In his column in the Wall Street Journal Joseph C. Sternberg points to some indicators I hadn’t thought of before that there may be some trouble on the horizon:
Insight emerges from a browse through Adam Fergusson’s 1975 history of Germany’s hyperinflation, “When Money Dies.†The run-up in consumer prices was only part of the way the monetary excesses of the early 1920s destroyed German society. Other evils abounded.
Middle-class investors found the value of and income from their capital wrecked by a phenomenal bid-up in prices for financial assets, whose nominal gains masked inflation-adjusted plunges. Financial disorder stoked growing unease bordering on panic on the part of a bourgeoisie that had relied on its capital investments to fuel German economic growth and also to fund its consumption.
A consequence of chaotic financial markets was a new boom in speculation. The economic miseries of the era were not uniformly distributed, and the divergence between new classes of haves and have-nots stoked political and personal resentments alongside rampant corruption. Does any of this sound familiar?
In other ways too, faint but eerie echoes of the Weimar era are starting to sound. A curious phenomenon of that time was the emergence of Notgeld, or emergency money, printed by local governments or larger corporations to facilitate commerce amid the collapse of national money. Is bitcoin the Notgeld of our day? Elon Musk might think so, given Tesla’s recent $1.5 billion bet on the alternative currency and his tweet contending: “Bitcoin is almost as bs as fiat money.â€
Taking a broader view, Western democracies have not for at least 15 years acted like societies where economic conditions are benign, despite all the data professional economists cite to the contrary. We are witnessing vicious political polarization, rapidly deteriorating social trust, a breakdown in economic relations between the generations—even peasants’ revolts as varied as Brexit and GameStop.
Going back at least to the 14th century, such events most often have occurred in an environment where malfunctioning price signals (read: inflation) make it impossible for a society to allocate its resources with any rationality or fairness.
As I’ve been saying for some time, my concern for the foreseeable future isn’t ordinary inflation (interpreted as increases in consumer prices). That inflation is mild and will probably remain so. My concern has been for a catastrophic loss of confidence in the currency.
The actions of the Congress, the White House, and the federal reserve for the last half dozen years have been far from Keynesian. What Keynes wrote was that a gap between aggregate product and potential aggregate product could be made up for with government spending. Basically, the government’s extending credit to itself and pouring the created money into the economy can make up for that production gap. If money greater than the production gap were deployed, it should show up somewhere in the form of inflation.
The sums being disbursed now exceed anybody’s calculations of the production gap. Something has to give.






