Reading Up on Hyperinflation

Pragmatic Capitalism has gone some distance towards assuaging my concerns about hyperinflation. In the post PC, unlike so many influential economists, correctly notes the distinction between hyperinflation and ordinary inflation:

Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency.

Contrary to popular opinion deficit spending and high government debt levels are not the actual cause of a hyperinflation. In most cases they have been the result of other exogenous events such as ceding of monetary sovereignty, war, rampant corruption or regime change. It is these exogenous events that result in the public’s rejection of the currency, a collapse in the tax system and the government response of printing more money to fill in the confidence void. Ultimately the confidence void cannot be filled and the currency is fully rejected by the public in the form of hyperinflation.

and reviews the major cases of hyperinflation over the period of the last century. Based on his review foreign denominated debt is clearly a sufficient cause but not a necessary one since two of the five cases of hyperinflation in the post war period did not involve foreign denominated debt.

I also think that what he characterizes as “regime change” would be better thought of us mismanagement as a consequence of regime change or, in other words, regime change did not cause a failure of confidence in the sovereign currency but mismanagement by the incoming regime did.

Right now we have mismanagement to burn which explains my continuing concern about hyperinflation. In analyzing risk you’ve got to take a number of things into consideration. Among them you’ve got to consider the severity of the consequences in combination with the likelihood of occurence. In my view a number of the factors that have lead to hyperinflation including mismanagement, severe problems with the tax system, loss of faith in government, serious problems with the domestic economy, and a combustible political environment are all in place or have been fulminating for quite some time.

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Why I Don’t Argue Ethics or Morality Here

As a rule I rarely argue ethics or morality on this blog. It’s not that I don’t believe in them but more that I find it at best unsatisfying and at worst futile. In general the readers of this blog are Americans. My experience has been that most Americans:

  • Have very strong feelings on ethics and morality.
  • Feel that the wisdom that they learned at their mothers’ knees (or from movies and television) is sufficient to arrive at an understanding of ethical and moral issues.
  • Have very little education beyond that in ethics or morals.
  • Consistent with the above, reject more formalized notions of ethics and morality as unnecessary (or even immoral)

My experience has been that commenters frequently demand a masters thesis recapitulating the entirety of Western thought on ethics and morals over the last 2,000 years to which they will respond “So?”, “Oh, yeaH?”, “Who cares about old dead guys?”, or words to that effect. I have also had the experience of people immediately resorting to ad hominem arguments, mostly, I I believe, from ignorance rather than malice. Unfortunately, wearing ones ignorance as a badge of honor is a time hallowed American tradition.

In my view rejecting Kantian, utilitarian, Rawlsian or other approaches to systematic ethics out of hand is an error as is relying on personal feelings of what’s good or bad as your sole basis for moral and ethical judgements. I think it’s quite hazardous. Virtually anybody can justify virtually anything on that basis.

And, if those are the views of those with whom you are discussing, on what basis can discourse proceed? For example, I believe that moral ends must be pursued by moral means. If your interlocutors consider ends only, the discussion is over before it’s begun.

This is not to say that I think that people cannot behave ethically or morally without coherent or systematic views. I don’t believe that. However, I also don’t believe that there’s any common ground for discussing that with them.

So, although I’ll occasionally dip my toe in the waters of ethical debate here, I generally dash back to the more welcoming shores of evidence, logic, and pragmatism pretty quickly.

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Foreign Policy Blogging at OTB (Updated)

I’ve just published a couple of foreign policy-related posts at Outside the Beltway:

The Case Against War

There should be a predisposition against war and we should not engage in unjust wars. Although it is possible for a humanitarian military intervention to be just, not every humanitarian military intervention meets the standards for a just war. IMO making war against Libya under the present circumstances isn’t just.

Discussion Questions About Libya

Question 1

If the rebels against Qaddafi advance from their present strongholds, will the member states engaging in hostilities in Libya pursuant to UNSC Resolution 1793 bomb them? I don’t think so but I think the resolution might be construed that way.

Question 2

A collapse of the Qaddafi government wouldn’t automatically create a viable new government to replace it. Protestations of Resolution 1793 to the contrary notwithstanding, wouldn’t the member states engaging in hostilities against the Qaddafi government automatically become “occupying powers” under the presently prevailing laws of war with an obligation to preserve civil order in Libya until such time as the responsibility could be handed over to a new Libyan government? If not, why not?

I’ll expand this list as new questions occur to me.

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The Council Has Spoken!

The Watcher’s Council has announced its winners for last week. First place in the Council category was Joshuapundit’s Horror Returns; Sleeping Israeli Family Murdered by Arabs, Including An Infant.

First place in the non-Council category was Sultan Knish’s with An Open Letter to Harvey Weinstein.

You can see the full results here.

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Foreign Policy Blogging at OTB

I’ve just published a foreign policy-related post at Outside the Beltway:

The Security Council Resolution on Libya

I think that people are getting waayyyy ahead of themselves on the UN’s authorization to use force against Qaddafi’s military in Libya. It doesn’t authorize removing Qaddafi from power, it doesn’t authorize arming the rebels, it doesn’t authorize supporting the rebels against Qaddafi. It just supports preventing Qaddafi from using his military against “civilians”. Are militias armed with automatic weapons and rocket launchers civilians? I don’t think so.

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Time for the Crash Cart

I think that Ruth Marcus has her finger on the pulse of the American people in this remark about the federal budget:

Don’t call me a deficit hawk. I’m a deficit panda.

If you care about preserving government programs, especially for the most vulnerable, you should be, too.

The taxonomy of the budget debate is unintentionally but dangerously misleading. The term deficit hawk conjures images of a sharp-taloned raptor swooping down on government spending, preying on the defenseless elderly or seizing food from hungry children.

Hence my pitch for a cuddlier image. I would argue that it is possible to be a deficit panda: to simultaneously worry about the debt and believe in an active and compassionate role for government. In fact, I would argue that worrying about the debt is required of those who believe in such a government role.

I think that probably tallies with most people. They’re worried about deficits, borrowing, taxes, but they don’t want to cut Social Security or Medicare.

The unfortunate reality is that it’s the compassionate programs that are in danger of crashing. Social Security was in the red this year with outlays exceeding incomes. Although there are years of IOUs to cash in that doesn’t help the cashflow problem that creates. We’ll still need to raise taxes or borrow to pay the bills. Components of the Medicare system were in the red, too, have been for some time, and the situation there will only get worse. Neither Republican nor Democratic administrations have the guts to raise income taxes and there is some point at which the borrowing will become catastrophic.

We should show compassion to those most in need of compassion but not confuse that with maintaining the present systems at all costs. The present systems are on life support.

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Uncertainty


The graph above is from an ABC/Washington Post poll that’s been taken for the last 35 years or more. The detailed results are here. As you can see over the period of the last 12 years optimism about our system has given way to uncertainty about it.

To some degree I think that’s unfair. Today we have more information, more timely information, and more detailed information being dumped on us at a faster rate than ever before and that includes information about business, the economy, and government. The wisdom of Bismarck’s remark that anybody who likes law or sausage should never watch either of them being made and the Scottish proverb “Never show a fool a job half done” becomes apparent. Even at its very best the working of government is messy and unsatisfying. Very few issues are resolved in an hour or even in a six week story arc with heroes rewarded and villains punished. Some thorny issues are never resolved at all—they can merely be accommodated to.

However, I think that some of the change reflects the increasing detachment from or even indifference of policymakers to the realities that ordinary people experience every day. So, for example, when Ben Bernanke dismisses inflation as a problem and the Federal Reserve in its most recent official statement characterizes the underlying inflation as “subdued” while most people see the prices of most of the things they buy on a daily basis, e.g. food, gas at the pump, rent or mortgage payments, and utility bills seemingly rising on a daily basis and their wages remaining flat or rising much more slowly. I doubt that most people take much solace in the fact that Dr. Bernanke is technically correct. This conflict produces uncertainty.

When the Obama Administration made the decision to oppose expedited review of the challenges to the Affordable Care Act by the Supreme Court it may have been the right one from a tactical standpoint to defend one of the administration’s keystone accomplishments but, if successful, one of the strategic outcomes will be uncertainty as to whether the ACA will stand or not.

Failure to take a decisive position on the upheavals going on in the Middle East may be prudent but it also produces uncertainty. Strategic ambiguity has its benefits but also its costs.

When will the last American soldier return from Iraq? Unknown. The last American soldier return from Afghanistan? Unknown. Will China become the world’s leading economy? Unknown. The list is endless.

The amazing thing isn’t that uncertainty has supplanted optimism over the last twelve years but that there’s as much optimism (and pessimism) as there is.

Uncertainty has its own costs. When you’re uncertain about the future you’re less likely to take risks. An employee may decide not to take that new job. A consumer may decide not to make that additional purchase. That manager may decide to hold onto cash to see what happens next rather than expanding his business.

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2011 Iditarod Finish—a Dream Fulfilled

Today John Baker, the winner of the 2011 Iditarod crossed the finish line at around 12:50pm CST:

John Baker and his team of record-setting huskies claimed victory this morning in the 39th Iditarod Trail Sled Dog Race, ending Lance Mackey’s string of four victories and securing the first win by a Western Alaska musher.

Baker pulled away from Willow’s Ramey Smyth on the 55-mile run from White Mountain to Safety. In doing so, he eliminated Smyth’s chances of sprinting past him on the 22-mile stretch between Safety and Nome, a stretch Smyth dominates with regularity.

Instead of the down-to-the-wire finish anticipated by some only a day earlier, Nome’s Front Street belonged to Baker, and Baker alone.

A 48-year-old from Kotzebue, Baker took advantage of near-perfect weather and a team toughened by life above the Arctic Circle to slice two or three hours off Martin Buser’s 2002 race record of 8 days, 22 hours.

It was a finish for the history books. Not only did his time of 8 days 19 hours 46 minutes shatter Martin Buser’s record pace for the fastest Iditarod by a full three hours Baker, an Inupiaq, became the first native Alaskan to win the race.

When Joe Reddington, Sr. founded the Iditarod back in 1973 he had looked around the villages and found the interest in sled dogs and sled dog racing dwindling, a tragic loss of heritage. His hope was that the race would spur interest particularly among native Alaskans. Now John Baker has brought that dream to fruition.

A great moment.

John Baker, 48, was born and raised in Kotzebue, Alaska where they can reasonably refer to Nome as “way down south”. He has been competing in the Iditarod since 1996 and is a commercial pilot. Now he’s a hero from Alaska to Greenland.

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Foreign Policy Blogging at OTB

I’ve just published a foreign policy-related post at Outside the Beltway:

Japan Earthquake and Tsunami Damage

Some quick statistics on the damage done by the earthquake and tsunami in Japan along with a few musings about nuclear power and the media panic going on in the West.

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The Other Shoe

The other shoe has dropped and, Anonymous, a hacker group not identical to the WikiLeaks people, have released a collection of emails pertaining to the Bank of America:

A hacker organization known as Anonymous released a series of e-mails on Monday provided by a former Bank of America employee who claims they show how a division of the bank sought to hide information on foreclosures.

The bank unit, Balboa Insurance, was acquired by Bank of America when it bought the mortgage lender Countrywide Financial in 2008. Balboa deals in so-called force-placed insurance coverage on mortgages. The e-mail messages concern the removal of information linking loans to other documentation.

A Bank of America spokesman told Reuters on Sunday that the documents had been stolen by a former Balboa employee, and were not tied to foreclosures. “We are confident that his extravagant assertions are untrue,” the spokesman said.

The e-mails dating from November 2010 concern correspondence among Balboa employees in which they discuss taking steps to alter the record about certain documents “that went out in error.” The documents were related to loans by GMAC, a Bank of America client, according to the e-mails.

“The following GMAC DTN’s need to have the images removed from Tracksource/Rembrandt,” an operations team manager at Balboa wrote. DTN refers to document tracking number, and Tracksource/Rembrandt is an insurance tracking system.

The response he receives: “I have spoken to my developer and she stated that we cannot remove the DTNs from Rembrandt, but she can remove the loan numbers, so the documents will not show as matched to those loans.”

There’s more analysis here and the linked emails themselves are here.

This drop doesn’t appear to be quite as devastating as the the one hinted at by WikiLeaks’s Julian Assange but it may well be damaging.

When viewed in combination with the Wells notice received by former Fannie Mae CEO Donald Mudd it certainly sounds like very uncertain times for the financial sector. The miscreants in the industry may be getting their comeuppance yet.

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