I spent some time last night
reading about the Weimar government
and other examples of hyperinflation.
No doubt, the bankers and financiers now in charge of events
are also familiar with these historical events.
A couple of facts came out which strike me as important:
First of all, very very few people in Germany anticipated hyperinflation
and even while it was gathering steam, refused to recognize it or plan for it. Neither inside the government nor out on the street.
The story goes of the upper-middle class german fellow
who started making payments to an annuity for his retirement before the war had a decade or so to go,
but he made every payment religiously.
As time went on, the payments became easier to make and he kept them up.
Finally in about 1922 he made the last payment.
He promptly cashed the annuity and went down to the market
and bought a loaf of bread with it.
Another fact I hadn't known was
that when the german mark completely collapsed
there was an interregnum period.
The bankers and everyone got together and established a new currency
BACKED BY THE MORTGAGES ON REAL PROPERTY that everyone held.
This new currency was stable for years until
Hitler came to power, gew in power, grew in enemies,
and needed to begin putting lead in the gold coins again.
No doubt, Paulson and others are aware of that history.
We are all anticipating hyperinflation and trying to make a profit off of it and that helps to prevent it from happening.
The trouble is, while many say that hyperinflation is caused by huge increases in the money supply AND the velocity of money
(MORE credit. Borrowing one-day loans for high interest.
Buying whatever you can today because the price WILL be higher tomorrow. etc etc)
many others say that hyperinflation is brought on by a lack of public
confidence, for example in a government which is fighting and not winning a major war, etc etc.
NOTHING has been done to stem the outflow of confidence,
in our bankers, financial houses, CEO's, politicians, lawyers, corporations, etc.
GM wants bailout money so that they can buy Chrysler,
continue to stifle competition and insult their customers.
Citi wants bailout money so that they can create more derivatives
to "protect and insure themselves", not to make more loans.
So I see this whole situation as a monumental dilemma,
a historic battle going on within every single participant, large and small,
between driving the US dollar to infinity (hyperinflation)
and driving it to Zero (no one has any anymore).
In the meantime, anyone who produces any goods or services of real value to other people
is still getting screwed.
And I don't see either side gaining any advantage right now.