Editor's Note: This is the second of a two-part series. Read The Currency Wars, Part I.NEW YORK ( Bullion Bulls Canada) -- In
However, even our dim-witted political servants can comprehend the inevitable result of competitive devaluation: all their paper currencies utterly worthless, the fraudulent Paper Empires of their Oligarch masters nothing but confetti. The only way to delay this outcome is to: a)
Lie about what they are doing b) Manipulate markets to hide the effects of their actions Hyperinflation should be an event of pure arithmetic. Exponentially increasing money printing (i.e., an exponentially increasing rate of currency-dilution) should produce identical but inverse curves. One curve shows the money-printing going to infinity, while its mirror image shows the value of currency going to zero at the same rate. However, hundreds of years of empirical evidence show us that the typical hyperinflation is not an arithmetic event but rather a "crisis of confidence." To properly understand this requires understanding a colloquial term: the "con-man." This colloquialism is, in turn, the shortened form of "confidence man." This reflects an understanding that (ultimately) all swindlers require first obtaining and then maintaining the confidence of their chump(s). The dynamics are simple. When the con-man has our confidence we trust what he says, and thus don't look carefully (and think carefully) about what he is actually doing. However, the moment the con-man loses our trust/confidence we suddenly closely scrutinize what the con-man is doing to us; we recognize the sham/swindle/fraud and the proverbial "jig is up." Logic tells us that hyperinflations should be events of pure arithmetic. History tells us most hyperinflations are a "crisis of confidence." Translation: the "final stage" of most hyperinflations is the interval between when a currency actually becomes worthless (in economic/mathematical terms) and the Chumps realize that the paper is worthless, i.e., the moment the governments (and the bankers lurking behind them) lose the trust of the Chumps. Thus history and logic have answered our questions. We now know precisely why our governments are lying to us about their currency-destruction game. And we know why the success of that lie is a do-or-die imperative. Now we get to the really disturbing part. Our paper currencies are already effectively worthless. This can be demonstrated unequivocally in several different ways. Permanent 0%/near-zero interest rates alone make these paper currencies virtually worthless; and the simple economics/mathematics that demonstrate this are laid out in a previous commentary .
However most of this Western paper is worthless on a much more fundamental basis. Arguably, none of this paper has had value since the Nixon regime abolished the quasi-gold standard that "backed" the U.S. dollar. Since that time, any "value" in this paper has been purely implied -- almost identical to how a share in a corporation derives value. We understand, if we have the misfortune of holding shares in a bankrupt corporation, those shares are worthless or nearly so. "Secured creditors" may be able to recover some of their own losses, however "unsecured creditors" (i.e. shareholders) often end up with zero. Most Western governments are now obviously and utterly insolvent. The near-complete monetization of debt in both the U.S. and Europe is unequivocal mathematical proof of this point. To illustrate this, we must understand why the U.S. government and the eurozone have chosen to engage in almost complete monetization of debt. It's not that there are "no buyers" for this debt in absolute terms. Rather, there are no buyers for any of these
fraud-bonds at their fantasy interest rates -- many, many percentage-points below any rational interest rate on the debts of these Deadbeat Debtors. Obviously, with all Western governments less solvent than at any time in the history of credit markets, interest rates should (must) reflect that much higher level of risk -- especially with one of these Deadbeat Debtors (Greece) having already defaulted. Pull out your calculators, and you'll see that if the U.S. was forced to pay 10% interest on its massive bond-debts it would be bankrupt today. If Europe's Deadbeat Debtors were forced to pay 10% interest on their massive debts, most of them would be bankrupt today. That would still be only half as high as interest rates went in the Volcker era (to "cure" precisely the same spiraling inflation we have today). Thus the U.S. and European governments are currently monetizing their own debt in order to (fraudulently) drive-down interest rates on their own, bad debts; as literally the last-ditch measure to ward-off immediate bankruptcy. Obviously if the only thing preventing the immediate bankruptcy of these "corporations" is through fraudulently manipulating the interest rates on their debt far below any rational market value, then the "shares" of these corporations are worthless (or nearly so) today.
For those readers seeking to find some distinction/demarkation point between "mere" competitive devaluation and the "currency war" our governments tell us they are not planning on having, we appear to have it. Competitive devaluation represented the era where our governments drove their paper currencies to zero (in economic/mathematical terms). The Currency War represents the
final death-throes of these paper currencies : the interval of time that elapses from the time all this paper actually became worthless, and the inevitable "crisis of confidence" when the Chumps realize that all this paper is worthless. One final warning. History also tells us that the final "crisis of confidence" that occurs when these paper currencies die is more often than not lightning quick. You go to sleep one night with "money" in your wallet, and you wake up the next morning with a pocket full of confetti. Follow Jeff Nielson @bullionbulls This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.