Did I Ever Predict Hyperinflation?
[Ironic UPDATE below.]
One of the standard criticisms of guys like Peter Schiff (and lesser mortals such as me) is that we’ve been falsely calling for hyperinflation for a few years now. For example, Krugman repeatedly rips Schiff on this score, and links people to a Google search of “Peter Schiff hyperinflation 2009.” (Incidentally, I don’t know what Schiff did or didn’t say; if you guys want to slug it out in the comments, I’ll read and learn.)
Anyway, in the comments of a recent post (where admittedly I had been poking him in the eye, so I had it coming) MamMoTh said:
Murphy expected the price of gold to rise because of the imminent hyperinflation he foresaw. However, the price of gold rose despite there being no hyperinflation whatsoever, and he seems consider his call clairvoyant.
This kind of thing comes up a lot, so I thought I might as well tackle it head-on. I have admitted in the past that I made specific predictions about CPI that were wrong. But I’m pretty sure I never “called for hyperinflation.” The closest thing I think I came to that was in an March 2009 article in which I tried to coin the term “hyper-depression,” but alas it didn’t catch on. Here’s what I said:
At this stage nothing is certain, but the country is currently headed straight into a period of very rapid price hikes and a very bad recession. It would not surprise me at all if the national unemployment rate and the annualized rate of consumer price inflation both broke through into double digits by the end of 2009. Moreover, regardless of when it actually starts, I predict that things will get much worse before they get better, and that the United States will be mired in a malfunctioning economy for at least a decade, with price inflation in the double-digits (possibly higher) the entire time. We can call this condition “hyper-depression.”
I concluded the article like this:
What people need to realize is that the government is going to keep making this worse. In other words, it is not enough to step back and say, “Well, the feds have already partially nationalized the entire banking system, and brought politics into all major business decisions — including how executives choose to travel to business meetings. What are the effects?” On the contrary, we need to realize that as things continue to deteriorate — and they will — the Obama Administration will keep upping the ante. “What? The first stimulus didn’t work? OK let’s borrow and spend another $1 trillion; maybe that will ‘take.’”
The American people need to prepare themselves for hyper-depression. The future is still uncertain, and if the folks in Washington suddenly found free market religion, that terrible outcome could be avoided. But I’m not holding my breath.
It’s conceivable I said something more damning elsewhere, but I would be surprised. After all, true hyperinflation–the collapse of a currency–would require more than simply a five-fold increase in prices, which is what I have generally been telling people when they ask, “How bad might it get?” (I am there using a back-of-the-envelope calculation of excess reserves.)
Probably the “craziest” thing I have written is this article from December 2009, where I speculate that the guys with the cigars are deliberately destroying the USD, in order to usher in the amero. So if you want to scour my writings for wrong calls, you can look there, but I don’t think I said anything demonstrably false. I explained why Marc Faber was warning of “hyperinflation,” but I didn’t endorse his prediction. (Am I being like Krugman on PIMCO’s Bill Gross and the housing bubble? You decide.)
UPDATE: In the comments Blackadder links to this post from June 2009 where I explicitly criticized Marc Faber for so casually predicting “hyperinflation,” particularly his comparison to Zimbabwe. Take that, smear artists!
In June of 2009 you wrote the following:
I have been warning of severe price inflation for some time, and when people ask me “hyperinflation?” I respond, “What do you mean by ‘hyper’?” Recently someone coaxed a number of 25% annual inflation out of me, since I think Bernanke will do what needs to be done to bring it down to the maximum acceptable level, which I somewhat arbitrarily put at about 25%. (Of course the true increase in CPI will probably be more like 35%, but the official press releases–if you have a gun to my head and force me to pick a number–I’m picturing around 25%.)
I would agree that 25-35% inflation per year is not hyperinflation (per month maybe). On the other hand, if we did experience anything approaching 25% inflation lots of people would call this hyperinflation as a form of hyperbole.
From wikipedia:
“Definitions used vary from one provided by the International Accounting Standards Board, which describes it as ‘a cumulative inflation rate over three years approaching 100% (26% per annum compounded for three years in a row)’, to Cagan’s (1956) ‘inflation exceeding 50% a month.’ ”
The accountants might argue that Bob was predicting hyperinflation.
I followed your Free Advice and made a killing. I read your blog on a pretty regularly basis and you never suggested hyperinflation, but expected the CPI to rise much higher than it has. I never see anyone mention the fact that prices would be falling with a stable money supply due to increased productivity. So if the CPI is 0% everyone says look there is no inflation! Yet, we are unaware of how much prices would have fallen due to increased productivity, hypothetically if they would have fallen 3% absent the government’s manipulation of the currency, this would be a case of 3% price inflation, not 0%.
Thankfully there was significant price inflation in the hedges you recommended such as silver and gold, foreign currencies, and agriculture commodities.
Either way, searching for random posts over the past 2 years for one instance in which you reference excessively high levels of inflation and then harp on that, seems terribly disingenuous given the overall theme for the 2 years I’ve read was for high inflation, but certainly not hyperinflation.
I imagine 2 years from now you will regret giving as much attention as you do to certain trolls of your blog, (whom paradoxically think you could not be more wrong on everything you write, yet follow your blog on a daily basis) much more than an offhand comment about excessive price inflation in the CPI that didn’t materialize in the time frame you thought it would.
The call for above average CPI readings you have already acknowledged as being incorrect, which is something I’ve never seen done from other economists in the blog-sphere.
You have to recognize for every troll who overemphasizes your “error” (real or illusory) there are hundreds of people whom are appreciative and recognize the body of work you produce for the value it has, as opposed to focusing only on attempting to find any error possible.
The main reason Murphy’s blog makes the world a better place, is the pearls of wisdom distilled by some of his faithful Austrian followers when they explain to us economic principles from outer space.
This is how we learned monetary principles in a moneyless coconut based one person economy, how we illustrate debt deleveraging where debt is only a verbal agreement, and how axioms need to be refuted.
But this new concept of virtual inflation beats everything we might have read so far. It’s truly magnificent. Imagine that, even a 0% inflation is actually hyperinflation because instead of stable prices we could have had a 25% deflation, which means our virtual inflation is actually 25%!
In order not to miss any of these enlightening contributions I would wholeheartedly recommend anyone to follow this blog on a daily basis, if not more often.
Thanks Murphy!
An increase in the money supply is not the same thing as in increase in the arbitrary measurement of the “price level.”
You might benefit from studying economics and understanding what inflation is. Perhaps then you might recognize using an arbitrary measurement of the increase/decrease in price of some goods is not equivalent to a measurement of the increase/decrease in the supply of money. Notice how one is called “supply of money” and the other is “price change of arbitrary goods.” That’s what we do for different concepts. We have different names for them. All your equating them to being identical concepts does is serve to reveal your failure to grasp the most basic tenets of economics,
Yet surprisingly the proudly ignorant one, remains proudly ignorant while engaging in the pretense to the contrary. Wow, I’ve totally never encountered this before on the internet!
You might benefit from reading yourself instead of building a strawman that I have no time to demolish.
So if the CPI is 0% everyone says look there is no inflation! Yet, we are unaware of how much prices would have fallen due to increased productivity, hypothetically if they would have fallen 3% absent the government’s manipulation of the currency, this would be a case of 3% price inflation, not 0%.
Thank you for the confirmation that you do not understand what inflation is.
Let me dumb it down for you:
So if the CPI [measure of change of the price of arbitrarily selected goods] is 0% everyone says look there is no inflation [inflation is the increase in the supply of money!]! Yet, we are unaware of how much prices would have fallen due to increased productivity, hypothetically if they would have fallen 3% absent the government’s manipulation of the currency, this would be a case of 3% price inflation [price inflation was a term coined to deal with economic ignoramuses whom continue to misuse the word inflation, to specifically highlight we are talking about a change in the price level, not money supply. We make that distinction because you know, inflation is a money supply thing….], not 0%
So you quoted my correct use of inflation and correct use of a distinctly separate and different concept the change in prices of some goods measured in the CPI as price inflation. Are you just trying to drive home my point that you are totally ignorant on basic economics or what exactly?
I suppose you might get some extra points for referring to my discussion of economics and the differences between separate economic concepts as a “strawman.” That’s pretty….special i guess.
Let ME dumb it down for YOU.
I am driving home my point that I find your concept of virtual CPI inflation hilarious.
And I have no time to knock down your strawman about money supply inflation vs CPI inflation which has nothing to do with how hilarious the concept of virtual CPI inflation is.
You are a fantastic troll. I know you are a troll and I fell for the bait anyway…
So I point out that universally accepted economic concept that increased productivity generally results in lower costs, which results in lower prices and this effect is completely overlooked when we attempt to measure the effects of inflation by studying changes in the price level.
There’s not an economist on the planet that disputes that. You then use that as the basis to pretend I am arguing for “virtual CPI inflation” and all the other various comments you wrote in your initial post that you made up and then attributed to me along with this fiction of a “virtual cpi” you created.
Nicely done, you definitely are a fantastic troll. I must stop feeding you now!!
You predicted double digit inflation. lmao At least you admit it. That’s more than some of the other loons in your movement(bowel) do.
Seriously, how can you miss that when the economy is below capacity there’s significant room for expanding the money supply without causing high inflation? That’s basic economics.
Too bad you’re not thinking a step further and asking what happens to all of that extra money after the economy “recovers”, banks start lending, and people start spending again. That’s when the real problem hits.
Oh, just keep his comments in the memory bank. M2 is soaring, excess reserves dropping, required reserves soaring, and the Fed and ECB both about to ramp up the monetary stimulus. PPI and CPI doubled between Jan-July with 4-5% M2 growth and I think we are near the end of the road with growth hitting 15.5% SA in today’s report.
There’s a reason you learn more than a “basic” economics class.
Inflation can easily accompany idle resources and unemployment.
right. Inflation is slowly rising as unemployment remains persistently high. stagflation is possible, it can and has happened.
There was significant capacity in the 70’s too and yet there was quite a bit of inflation. Not only that, but the economy often operates below capacity with inflation. This pretty much proves that the economy operating below capacity does not rule inflation out a priori. You need another assumption for there not being double digit inflation when there is a significant expansion of the monetary base to determine the relative size of the coefficients and their signs in your implicit model.
That is basic economics. What you’re describing is naive Keynesianism.
No peasants. When there’s a disnflationary slowdown, one must get to capacity before inflation becomes a problem. You are all hopeless.