"Hyperinflation is the loss of faith in the currency. Prices rise
in a hyperinflationary environment just like in an inflationary environment,
but they rise not because people want more money for their labor or
for commodities, but because people are trying to get out of the currency.
It’s not that they want more money—they want less of the currency:
So they will pay anything for a good which is not the currency."
--Gonzalo Lira.
"There have been any number of hyperinflationary episodes ever
since paper was invented by the Chinese. What people don’t generally
realize is that every one of these episodes was a corner in gold or
silver." --Antal E. Fekete. See Monetary
Economics 102: Gold and Interest.
Taken from Monetary
Economics 102: Gold and Interest. The normal condition of the
markets in the monetary metals is that of contango. Backwardation
is abnormal, yet it may occur. When it does, the regime of irredeemable
currency will start to crumble. People in trying to save their financial
future will take flight to the monetary metals. They will scramble
to mop up the dwindling supply that is allowed to trickle down. Then
all of a sudden all offers to sell the monetary metals are withdrawn.
Supply goes to zero, facing an infinite demand. That such a development
is not fanciful but a true description of economic reality as it unfolds
is confirmed by history. Supply of the monetary metals went to zero
and demand to infinity many times before, in France (the assignat
and mandat inflations), in the United States (the continental inflation),
in Germany (the Reichsmark inflation), to mention but a few of the
notable cases.
My description of hyperinflation is not in terms of the quantity
theory of money, but in terms of a model where the relentlessly declining
gold basis leads to backwardation destroying the gold futures market.
When all offers to sell cash (i.e. physical) gold are withdrawn, producers
of essential commodities such as grains and crude oil refuse payments
in dollars, and demand gold in exchange for their product. Backwardation
in gold should therefore be considered the self-destroying mechanism
for the regime of irredeemable (i.e. fiat) currency that “only
one man in a million may identify and understand”. This is where
supply/demand analysis is utterly useless. The huge stocks of monetary
gold are still in existence, yet zero supply confronts infinite demand.
The only way to fend off this outcome is for the government of the
U.S. to come up with a credible plan to stabilize the dollar in terms
of gold.
Holding the line on the silver price, or at least yielding ground
to higher prices only gradually, is considered the first line of defense
by the U.S. government protecting the dollar. If silver were allowed
to be cornered, then gold would follow and that would be the end of
the dollar, and the financial domination of the world by the U.S.
government. However, all this is being undercut by the voracious interest
in both gold and silver by the world markets, particularly India and
China. The U.S. government's control over the pricing of precious
metals is gradually but relentlessly eroding.
