Steve Henke on how to avoid a hyperinflation. “There’s never been a hyperinflation of a commodity backed currency.” “Behind all hyperinflation is a massive government deficit.” “Gold purchasing power is very stable over the long run.”
Steve Henke: How To Avoid A Hyperinflation – McAlvany Weekly Commentary
Welcome to the McAlvany weekly commentary. I’m Kevin Oreck along with David McAlvany. There are people who actually or not just practitioners but they are the key men in certain situations. There’s a person that you refer to as the hyperinflation hit man. He’s had decades of being called on the spot I mean is almost the superhero kind of guy who we’ve got a hyperinflation what do we do. The guy’s name is Dr. Steve hanky and you’ve been reading his material you’ve been talking to him when you’re in New York. It’s about time we have him on the program.
Well as recently as May 20 third The Wall Street Journal starts talking about the problems in Turkey and we’ve had 50 percent inflation per year there. What’s the prescription. How do you solve this problem and how do you do it delicate. Who do you call geopolitical so who do you call. From a geopolitical perspective there are certain things that you can and can’t do right. And Steve hanky gets into the mix in terms of what the possible solutions are so Wall Street Journal editorial May twenty third. You’ll see his name and the prescription that he says is necessary a currency board. So what we want to do is look at the disciplines necessary for stable money. And there are points in the historical continuum where money goes crazy the printing of it the consequences socially and politically from that. And the currency board is one way of bringing back the discipline of course we are in an era that’s fiat. We are in an era where all money is free floating and only has relative values which means we’ve basically abandoned disciplines. There are still even with that being said many more disciplines in place with certain currencies than with others.
And when we look at the definition of hyperinflation in the way Steve hanky defines it we’ve had 58 hyperinflation. He’s been called in on a number of them back in the 1990s Bulgaria Yugoslavia. He has a lot to say about Zimbabwe and Venezuela who both of those have been just recently in the last couple of years.
I would take the time to look at the Cato working paper world inflation’s Published August 15th 2012. It’s been updated there’s a few more data points to include since then. But what you’ll find in that working paper is a chart which basically shows you all the things that you would want to know. It’s the hyperinflation table from Hungary, Zimbabwe, Yugoslavia, Germany, Greece, and it puts it all in perspective because all of a sudden what we thought was the big deal Germany 1922 1923. It’s actually not nowhere near the worst hyperinflation of our era and very intriguingly ties in the time required for prices to double to where it’s not just a monstrous number that you can’t wrap your mind around in terms of an inflation rate per month per year per day what have you. But the time required for prices to double 15 hours 24 hours four days 15 days. It’s fascinating to see what the real impact is and to put yourself in the shoes of the person who’s experiencing that today.
It’s the man in Venezuela and Dr Hickey has also said you know there’s not been a single hyperinflation when a currency is tied to something stable. I’d like to hear Dave while you’re talking to him about modern monetary theory the new way of justifying just printing money out of thin air and how that might apply to socialism. Look at the French Revolution couple one hundred years ago socialism the answer. There’s a revolution one way or another you either have a revolution toward liberty or a revolution toward socialism. They’re almost always in the same room with a hyperinflation.
You know what stands out is different in the modern era 20th century 21st century is there has been an increased likelihood of hyperinflation. But you’re right. There is ideas connected to those countries and the malpractice if you will in terms of the the handling of the monetary system. So we begin. Professor Steve hankie professor of applied economics at Johns Hopkins University senior fellow at the Cato Institute. Steve we have been looking forward to this conversation for some time. I met you at the grants conference and along with Dick Sila and Russell Napier and of course Jim Grant and four other people we had some fascinating conversations around the financial markets and some of the key economic variables. You know we looked at different regions of the world. You are professor of applied economics at John Hopkins University and a senior fellow at the Cato Institute. But what that doesn’t say is what your worldly experience has been. Our conversation today may seem like an adventure travelogue as much as a critical look at the topic of hyperinflation. In my opinion you’ve lived an interesting life. Not everybody thinks about inflation. In fact Cain said that one in a million understand it and yet you’re one of the foremost experts on it. I’m curious what about the topic compels you. Do you have a personal y in that mix.
Well I think any economist is always interested in the two components.