hyperinflation question

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If their are bank runs and subsequent reflation by the FDIC will this result in a potential hyperinflation scenario.

On an earlier thread someone mentioned that during the 1920's in Germany some people hoarded their pennies and coins because of the debasement of the paper currency.

Is it possible that the base metal value of coins could make the face value more valuable. That is to say that a one cent coin could equal a paper dollar.

A penny for your thoughts

-- banker (hokanson@teleport.com), July 05, 1999

Answers

Silver coins are already selling at over 6 times face value, up from a more "normal" 3-4x. The rate just keeps climbing as we near the threashold....

-- helium (heliumavid@yahoo.com), July 05, 1999.

Reflation? There is no such word. Check your dictionary. It is either inflation or deflation!

-- freddie (freddie@thefreeloader.com), July 05, 1999.

Pardon my liberal use of the english language. As an example of this term. My bicycle tire is currently inflated with air to the point of nearly exploding. Someone comes along and takes the air out. Then some joker comes along with helium, pumps my bike up, and my bike floats away.

Re-flation

-- banker (hokanson@teleport.com), July 05, 1999.


banker,

Since paper currency is such a small portion of the current money supply, even a large percentage increase in paper currency to cope with bank runs would seem unlikely to result in hyperinflation.

Jerry

-- Jerry B (skeptic76@erols.com), July 05, 1999.


You don't sound like a banker to me, but I'll respond to the question anyway.

It is already well-known and well documented that there is not enough printing press capacity in the U.S. to create the amount of paper currency it would take to cause a hyperinflation like the one that happened in Germany UNLESS the USG issues script instead of "genuine" FRNs [I know, an oxy- moron!]. It is extremely doubtful that people would accept script on a one-to- one basis with FRNs.

The only way that liquidity can be pumped into the banking system in large enough quantities to create a massive inflation is electronically---and by definition, that will become impossible as a result of Y2K.

Metal coins will have value due to their durability and familiarity in a post-Y2K economy, according to some theories. Paper money will eventually wear out. There's even a post on one of Gary North's forums about paper money being destroyed by molds & mildews inside safes, etc. Scary.

-- gizmo (t@m.net), July 05, 1999.



Gizmo

Stick $1000 plates in your presses and the capacity goes up 10-fold or more. $10,000 plates: 100-fold.

Of course there's no such thing as a $1000 bill. Yet. If the powers that be decide that there needs to be, there will be one tomorrow.

My guess is that they are already printed. I'm quite certain that the plates are ready and waiting and probably have been for very many years.

Incidentally, if there is a systemic run on the banks, the banks will borrow from the central bank which prints the money. They won't go bust unless that central bank refuses to lend to them (which would be counterproductive to put it mildly!). If the currency is hoarded until after 2000 and then redeposited, the banks repay the central bank, the currency notes are burnt, and no disaster occurs. (Of course, if the apocalyptic predictions came true then there would be financial meltdown, but then if any apocalyptic scenario were to come about that's inevitable).

The above is the difference between fiat currencies (true paper, what we have today) and hard currency (gold-backed paper or gold coins, what they had in the 1920s). The drawback with hard currency is that you can't create unlimited liquidity on demand because the supply of gold is limited. This is often held up as a strength, but it also makes 1930's-style depressions utterly inevitable.

-- Nigel Arnot (nra@maxwell.ph.kcl.ac.uk), July 06, 1999.


Valid denominations of paper money:

$1000, $10,000, $100,000, and (I think...) $50,000. The "old" notes were taken out of circulation as EFT's became the rule, and large- denomination notes were not needed. But they WERE in circulation, and you can BET the plates are still around...

-- Dennis (djolson@pressenter.com), July 06, 1999.


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