- JoNova - https://www.joannenova.com.au -

Inflation: the creeping hand of corruption

UPDATE May 27, 2011: While the inflation information here is correct, be aware news has just come out that the NIA (who made the video) is a pump and dump group, doing potentially fraudulent work. So enjoy their videos but beware of their stock recommendations. We wondered who was behind this video — at least it finally makes sense.


Joanne occasionally writes about the science and corruption of monetary systems. She summed up the connection between the two dismal sciences (climate and economics). If you are new to this theme see the explanation and links at the bottom of the article.

You might think inflation and climate science are only linked metaphorically. But the corruption in science is fed by the corruption in our currencies.

The monetary system that allows a privileged few to print money from nothing is the same system that allows massively misdirected spending. When there are so few controls on the growth of money, there is less negative feedback, fewer brakes, and virtually no limits. If the system is swimming with easy money, people can “afford” to build wildly extravagant and unproductive things — like wind-farms, carpets of solar panels, or symbolic rivers of blue plastic.

This is a video related to the endgame of that topic, and I gather it’s going viral. It’s provocative.

‘The sound track is very professional, even if the plot time-line is overly compressed. In the end this is  also interesting because it marks another incremental step up in the war between new media and old. If you have a message to tell, you can pay for advertising on  MSN or you can create an online video and watch it run…

The Day the Dollar Died by the National Inflation Association.
The first 12 hours of a U.S. dollar collapse.

Could this happen in a day? No. But over a few weeks or months, maybe. The US debt level (compared to its GDP) is now higher than it’s ever been. The easiest way to pay off these debts (and possibly the only way left now) is to print money. The new money is digital, so no one will need a wheelbarrow. (Did you hear the one about the German in 1923 who got mugged on his way to buy a loaf of bread with a wheelbarrow load of cash? The mugger dumped the cash and took the wheelbarrow.)

But while inflation may be the only road out of the debt-pit in a democracy (many borrowers, few lenders), no one in power will be issuing a press release. Those in control of the currency will be doing all they can to ensure the appearance of inflation lags far behind the reality, to keep inflationary expectations low. The “best” kind of inflation for the central banks, who inflate our money supply to the advantage of banks and government, is the invisible kind (and we’ve had a lot of that in the last two decades). Once the punters wake up to it, they start demanding wage rises, and then the exponential acceleration takes off like an A380.

Central banks already have conferences dedicated to discussing “inflationary expectations.” (Ask yourself why any government controlled entity ought to be managing “expectations” rather than just managing “inflation” and reporting that honestly, and exactly as it is.) I’ll write more soon about how adjustments to the CPI, which include geometric addition, hedonic calculations and changing the basket weighting, can all affect the official CPI figures.

Parts of the projected scenario are already happening

China almost stopped buying US treasuries around Feb 2010, but increased their holdings a few months later. In the table of major foreign holders of US treasuries, China ($883b) and Japan ($865b) are almost equal — but what’s curious is that the UK ($459b) has doubled its holdings this year, rushing from a minor 6th place a year ago to a serious 3rd.

Our supply lines too, are deceptively fragile. Shelves have been emptied in the UK and US just from unusually heavy snow. In Boston it only took an hour to clear the bottled water stocks, when the authorities announced that the tap water was contaminated.

Mid year, Greeks rioted with deadly fires in the streets, which upset markets all over the world. This month British Students protested violently as one part of the easy-money-gravy-train started to be reigned in.

There are strong rumors from traders that for a while in 2008 the COMEX stopped delivering bullion for its futures contracts, as required. Instead they offered 25% above the spot price rather than pay out the contract in real gold. The traders wanted the gold, the COMEX did not have enough.

Note the scapegoat

Who better to blame than the only people who are asking for real money and a return to the same-rules-for-everyone? The Tea-Party. It all seems so “obvious”.

The hyperinflation helicopter is off the ground

Notice in the graph how all the money pumped in as a temporary rescue in late 2008 and early 2009 has been paid back and the system restored to it’s former normal (inflationary) path…?  (Not.)

So much for the “brief band-aid” over a patch of “poor liquidity”.

Is that new money spike, printed from thin air, coming back out of the system? Not in our lifetimes.

This graph is my “favorite” Money Base graph from the St Louis Fed. I wrote about the unprecedented changes in the money base graph on gold sites back in Nov 2008 as it was rising vertically, and explained exactly what the “monetary base” means as the narrowest monetary aggregate.

1984 - 2010. US dollar money base growth. (Click to enlarge)

And if you liked that video, you’ll enjoy Jon Stewart.

Hat tip to the very well connected Bob Ferguson from SPPI.

The “science” of money? Why is she writing about money?

Before Jo Nova investigated the corruption in climate science she was researching monetary history, inflation, CPI measurement, and details of fiat currencies and money supply and writing for The Mining Chronicle. Joanne has also traded gold futures on the Comex and analyzed gold stocks. That odd combination was probably why she was the first person to recognize that carbon credits are a fiat currency, and the first to document climate science from a monetary point of view with the landmark study “Climate Money”.

Increasingly she is focused on the endemic corruption or distortion found in some official statistics, and also in the role the media plays in explaining (or not) the key factors involved and applying logic and reason used to explain economic events. As always, where ever vast sums of money are involved, the debate is marked with bullying, intimidation and name-calling.

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