Dear CIGAs,
1. The action of the dollar versus gold has caused many of you some degree of confusion. The many violent FOREX turns is a product of the most successful hedge funds growing in size where only one market can accommodate their bloated bodies – the FOREX market. There can be no other explanation for the euro bouncing five cents as often as a Mexican jumping bean.
As the dollar moves towards and below .8200, the inverse relationship between the US dollar and Gold will begin to reassert itself.
History will write about this period now as the death of the dollar, marking 2009 as when it occurred.
Who, two years ago, would have anticipated open discussions at a "G" meeting about replacement of the dollar as the reserve currency? If you had suggested that on financial TV, you would be labelled a fool.
The Chinese are decelerating their US Treasury instrument purchases which would have impacted rates if it were not for the Fed monetizing the US Treasury by stepping in where the Chinese are stepping out. Up to this week all the intelligencia argued the Chinese could not and would not do that.
2. The argument rages on between monetary inflation resulting in price inflation and a depression business condition in which few can understand how hyperinflation can occur. The fact that this is how every hyperinflation has occurred seems to not make it past the spin and simple incapacity to understand.
We have had two periods of hyperinflation in the USA. The first was the collapse of the currency, the Continental. The second was the collapse of the currency, the Confederate dollar. The third is in process now.
3. The argument goes on concerning commodity values, but what is not in focus is that all major commodities are dollar denominated in their major markets. The dollar will underwrite the next major bull phase in commodities.
4. In times of hyperinflation, gold generally has a stable value since a government printing money has less control of its supply.
When:
Let’s give credit to the best of market timers, Martin Armstrong. He calls for the earliest gold turn on April 19th versus the latest point of turn in mid June. If it is June he sees this as indicative of $5000 gold.
How High:
Let’s turn over the baton to Alf fields at $6000.
I will stay with $1650 until we trade there in the not too distant future.
Hyperinflation
From Wikipedia, the free encyclopedia
In 1956, Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, generally regarded as the first serious study of hyperinflation and its effects. In it, he defined hyperinflation as a monthly inflation rate of at least 50%. International Accounting Standard 1 requires a presentation currency. IAS 21
In 1956, Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, generally regarded as the first serious study of hyperinflation and its effects. In it, he defined hyperinflation as a monthly inflation rate of at least 50%. International Accounting Standard 1 requires a presentation currency. IAS 21[provides for translations of foreign currencies into the presentation currency. IAS 29 establishes special accounting rules for use in hyperinflationary environments, and lists four factors which can trigger application of these rules:
1. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.
2. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
3. Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.
4. Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.
Root causes of hyperinflation
The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run.
Examples of hyperinflation
Angola
Angola went through its worst inflation from 1991 to 1995. In early 1991, the highest denomination was 50,000 kwanzas. By 1994, it was 500,000 kwanzas. In the 1995 currency reform, 1 kwanza reajustado was exchanged for 1,000 kwanzas. The highest denomination in 1995 was 5,000,000 kwanzas reajustados. In the 1999 currency reform, 1 new kwanza was exchanged for 1,000,000 kwanzas reajustados. The overall impact of hyperinflation: 1 new kwanza = 1,000,000,000 pre 1991 kwanzas.
Argentina
Argentina went through steady inflation from 1975 to 1991. At the beginning of 1975, the highest denomination was 1,000 pesos. In late 1976, the highest denomination was 5,000 pesos. In early 1979, the highest denomination was 10,000 pesos. By the end of 1981, the highest denomination was 1,000,000 pesos. In the 1983 currency reform, 1 Peso argentino was exchanged for 10,000 pesos. In the 1985 currency reform, 1 austral was exchanged for 1,000 pesos argentinos. In the 1992 currency reform, 1 new peso was exchanged for 10,000 australes. The overall impact of hyperinflation: 1 (1992) peso = 100,000,000,000 pre-1983 pesos.
Austria
Between 1921 and 1922, inflation in Austria reached 134%. With the highest banknote in denominations of 500,000 Austro-Hungarian krones.
Belarus
Belarus went through steady inflation from 1994 to 2002. In 1993, the highest denomination was 5,000 rublei. By 1999, it was 5,000,000 rublei. In the 2000 currency reform, the ruble was replaced by the new ruble at an exchange rate of 1 new ruble = 1,000 old rublei. The highest denomination in 2008 was 100,000 rublei, equal to 100,000,000 pre-2000 rublei.
Bolivia
Bolivia went through its worst inflation between 1984 and 1986. Before 1984, the highest denomination was 1,000 pesos bolivianos. By 1985, the highest denomination was 10 Million pesos bolivianos. In 1985, a Bolivian note for 1 million pesos was worth 55 cents in US dollars, one-thousandth of its exchange value of $5,000 less than three years previously.[12] In the 1987 currency reform, the Peso Boliviano was replaced by the Boliviano at a rate of 1,000,000 : 1.
Bosnia-Herzegovina
Bosnia-Hezegovina went through its worst inflation in 1993. In 1992, the highest denomination was 1,000 dinara. By 1993, the highest denomination was 100,000,000 dinara. In the Republika Srpska, the highest denomination was 10,000 dinara in 1992 and 10,000,000,000 dinara in 1993. 50,000,000,000 dinara notes were also printed in 1993 but never issued.
Brazil
From 1986 to 1994, the base currency unit was shifted three times to adjust for inflation in the final years of the Brazilian military dictatorship era. A 1967 cruzeiro was, in 1994, worth less than one trillionth of a US cent, after adjusting for multiple devaluations and note changes. A new currency called real was adopted in 1994, and hyperinflation was eventually brought under control. The real was also the currency in use until 1942; 1 (current) real is the equivalent of 2,750,000,000,000,000,000 of those old reals (called réis in Portuguese).[13]
Bulgaria
During 1996 the Bulgarian economy collapsed due to the BSP’s, slow and mismanaged economic reforms, its disastrous agricultural policy, and an unstable and decentralized banking system, which led to an inflation rate of 311% and the collapse of the lev, with an exhange rate $1:Lev reaching 1:3000. When pro-reform forces came into power in the spring 1997, an ambitious economic reform package, including introduction of a currency board regime and pegging the Bulgarian Lev to the German Deutsche Mark (and consequently to the euro), was agreed to with the IMF and the World Bank, and the economy began to stabilize.
