Facebook and Hyperinflation (observation)

Different Names,
Same Product.
Same as Countries,
in our Modern World.
Currently all the major platforms seem to be scrambling to 'Become Facebook' to the extent that it is starting to annoy me. Google+, LinkedIn, Yammer, Sharepoint ... (if I've missed any please add to the comments). Recently shared on g+ by Mr Hackswell was a recent Martin Armstrong article, I checked it out - titled 'Defining Hyperinflation - The coming new currency'. Being time poor, I haven't read any good hyperinflation debate for a while, but was incredibly disappointed because it brought nothing new to the table and in my mind muddied the waters of definition about key terms.

Many folk (especially Marty himself) keep returning back to Martin's 'the core economy does not hyper-inflate', which is a good observation but I really have to say I think his obsession with the United States is somewhat overdone. Although I'm influenced by my own special exposure to globalism, country boundaries are acting more like a 'brand' these days - I personally think the new core economy is the massive commerce transaction network which now spans the globe - you know, the one which allows you to use a Singapore-bank-issued credit card while you're in London from an American website to buy a product made in China and get it shipped to Australia. Having been involved in a work project recently I'm simply amazed at what's in place to allow a merchant to accept payment in virtually any currency. While I realize those networks don't necessarily constitute the big trade, the providers which make it all happen have their systems tuned and my observation is that they would function fine even with a hyper-inflationary collapse of a single node (in fact it would be really smooth because all the exchange rates would operate with split-second accuracy).

Of course, I'm no economist but I just wanted to point out what I see as a basic flaw in Armstrong's argument - if he's saying the 'The NEW CURRENCY will most like ... an electronic reserve currency whereby each nation will still retain its own currency' and 'This will eliminate the dollar as the reserve currency', then I'm scratching my head on that one because I'm left wondering what happens to all those dollar-denominated claims out there, it's my impression (under that scenario) they are subject to less demand and therefore get returned to the country where can be redeemed, reducing the purchasing power of that currency and forcing that local government to print more to maintain status quo, further devaluing that currency. Is Martin saying there would still be a debt market for the US-dollar? Is he saying that the USA will be able to still issue the new reserve country? What happens to pricing of oil? Lots of questions unanswered. If anyone has any clarifications, please let me know because I got even more confused when I read his article.

p.s. yes I realize each of those technology platforms each have their own point of distinction, my point is they are scrambling madly to remake themselves into all becoming Facebook to avoid being left behind. It's certainly a new evolutionary path, but I think it's as lazy as Microsoft copying Apple ... a false innovation.

16 comments:

Bullion Baron said...

In the meantime, Facebook is trying to make itself more like Twitter, adding subscribe/followers option & hashtags now as well...

costata said...

Got it in one Warren:

"I personally think the new core economy is the massive commerce transaction network which now spans the globe.."

(And the global supply chains that operate in tandem with the transaction network you refer to later in your post!)

Mercantilism has failed before and it's hard to see how it could resurrect itself again under the conditions that exist today after the transition to a supranational quasi-currency. I'm referring of course to gold.

I imagine that many nation-states will try everything to forestall the transition - capital controls, import/export bans and so on. Unfortunately for the central planners this reaction has been catalysed. Floating currency exchange rates will ensure that they can't resist indefinitely.

Cheers

Warren James said...

@Bullion Baron good observation (re: twitterization). I suppose the 'survival of the fittest' economics will eventually weed out the models & features which aren't viable or economical (e.g. myspace) ... I just always feel the 'hey they are doing it, we must as well' business model is fraught with danger. In my opinion, businesses should focus on and refine their core product, the copycats will quickly get left behind and it keeps the companies focused on providing the features which deliver most value ... but I must just be old school.

Bron Suchecki said...

I think it is a good point you make about the connections between currencies. An Australian buying oil will just use the FX rate to convert back to AUD, if the USD hyperinflates then the FX rate moves accordingly and the AUD price is the same.

Warren James said...

@Costata, thanks & I agree ... Adam Smith's invisible hand still works away in the background despite so many modern attempts to counter it.

I think central planning is fast going out of fashion - enter the new age of adaptive organic networks. :)

Archer said...

I mean this with the utmost sincerity, but there is no clarifying Martin Armstrong. The degree of (misplaced) confidence with which he issues pronouncements on all things financial and economic is only equaled by the general lack of clarity and coherence in his writing.

costata said...

Hi Warren,

"adaptive organic networks" Love it!

I feel that people who talk of "black" markets are suffering from an irony deficiency. If the "official" market is dysfunctional what else can people do but by-pass it to survive/thrive.

I remain hopeful that the PTB will redefine where their interests lie and get out of the way of this transition but ironically a rising spot gold 'and silver' price suggests that we still have a ways to go before a resolution.

Me and my fellow unmentionables will have to be patient.

Hi Bron,

The fact that the US dollar is no longer a stable anchor for other FX rates complicates things but at some point I think fundamentals take over the driver's seat.

As you know I think the LBMA is mainly a currency story these days. (Currency swaps should help things along as well.) If I'm right about the LBMA, then the infrastructure is in place for a relatively pain-free transition for the ROW.

Vincent Cate said...

I am itching for a hyperinflation debate. I have a Hyperinflation FAQ and have not had any good challenges in some time.

http://howfiatdies.blogspot.com/2013/08/looking-to-debate-hyperinflation.html

Warren James said...

@Vincent, great article (which i just finished reading your updated hyperinflation FAQ, took ages). That figures that Martins was a reaction to your query... pity he didn't address m/any of your points.

I'd personally love to see Kid Dynamite address your questions I think he would be able to give you some really meaty challenges.

The issue of prospective hyperinflation is still the million dollar question; the timing especially.

victorthecleaner said...


The answer is probably where most people are not looking. It may be here:

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

There are often substantial revisions to this table which I don't understand. Right now, the Grand Totals are

March 2013: $5724.2bn
April 2013: $5708.4bn ($15bn outflow)
May 2013: $5657.1bn ($50bn outflow)
June 2013: $5600.6bn ($55bn outflow)

This contrasts with a $40bn to $60bn monthly inflow that was common until 2012. It is the ROW (=rest of the world) that has started tapering.

Victor

Vincent Cate said...

@Warren Thanks. I sent a message to Kid Dynamite.

Vincent Cate said...

Kid Dynamite said no. I am beginning to wonder if nobody can find anything wrong in my FAQ.

Warren James said...

@Vincent, that's a shame that no one is able to engage ... bear in mind the bar is incredibly high as your model has a lot of detail.

I would venture the best/only test of your framework is the real world - everything in your summaries and articles indicates to me the runaway process has started in the last couple of months ... you'll probably get the most mileage out of attacking the model yourself. Estimating some kind of timeline with milestones might help calibrate some parts.

p.s. I find the new 100-bill redesign still interesting, new target is October 8 release link. I always wish I knew the full story on things we weren't told about the delay. Questions like 'if the govt knows about the potential hyperinflation tragectory, why is it issuing new notes?' are useful to ask.

costata said...

Great work Vincent!

Cheers

Vincent Cate said...

@Warren Yes, I am conducting my own real world test to see if my theory can predict things. If I am wrong it will cost me real money. So it could save me a bunch of money if someone could just point out a flaw now. :-)

Vincent Cate said...

@costata Thanks!