What causes hyperinflations and why we have not seen one yet: A forensic examination of dead currencies

Martin Sibileau’s December letter is a MUST READ, and examines what causes hyperinflations, and why one has not occurred yet in the US.

What causes hyperinflations? The answer is: Quasi-fiscal deficits! Why have we not seen hyperinflation yet? Because we have not had quasi-fiscal deficits!

As anticipated in my previous letter, today I want to discuss the topic of high or hyperinflation: What triggers it? Is there a common feature in hyperinflations that would allow us to see one when it’s coming? If so, can we make an educated guess as to when to expect it? The analysis will be inductive (breaking with the Austrian method) and in the process, I will seek to help Peter Schiff find an easy answer to give the media whenever he’s questioned about hyperinflation. If my thesis is correct, three additional conclusions should hold: a) High inflation and high nominal interest rates are not incompatible but go together: There cannot be hyperinflation without high nominal interest rates, b) The folks at the Gold Anti-Trust Action Committee will eventually be out of a job, and c) Jim Rogers will have been proved wrong on his recommendation to buy farmland.
The manipulation will be so open that even the GATA will completely lose its raison d’être. It will be worthless to expose what will be public.


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A forensic analysis on dead currencies

When I think of hyperinflation, I think of dead currencies. They are the best evidence. There is a common pattern to be found in every one of them and no, I am not talking of six-to-eight-figure denomination bills or shortages of goods. These are just symptoms. Behind the death of every currency in modern times, there has been a quasi-fiscal deficit causing it. Thus, briefly, when someone asks: What causes hyperinflations? The answer is: Quasi-fiscal deficits! Why have we not seen hyperinflation yet? Because we have not had quasi-fiscal deficits!

What is a quasi-fiscal deficit?

A quasi-fiscal deficit is the deficit of a central bank. From Germany to Argentina to Zimbabwe, the hyper or high inflationary processes have always been fueled by such deficits. Monetized fiscal deficits produce inflation. Quasi-fiscal deficits (by definition, they are monetized) produce hyperinflation. Remember that capital losses due to the mark down of assets do not affect central banks: They simply don’t need to mark to market. They mark to model.

The only losses that can meaningfully affect central banks stem from flows (i.e. deficits), like net interest losses. These losses result from paying a higher interest on their (i.e. central banks’) liabilities than what they receive from their assets. These losses leave central banks no alternative but to monetize them, in a deadly feedback loop. They are like black holes: Once trapped into them, there is no way out, because (fiscal) spending cuts are no longer relevant, unless they produce a surplus material enough to offset the quasi-fiscal deficits. And that, by definition, is impossible.

This raises questions like: Why would a central bank need to pay interest on its liabilities? Why would the monetization of the losses necessarily lead to a spiralling process?

Read more at A View From the Trenches:


  1. Think about the manipulation power the Chinese will have when they launch their paper Gold and Silver ETF”S.
    The Chinese, not JPM will control the prices of Gold and Silver. JPM will try to profit in a paper war, but will lose
    big time!

    • That’s a scary thought. Need to file that one away. I think that they already are buyers of paper now. That helps keep the price down which they want. Much of the phyzz may indeed be going east. But eastern banks could well be helping in this paper Ponzi Scheme. Never forget ALL central banks are crooks, not just ours!

  2. After reading this a couple of times, I’m trying to understand the details of this quasi fiscal deficit turd in the punch bowl that compels hyper inflation.  But what does seem somewhat clear is that the ECB and its bad little brother the ESM are doing the thing that causes hyperinflation, starting with the head fake solvency deception that allows Greece to buy its second defaulted tranche of debt from the lenders at 30 cents on the dollar.  The bonds are shipped to the ECB  as collateral. Once Greek defaults with a civil war, something that looms closer as the weeks go by, their interest rate will exceed a level that allows any chance of normal payments much less pay off. 
    ECB and its crony banks will be stuffed with bad debt getting worse by the month.  Spain encounters its own bailout problems, demands the same set of terms as Greece, suffers the same effects of civil war and societal collapse.  In this event, the Spanish debt will be 10 times the size of Greek debt.  
     The ECB, as the central bank of the Eurozone, will choke on this garbage and be forced to throw it up once the bonds sour and payment terms are unsustainable.  That could be fairly soon, 1-2 years, and a continent-wide In(hyper)flationary event takes place, even involving Germany.
    The Eurozone GDP is larger than ours by 2 Trillion.  It’soverall debt leverage is $45 trillion, a much worse debt to GDP ratio.  3 to 1 vs ours at 1 to 1. They fall off the cliff before us.
    BTW, this is a BHAG on my part.

    • That may be, AG, but it sounds quite reasonable to me.

      Greece should have defaulted 2-3 years ago, rather than drawing out the pain and suffering for as long as they have.  I realize that the current handling of the Greek debt situation has nothing to do with helping Greece or the Greek people and EVERYTHING to do with protecting the profits of the big EU banks that loaned Greece much more money than was obvious they could repay.  Like a spider with a struggling fly in its grip, Greece will be released from the EU once it has been sucked totally dry of any value whatsoever.

      As to hyperinflation… Need there be “hyper-inflation” for the S to HTF?  Probably not.  Even high, but not hyper, inflation would result in a thoroughly miserable and untenable economic situation for many people, as their cost of living rises inexorably above their capacity to support themselves.


  3. Article is all gibberish and double-talk.  To have an arbitrage situation two different prices for the same item are required.  Years ago when the dollar was tied to gold and the Fed fixed the price of gold that created an arbitrage between the fixed gov’t price and the market price.  With today’s fiat money there is no arbitrage.  There is no quasi fiscal central bank deficit possible. The author’s premis of a quasi fiscal deficit is in error.  Instead what will cause a true hyperinflation with today’s fiat money is the public’s repudiation of the government’s issued currency.

  4. The carousel will only stop when the dollar loses its reserve currency status. Until then the ride will continue and the ponzi scheme will go on. There will not be any hyperinflation this time around, Fiat currencies are designed to hide all the nasties. Its a well designed fraud scheme, 70 years in the making. The only way to see a Fiat currencies true value is to measure it against another currency of equal standing (gold in this case), but as we have all seen, the Fed control the markets, so this too is hidden until it will be too late. The only beneficiaries in all this are countries with vast economic commodities such as the BRICS. Mark these moments as the Wests last stab with a fork into a bear.

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