Honorable mention goes to Egon von Greyerz for “Hyperinflation Guaranteed” :When do we say, "you're welcome"? We say that when we give a gift (a good or service) to a person without receiving anything in return. For example, I might hold a door for a person. That person says, "thank you," and I say, "you're welcome." Another time might be at a birthday party when the recipient of a gift expresses thanks.
These are one-way examples of benefaction. We are giving but not necessarily getting anything tangible in return. What makes the case of the commercial exchange different? Why do both parties say, "thank you"? It's because each side gives a gift to the other.
When I bought those rolls, this is precisely what happened. I saw rolls available and I decided that the rolls were worth more to me than the $2 I had in my pocket. From the store's point of view, the $2 was worth more than the rolls being given. Both parties walk away with a sense of being better off than they were before the exchange took place.
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This is the essence of exchange and the core magic of what happens millions, billions, trillions of times every day all over the world. It happens in every single economic exchange that is undertaken by virtue of human choice. Both sides benefit.
Each side is a benefactor to the other side. This system of mutual benefaction, unrelenting and universal, leads to betterment all around. It increases the sense of personal welfare, which is to say, it increases social welfare when everyone is involved in the activity.
To be sure, a person might change his mind later. I might arrive home with my rolls and discover that I'm out of butter and that I would have been better off buying half as many rolls and using the rest of my money to buy butter. I might decide to drop bread from my diet. I might conclude that rolls are really not that tasty. All these things can happen. Such is the nature of the universe that the future is uncertain and human beings are inclined to be fickle. But at least at the time of the exchange, I believed I was better off, else I would not have made the exchange in the first place. I walked away with a sense of gain. The store owners had the same sense of gain. We both expect to gain, which is enough to recommend the exchange system, since no social system can guarantee a happy outcome for every action.
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... If two people value goods equally, an exchange would never take place, since no individual could be made better off than before. If exchange is based on equal value, people are merely wasting time engaging in it at all. Exchange in the real world is based on unequal valuations of goods and expectation of being made better off. It is a matter of two people who give each other gifts in their own self-interest.
The discovery of the correct theory of exchange had to wait until the late Middle Ages when the followers of St. Thomas Aquinas saw the logic for the first time. They saw that economic exchange was mutually beneficial, with each party to the exchange seeing an increase in personal welfare, subjectively perceived. Therefore the action of exchange on its own becomes a means of increasing the well-being of all people. Even if there is no new physical property available, no new innovations, no new productivity, wealth can be increased by the mere fact of exchange-based human associations.
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Well, if it is true, as I've argued, that an economic exchange is a two-way gift, an instance of mutual benefaction that is pervasive throughout society, it becomes clear that society would be completely sunk without as many opportunities as possible for economic exchange. Anyone who champions the well-being of society should especially celebrate commercial centers, stock markets, international trade, and every sector in which money changes hands in exchange for assets or goods. It means nothing more than that people are finding ways to help each other get by and thrive.
Yes this is it! We have crossed the Rubicon and events in the world economy are now likely to unfold in a totally uncontrollable fashion. Clueless governments still don’t understand that it is their ruinous actions that have created a credit infested and bankrupt world. They will continue to prescribe the same remedy that caused the problem in the first place, namely more credit and more printed money. The consequences are clear; we will have hyperinflation, economic and human misery as well as social unrest.
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Never in history has the world been in a situation when virtually all industrialised countries are bankrupt. Therefore there is no precedent for what will happen in the next few years. ...
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Greece is bankrupt but is still taking on additional EU loans of € 140 billion. In addition, their austerity measures are supposed to bring the deficit down from 12% of GDP today to 3% in a few years time. But who can be so stupid as to lend to a bankrupt nation which will sink into the Ionian and Aegean Seas in the next few years. With massive cuts in government expenditure, with major falls in output, with unemployment rising fast, with tax revenues collapsing how can Greece possibly be expected to improve the economy and pay a high interest rate on their exploding debt? ... So Greece will default and so will Portugal, Spain, Italy, France, the UK, the US and many more. But before that there will be the most colossal worldwide money printing exercise which would have used up most of the trees in the world but for electronic fiat money.
So, if virtually bankrupt nations don’t cut their deficits, they will definitively go under and if they try to cut, they will also go under due to collapsing output and tax revenues and colossal debts. Thus whatever actions governments take or don’t take, they are damned.
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Most governments still believe that deficit spending and money printing is the solution to all their problems. Because the world economy’s expansion in the last 100 years and particularly in the last 40 years has been primarily based on credit and not real growth, governments live under the false impression that money printing will work this time too. But we have reached the point when investors will no longer buy worthless government debt that will never be repaid with real money. We will first go through a period when governments issue and buy their own debt thus monetising the debt or print money. This will be the hyperinflationary phase. Thereafter the world will realise that none of the government debt and very little of the bank debt will ever be repaid. Credit will then implode and so will also the assets financed by credit. Eventually there will be a new monetary and financial system and the world will start afresh. The adjustment period will be very long and will involve economic and human misery, leading to social unrest and major political change. It will be a horrible experience for the world during this extended period of adjustment. But it will be like a forest fire that clears out the deadwood and creates the conditions for strong new growth. Once the new era starts it will therefore be from a very much lower level and individuals will be rewarded for hard work with little or no social security safety net. Credit will only be granted for sound capital investment projects, not for consumption or speculation. Ethical and moral values will return and the golden calf will not be worshipped. But before that, the period of readjustment will be very long and extremely difficult for the whole world.
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