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hyperinflation: the politics

lying-pinoccioIn a previous blog entry I ended with: “What actions, reactions and preparations are obvious, likely and wise?

Attempting to keep it bite sized, I’ll try to focus here on political actions and reactions. Some things are assured, some are completely unpredictable while most things lie in between. The biggest variables come from politics. What will the ruling class do? What will they attempt? What will the people accept? What will be unacceptable? What will be demanded?

The majority or at least a large, vocal minority can be counted on to expect salvation from the very people who caused the problem. In every major inflation there is great clamoring for the money manipulators to pass out more money. While definitely not universally accepted as a good thing, it is widely enough accepted as to allow, if not encourage runaway paper money printing to happen.

Of course that will only serve to make the problems worse. The next steps will be to place the blame on people and events other than the dilution of the currency. Then official attacks on symptoms and even attacks on cures will begin.

Price controls will be instituted. The results are consistent. This will cause shortages. The allocation of resources will no longer guided by prices and will, therefore, deteriorate. There will be hue and cry from below and posturing from above with more official intervention causing even greater misallocations of resources.

Rationing will become a part of this, and typically include government takeover of certain industries and products. Ration cards, limited access to fuel, even outlawing private ownership of gold are all examples from the USA past. Those and many more are part of the history of monetary inflation world wide.

Reduced purchasing power will generate animosity towards those who increase prices. Limiting the price increases on “the other guy” will be popular. Limiting wage and salary increases will be welcome in all but their own cases, but accepted as a cost of keeping everything else affordable.

This means, of course, that regardless of whether a service is valuable or not, they will all pay the same wage as they used to when measured in dollars. That same logic that would still have us paying buggy-whip manufacturers and candlemakers as much as we pay auto mechanics and electricians. We then enter a phase where needed services exact premiums above and outside of the official, allowed wage.

The black market or underground economy grows to be a widely accepted part of daily life. An unauthorized economy always exists outside of the controlled economy. Laws and enforcers never eliminate it. Any look at any prohibited economic segments of any era and any sphere of influence proves this out, including the ultra-expensive USA ban on non-prescription drugs.

Occasional official punishment of black market participants is limited, and usually only affects individual suppliers. The market goes on not only because it cannot be stopped, but also because it keeps the ultimate pressure off of the officials to achieve the impossible of perfecting their controlled economy. Aperachnicks in the USSR could and did confiscate rare and precious items from black marketeers on whim Because They Could, and allowed the suppliers to continue in business as long as the “civil servants” could intermittently exact this subterranean tax.

Needed services require non-cash, extra-official incentives. The explosion in benefit packages in the USA is a direct result of the last round of wage and salary controls. The next one will be similar with employers in important markets adding non-penalized bonuses – at least the successful employers will while the rest scramble for competent labor. Anything the government doesn’t prohibit or tax to death will be used as an inducement to keep or attract good workers to perform needed services at greater than the allowed wage/salary rate.

Needed products will be unavailable or intermittently available at the sanctioned price. The Figgie International researchers found many examples in hyperinflating economies of companies whose primary business evolved from producing one thing to being purchasing agents, distributors, warehouses – first of raw materials integral to their business whose shortage they anticipated ahead of others, then of related products, and finally of unrelated products. While excessive purchasing and warehousing of materials is unattractive now, savvy entrepreneurs will be alert to the early signs of systemic shortages and quick to respond to volatile markets.

The final days of every unbacked paper currency (fiat currency) is multiple choice. If enough of the looted recognize what happened, who stole their money, who lied about it, and who led them into this mess, they will throw the bums out with extreme vigor. The throwing the bums out part happens almost always, but the replacements are rarely better, seldom come from outside the old bums’ circle of friends and are oftentimes worse.

The true engineers of our cultural and economic demise are behind the scenes of both major USA political parties and behind the rulers in most countries. Actually removing them as puppet-masters is highly unlikely. Our only hope lies in widespread knowledge of non-prescribed political and economic thought that is now widely found on the Internet. It is a thin hope. You might even notice that the Internet occasionally comes up as an enemy. It is indeed an enemy of the state in the best meaning of that phrase.

If they did understand how this disaster came to be, the general populace would make darn sure their next money supply was based on, or entirely comprised of precious metals and warehouse receipts directly exchangeable for precious metals. This has occasionally happened and takes 50 to 100 years for the money changers to convert back to another fiat currency.

Regardless of the official results, a significant portion of the population who live through a hyperinflation WILL understand that centrally controlled, unbacked currencies are inferior to good barter and trade items, including gold and silver and currencies that are honestly backed by interchangeability with gold and/or silver.

In every successful conflict between those who live “Give me liberty or give me death” and a ruling elite, there are about 4% who fight on the side of freedom for all and 10% of the general population who support them. The looters and sub-looters balance that with about 4% who are total parasites and another 10% semi-parasites who support them. However the looters are not as inspired, ambitious or dedicated. In the middle are 80% who watch the show and root for one team or the other.

How will it come out this time? Information is the key. If “they” can take away freedom of communication, they might just win this round. If the geeks, nerds, libertarians, pornographers, bloggers, anti-statists and survivalists can keep the Internet alive, the looters will lose.