Wednesday, August 19, 2020

I will answer.

Where is the hyperinflation?

"When the German government ran the printing presses during the Weimar Republic the result was catastrophic hyperinflation. Why not now? This is a genuine question which I hope Zero Hedge readers can help answer."

People really learned nothing from the housing crisis. The answer is....... debt servicing. Let me tell you an old timey story.

Back before the housing crisis, I was fully capitalized. When the housing crisis hit I quickly learned that the bank had lent me too much money. After the downdraft - not so much. I had my rental at that point. Now once a person realizes this, which most do not, I decided to fight for my properties. I knew they would never lend me that kind of money again. I spent a year doing cram downs on my house.

Meaning any extra money I had - I paid extra on my mortgage. I didn't really have the money necessarily, but the banks refused to refi me. You find the money when you are paying that much extra interest.  You eat ramen. Whatever it takes! I was paying over 6% interest at that point when the rates were down in the 4's. For five years they refused to refi me with a spotless credit file.

You don't have to have an agreement with the bank to send them extra money. You just pay more on your mortgage than you owe for that month. I call them "crams downs" because they don't agree to it, but they can't refuse it either. My feeling was - YOU WILL TAKE MY MONEY. You are going to let me refi. Eventually I met the requirements, but it took me more than 5 years.

Now back during the housing crisis and Obama was printing money like mad - everyone was on fire about the Weimar and hyper inflation. It never materialized and I spent a long time trying to figure why. I finally realized that if people do not buy items and instead service debt, hyperinflation never seems to materialize.

There. If a drop out can figure this out (me)....why is it so hard for smart people? It's not hard to see that people are not really spending on items, but have a LOT of debt servicing to do.

1 comment:

  1. Capital of Texas RefugeeThursday, August 20, 2020 4:01:00 PM

    Well, this is an interesting change: there's a captcha that appears when you merely ask to go to the comments pop-up here.

    Is this a filter for drunks?


    Oh, c'mon Google, give the poor drunk another chance! :-)

    "I finally realized that if people do not buy items and instead service debt, hyperinflation never seems to materialize."

    Large commodities lead small commodities: if people aren't moving up to bigger and more expensive places to live, and are instead sticking money aside for emergencies and to pay off the things they've already financed, then fractional lending systems are unable to produce new money and inflation stalls.

    Leaving goods in the stores because people don't feel that they're actually doing anything for them flows from that as well, although people for a while still often buy small things as proxies for much larger things they can't buy.

    What you've noticed is a core behavior of a debt-based fractional monetary system.

    Housing starts, young people going off to college, all of this kind of newly-minted economic activity typically arrives in some sort of debt-packaged way, and this is what produces the flows of "new money" required by this type of monetary system.

    When demand for these things drops off a cliff, so does the ability to leverage this activity and to assign ever higher future values to whatever ultimately results from the debt being fully capitalized.

    You can still get hyperinflation by increasing the money supply that is being used to chase after increasingly scarce goods, but if most people are using the hyper-bux to pay off debts acquired when money had better valuation, this tends to be a kind of self-cleaning economic oven.

    Eventually major banks demand that the money printers stop going BRRRRRRRRRRR because they money they've created gets capitalized at considerably less profitable valuations, at least if they haven't been nationalized or forced into default by that time.

    But these houses that cost as much as they do, you don't really think they're worth the money that people think they could get if they all went on the market right now?

    Do you honestly think that the hundred or so houses in Crab Bucket Acres are worth $45 to $55 million, and that a block of apartments is really worth $3 million? Or is it merely useful to assume that these things are worth that much because of financial rents as well as the ability to leverage their captive valuation in order to produce more new money?

    Why, if it weren't for that captive valuation, there might not be any valuation at all ...