining factories that are operating are shut down by this, as well as the oil refineries that make our fuel. Even the refineries can't produce enough of their own electricity to keep operating, because they, like everyone else, always assumed they could count on the national power grid.

As the power grid shuts down from lack of fuel, so do the telephones, the internet, radio and TV stations. We are plunged back into the dark ages, literally. Our civil institutions and the rule of law break down completely.

THAT never happened in the 1930's.

You'll have to read the book for the complete picture the author paints. Now I grant you, the author is a survivalist. His reason for writing the novel was to use it as a vehicle to teach many of the survivalist strategies and related knowledge he has compiled, in the context of a story where such knowledge would be applied. Therefore, he has painted the bleakest picture possible, as a canvass for that story (See review in link below).

One can argue that a real crash might not be so... severe? I'm sure there are lots of variables, but the story Rawles tells is very compelling none the less. If nothing else, you have to wonder, WHERE is all this endless deficit spending leading us? The disaster described above is completely avoidable, but will we? It often seems like everyone in government is either oblivious to or unwilling to deal with the dangers of huge deficits and inflated currency.

I know that with a personal or a family budget, if you start having "off budget" debts, your finances will be headed for trouble. Government budgets are no different. We must all live within our means. The consequences of ignoring that could be too horrible.

As for this book, I have to read it in parts, and then give it a break. It's intense. I'm not really of a survivalist mind-set. I like to be an optimist, balanced with a boy-scout "be prepared" attitude. The book is full of all sorts of useful tid-bits of information, such as "how long can you store gasoline before it's no longer useful in an automobile?" (about two years, unless you add chemicals to extend it's life). But the story... argh. I don't want to go there, not even mentally.

But even worse would be to go there actually, in reality. That's why I made this post about it. Let's NOT go there.

Lest this all sounds too depressing, the author says on his website that each of us has to decide for ourselves how bad things could get, and what preparations we want to make. Fair enough.

I hesitated to make this post at all, lest it sound too grim. I'd like to just forget about it, but then I keep seeing headlines like this one today:

New Bank Bailout Could Cost $2 Trillion

Our national debt is already more than 10 trillion dollars. Where is it going to stop? It just makes me want to ring the warning bell. Forewarned is forearmed.

We should not go down this road. But if the nation does anyway, we had best keep our wits about us, try to steer for "damage control", and make preparations along the way as we think might be wise for our circumstances. And never give up hoping, praying, and affirming the best outcome.


Related Links:

Patriots: a customer review on Amazon

An Economic 9/11? A Depression? Trends...

The Federal Deficit and the American Dollar


UPDATE 07-08-10:

Has the slow portion of the collapse already begun? A case is made for it:

Has US Currency already "collapsed"?

Has our nations current financial policies accelerated the collapse process? We may see as soon as next year:

What happens when Tax Cuts Expire in 2011?

Is there anything that can be done about it? I'm not sure, but I think the November elections this year will be our last chance to vote in politicians who can deal with the reality of our present situation:

Our true national debt: $130,000,000,000,000.

November is probably our last chance to stop the runaway gravy train, before it derails.