Has the hyperinflation already taken hold?

So here is something different, as Peachy posts go. Not just because it’s under a stupid MB-style click bait heading. But because it’s not really preaching or gloating, but rather some musing (perhaps, plodding, pleading?).

This is not something that I am pushing as the truth, but how things appear to me, from one perspective. Sometimes.

Going on this jotting journey partially because of friend Coming who, while riffing on stupid cryptards, has uncorked the question on hyper inflation. Partially because of friend BJW and his earlier “money and guns” post ( https://www.ezfka.com/2021/03/05/fiat-has-value-because-the-government-has-guns/  ). Partially because of other stuff, like reading various inflation vs deflation or “where’s the inflation?” rants over the years. 

Anyway, here is the idea – the inflation (or hyperinflation) that people are looking out for is actually in the rear view mirror. It’s behind us. 

If inflation is the loss of the purchasing power of currency and hyperinflation is the same, spurred by a loss of faith in currency, then are we not already largely there?

It feels like peoples attitude to money – in the form of AUD currency – has really changed. Money – in the form of currency – has become worth less. Tending to worthless.  It feels like rather than accumulating AUD currency, people have really started to eschew it. 

Some case study sketches on this theme. 

1. Point one: The prices of everything (the value of nothing)

Not so long ago, prices mattered. People looked around for better prices on things and there was a class of things that people judged that they *could not afford*.

I look around and see a different set up. Prices don’t matter and there aren’t really things that people judge that they can not afford. Prices are just numbers, a detail to be disregarded. 

As examples – a $500 pair of shoes used to be a special thing to have in your wardrobe. You’d agonise for months before making the purchase. You’d wear them out on special occasions. You’d discuss them with your girls.  (Some people couldn’t afford $500 shoes.)

Now $500 is just how much you regularly pay for shoes. That’s just how much they cost. Sometimes you buy some cheapies for $200-$300. 

Same thing with $200 blouses. Even bigger thing with dem iPhones. The very first iPhone (iPhone 4) was considered a VERY EXPENSIVE THING at about $900. Most people only lusted for one and didn’t buy one. Instead they went for Samsung or HTC lookalikes for $400 or so. 

Now an iPhone is at least $1,500 and people just go and buy one. In fact they buy 3 (hubby needs one, as does junior in grade 6). That’s just how much things cost. 

1.1 The prices of everything corollary

It looks like very significant inflation in the price of consumable goods is already behind us. We are living in it. 

2. Point two: “The Corolla” and broader old banger situation 

A biographical sketch, now.  

When Peachy was a prim whipper-snapper, an old uncle who was an engineer tried to spark an interest in things manly and mechanical (“come on, it will be more fun than playing dress-ups and gossiping all day”).  

One of the uncle’s ruses that Peachy *almost* fell for was a plan to buy an ancient Corolla to pretty up together –  for Peachy to ultimately drive on those Peachy P-Plates (“good cars, those Corollas, keep going forever. Flush out the tank, rebuild the carby, maybe some new rings…”).

Alright, so what’s the point of point two? Two points: 

Point one – The prices of the used Corollas were typically $600-$800 with something like 100,000km on the clock.  $1,000 got you “a really good ‘un”.

Peachy tried pricing up a similar car now…

It’s 5 times more expensive, has more ks on the klock and it certainly isn’t gotten any younger.

Point two: Who these days would be caught dead being a p-plater in a car more than 5 years old? And not a euro? Let alone working on a car!

2.1 The Corolla corollary

It looks like very significant inflation in the price of consumer durable goods is already behind us. We are living in it. 

3. Point three: “investments” – crypto currencies, shares, whatever

Anyone I talk to doesn’t keep anything but a token amount in cash/deposits. Everything is ploughed into consumption. Or into assets. Or into “assets”.

People will buy shares at record valuations. People will buy shares in companies that they don’t understand. 

People will trade options and FX. 

People will buy crypto currencies that they don’t understand…at record valuations.

3.1 The “investment” corollary

All of this “investment” behaviour is entirely consistent with the viscerally felt (but perhaps not consciously realised nor verbally acknowledged) experience of cash devaluation from christmases past and an expectation of cash devaluation in christmases yet to come. Getting out of dollars and getting into anything that is either not dollars or is undollars. 

So what does “now” feel like?


Having cash in your bank account is complete poison now. If you have $30,000 just sitting there, you are embarrassed to tell your friends, because they will look at you like you have two heads. 

The mood is different to, say, a decade ago. 

What’s the point of having thirty thousand big ones just in cash? Anything you need to buy, you should buy now. Anything you might need in the future you can’t really “save” for because it will cost more later. 

People will buy anything – without much regard to price – if it offers them some value now, some value on an ongoing basis, or some possibility of some kind of return in time. The last thing people want to have is I applied funds. This is considered to be a wasteful.  

On some days, this certainly feels like a loss of faith in the currency to me.

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T

Very good article!

I was reading an analysis (maybe here? not sure) that said the implied interest rates in crypto were about 10%

If we are seeing breakouts in inflation, it makes sense we are also seeing breakouts in rates curve.

No way rates don’t move till 2024.

p.s. also one of the images is dodgy.

robert2013

Your icon/gravatar/whatever looks a bit like a dick and balls. Just saying.

Stewie

😲

DictatorDavid

I agree, great post Peach.

Savers have been getting screwed for quite some time now and money in the bank is essentially a loss. As rates have gotten lower people have taken on more and more risky investments to try and earn some interest.

So the question is where do things go from here?

Also remember when DLS was always calling for ZIRP? Because that was meant to fix things… LOL!

T

So can’t speak for anyone else, but my strategy has been to decouple from markets.

Its never been easier to build an app or service of some kind and find clients.

This way the savings (effectively) is being turned into an economic moat of some kind.

The return is way better, and you can focus on building real wealth in terms of a business, relationships with clients and suppliers, an ecosystem of shared interests within which one is far more resilient to the ongoing crapshoot.

In such a paradigm, keeping most of your ‘wealth’ in nontaxable assets (best of luck taxing spent capex), while indulging in meaningful speculation seems to be the smart approach.

Last edited 6 months ago by T
The90kwbeast

How dare you start a productive enterprise, and not divert capital into unproductive assets! That’s un-Australian! /Sarc

T

lol i forgot about ZIRP. That an MPLOL – always funny 🙂 🙂

stagmal

very true about the iphones, i have no idea how so many people afford to own them because i see them everywhere when i shouldnt. what has changed since 2009-2011 or so when smartphones were around but nobody owned one, its not like they have gotten any cheaper or anyone has gotten any richer.

The90kwbeast

Property is up 100%, mega intense consumption credit boom on all and any luxury items.

Coming

“It feels like peoples attitude to money – in the form of AUD currency – has really changed. Money – in the form of currency – has become worth less. Tending to worthless.  It feels like rather than accumulating AUD currency, people have really started to eschew it. “

if you listen to Jeff Schneider , this is the only real tool that central banks have

they are literally running a confidence (con) game

they can’t get real money into the economy , but they can threaten and postulate and make big numbers go up but nobody knows what those numbers mean (M1 etc)

this makes it come true as people believe it’s real, which in turn reinforces faith in the central banks , and so on

(or actually decreases their faith in holding currency, which is what the central bank WANTS)

similar confidence game in crypto with their wash trading and tether

“if you build it , they will come”

And it becomes self reinforcing

there is certainly shortages and supply issues because of corona hysteria, though not a monetary issue

so yes it is a reduction in faith in holding currency, because inflation expectations affect people’s propensity to SPEND

which is exactly what the central banks wants

Last edited 6 months ago by Coming
pfh 007

I think those rich “money is no object” folk are thinking with their “equity mate” estimates. Everything looks cheap compared to residential land inflation.

However, my fancy “going out” sneakers were less than $100 (my Aldi hiking boots were $39 …. my heel arches have never been flatter) and I haven’t seen anyone selling top shelf KT-26 for anywhere near $500.

But I am pleased that my Corolla 2008 with 160k clicks is looking after my retirement.

Freddy

I find myself going the other way as I get older. All the years of slapping my feet on the ground has destroyed the padding on my feet, and needing to be supplemented with the extra padding from top of range Asic Gel Kayano. I have spent a fortune on many pairs but it is a pleasure to be able to walk without wincing.

The90kwbeast

Thought provoking post however whilst some things have gone up, mostly asset values, consumption items have mostly gotten cheaper. Luxury items are usually priced according to what people are prepared to pay, such as iphones.

The reason why premium/luxury items are everywhere priced at whatever people will pay is due to the house price boom.

Chinese Astroturfer

That’s true you can get Chinese brand phones that do 95% of what a high end phone does for $200 The technology is incredible.

I’ve mentioned here before that Australia really is an easy place to live if you own your own place, keep expectations in check, work the system to your advantage, you’re not trying to compete in an arms race with friends, family, colleagues, neighbours, etc.

Yes, the days of the raising a family on one average income in a house on a big quarter acre block are over and never coming back, but that doesn’t really exist anywhere in the world unless you want to live in rural towns with nothing going for them.

Last edited 6 months ago by Chinese Astroturfer
Freddy

You need to factor in interest rates. If you had left $800 in a cash account since 1984 it actually hasn’t performed that badly:
$8933 at 0% tax on interest
$4357.5 with 30% tax on interest
$2692 with 50% tax on interest

I will note that median wages have risen a similar amount to the Corolla. So cash has actually been a reasonable store of wages for workers. The issue is the financial repression that is going on now which effectively puts everyone including the lowly paid on a 100% tax on interest.

You know my thoughts on wage inflation being what counts. Government workers have been told they will not be getting their usual 2% pay increase this year because it is way above what the private sector is getting. That sums up where I believe we are at with inflation. The lowest inflation in decades.

People are confusing rising asset prices with inflation. Asset prices a largely a function of interest rates due to yields and cost of debt.

Freddy

“bullshit – rising asset prices are the devaluation of currency and labour. And the devaluation of currency and labour sure is inflation”

It is bs for those who don’t want to get a massive mortgage but house prices are currently being determined by the cost of debt. From that perspective they are behaving more like bonds with the value of that bond more likely to rise in a disinflationary environment leading to interest rate cuts.

If the if Corolla dates were wrong, my example still works vs median wages. If you take into account interest rates then the inflation is not half as bad as what people make it out to be.

Freddy

What I mean is a house price is determined by principle portion of a loan. Let’s say wages are stagnant and hence monthly repayments remain the same. That means principle + interest remains the same over the life of the mortgage.

The only variable then is interest rates which determines what proportion of principle vs interest. If mortgage rates were to drop to 0% then the principle amount would be 100%. i.e. house prices a lot higher, but the monthly repayments haven’t changed.

That is kind of what is going on. Wages are going nowhere and it is just interest rates falling which is increasing the principle portion of the loan.

My analogy to bonds would be:
face value = principle loan amount
yield = interest repayments

The total of face value + yield remains constant. Interest rates just determines how much face value vs yield.

Last edited 6 months ago by Freddy
Stewie

I would definitely agree that hyper-inflation is pretty much already upon us, certainly the manner in which assets prices have been pushed up over the past couple decades.

From a conceptual point of view I see pro’s and con’s to the debasement of money. Firstly the obvious con is that it fails in one of its duties to act as a store of value – this imho disproportionately impacts poorer people whose main source of income is through their own labour and whose only ability to generate wealth is to save and then invest. It requires a threshold of savings before being able to make a meaningful investment, where by the capital saved isn’t eaten away by fees and administration costs.

As a pro though I can see the benefit in money’s “value” being diminished the further away in time from the point that it was “earned”. Most economies go through regular cyclical economic cycles (well they use to at least), however, there are also longer cycles that can occur by things like technology advancement or population booms – like the Baby Boomers.

With those events, where the economy booms not through a technological advancement, but say population growth asset bubbles that develop are not a result of productivity gains, but more a function of market failures not meeting the additional demand by additional people – Australia’s housing market would be an example.

Essentially wealth should be temporally located to the time it was earned, that way the impact of booms or depressions, shouldn’t be allowed to spill over and feed or starve future participants in the economy.

However over time, I came to realise that this view on money and why it should be allowed to diminish in value over time, should in fact have also been extended across to ‘wealth’ in general – which is why I remain in favour of things like estate taxes and death duties. Of course elites hate this idea, and whenever they have been implemented they have been sure to lobby to make sure that the base at which they kick in is never indexed, such that over time more and more normal people are caught in such taxes, to the point where abolishing them once again gains broad popular appeal.

Ultimately however, I see the tolerance of inflation as being a cultural preference by our neo-elites and their experience as a 4,000 year old banking clan.

Traditional Western culture values placed strong emphasis on sound money, the ability to transact with faith and confidence, and the inability to create endless credit through bank issuance inflating asset values, was well and long known. The banking clan however see money simply as a means of transacting, they know that real wealth is held in real assets, so the best way to avoid penury is to hold real assets.

With the replacement of our elites, as represented by the adoption of views like Milton Friedman or Krugman, in respect of the purpose of money – “lowering interest rates will get people spending” (see the purpose of money is to spend) inflation is increasingly portrayed as a necessary evil to get the economy working.

Looking back through history there have been many examples of different civilizations going through periods of sound currency and unsound currency. One of my favorite is the Roman denarius. As a republic Rome used silver coins from Greece and the rest of the Mediterranean – it was sound money. However shortly after Pompey returned from the East Mediterranean with some 80,000 “slaves” things rapidly began changing in Rome. Firstly Rome switched from a Republic to an Empire with Julius Caser’s rise to power, and secondly over the ensuing decades as the influence of those freed ‘slaves’ grew within Rome, the Roman denarius, which was first minted with pure silver and was equivalent in soundness to pre-empire silver coinage, began to diminish in purchasing power at the same rate as the silver content diminished.

Essentially one set of cultural values see’s sound money as a bedrock upon which commerce and trust can be built, while another set of cultural values see’s money as a form of power, that can ‘magic’ wealth into existence simply by changing people’s perception of trust in regards to it.

I prefer sound money.

Stewie

Long way of agreeing with you and saying ‘Sound money is best’.

DictatorDavid

https://youtu.be/2t_EZ0k1Qeg

Wonder if Richard Jewels doppelganger lurks around these parts. Scary to think this guy is reaching 20,000+ viewers with financial advice.