When Money Becomes Worthless

The Financial Times last Tuesday noted a disturbing new trend – hedge fund and other investors are increasingly seeking to invest in physical commodities themselves, rather than in futures. Given the excess of global liquidity, this is not entirely surprising. It does, however, raise an ominous possibility of a supply shortage in one or more commodities, caused by investor demand that exceeds available mine output and inventory. That could potentially produce a collapse in economic activity similar to that from the 1837-41 and 1929-33 liquidity busts, but with the opposite cause.

“The effect of a gross liquidity surplus is thus quite similar to that of a sudden shortage. In the shortage case, as in 1837-41 and 1929-33, prices decline sharply – in those two cases by as much as 20-25% – economic activity is hugely reduced as businesses are unable to obtain financing and workers are laid off. The resultant decrease in demand causes producers to lose money, eventually closing their doors, as well as bankrupting the financial system.

“In a gross liquidity surplus, in which investment capital disrupts commodity trade flows, inflation rather than deflation results, probably very rapid inflation rather than the moderate 5% to 10% inflation we became used to in the 1970s. That inflation still further increases demand for commodities, worsening the problem. Businesses unable to obtain raw materials close their doors, workers’ real incomes decline sharply (even when they keep their jobs) and Gross Domestic Product declines similarly to the deflationary case.

“We have never experienced a global hyperinflation, in which money is unable to purchase goods, so it becomes worthless. In particular countries, wars have produced this effect, notably in the Revolutionary wars in both the United States and France, when the “continentals” and “assignats” became of no value. Similar effects have been produced by excess money printing in Latin America; in hyperinflationary periods citizens of Argentina have starved, even though the country is one of the world’s greatest food producers. However, globally we have experienced nothing worse than the moderate worldwide inflation of the 1970s, in which trade flows were disrupted and incomes and assets affected, but commodities generally remained available in the market and output weakened but did not decline sharply.”

Last time I checked, some writer had totaled up how far Zer0’s spending will put us into debt, and he came up with

14.7 trillion dollars...

When you go that far in the hole, you might as well call it “gazillion,” because the figures are so astronomical as to be meaningless.

All it means is your dollar becomes devalued to the point of being worthless.

So yeah, real items, barter- what else will do as a medium of exchange?

Just to let you know - that original link I posted to you in #6 was in a thread that was pulled (because the thread article was from Bloomberg), so by another Freeper’s request, I’ve reposted it in a different thread if you or anyone else wants to access it.

Here is that new link:

“Fool’s Gold” http://www.freerepublic.com/focus/news/2361698/posts?page=15#15

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