Just about, any way, when a currency is inflated. Let’s go back a few years. To April 1790, as a matter of fact, in France. It was then that the first issue of 400 million paper livres or assignats was issued. This paid the government’s bills, and it was proclaimed that all was well. By September 29th, 800 million more were issued, because all was not well. Next June, 1791, another 600 million were printed and released. Boy, now all is surely OK, huh? Maybe not, because on December 17th, 1791, another 300 million were placed in circulation, which surely was the fix that was needed. Guess not, because on April 30th, 1792, another 300 million were run off the presses. France was at war with Russia and Austria, so they needed the money. This was followed by riots, and the de-throning of King Louis 16th.
By December 14th, 1792, the total assignats printed was 3,400 million. The next month, Louis 16th was beheaded, and at the same time another 200 million were printed. More rioting because of high prices. Obviously, as the money went down in value, the prices went up. Ever considerate government, decided to help everyone by instituting price controls on grain in May, 1793. But just on grains of course, because government only does what is absolutely necessary to help its citizens. By September, 1793, government helped the citizen more by placing price controls on all food items. Next month, Marie Antoinette was beheaded, and more money was printed, bringing the total up to 4,200 million. (4,200,000,000,000)
On June 4th 1794, Robespierre was elected President, and thousands were executed. On July 27th Robispierre was beheaded, and by the end of 1794, an additional 2800 million assignats were printed, bringing the total to 7,000,000,000,000. By May, 1795, that number had doubled to 14,000,000,000,000. On September 23, 1795, a new constitution was adopted, and a new government formed, called the Directory. By that time, the total number in circulation was 35,000 million.
By February 1796, the number had increased to 40,000 million. Out of control, in other words, and all the plates and machinery for printing the fiat assignats were destroyed. In August, 1796, a new currency was made legal tender, and was named the “mandat.” They were touted as being “good as gold.” They were converted at a ratio of 30 assignats to one mandat. Sound OK to you? Must not have been, because by August, they were worth only 3% of what they had been worth a few short months before. In February of 1797, there was so much money floating around, that both assignats and mandats were worthless. On November 10th, 1799 Napoleon came to power to “Save the Republic.”
Why did government begin to inflate? To pay off debts, and cancel a deficit budget, of course! That’s why it always begins. It is always just a “temporary” matter, till things get straight. Most economists today believe that about 2-3% inflation each year, is necessary, to keep the economy going, and to “increase purchasing power.” In other words, today’s economists actually believe that the printing press can create wealth and prosperity. This is totally untrue, because inflation only creates a gambling society, or a society which basses its wealth on speculation, not production. Inflation, actually makes true prosperity much more difficult to obtain, and more accurately impossible.
Well, many say, “Look, you are wrong, because at the same time prices go up, wages go up also, so no one is harmed.” This would be true if all of them went up evenly, and at the same time, which is impossible, and if the savers were not considered. If wages went up at the same time as prices, would there be any inequality, not counting the savers? Probably not, but this has never happened. Wednesday morning, on NPR, a reporter was in Columbia South Carolina, interviewing working classes about their life and times. They ALL said that everything was going up except their wages. Why save, if the money is losing value all the time? They all thought that the minimum wage should be increased naturally. If you drive to work and gas has more than doubled, but your salary hasn’t budged, are you in trouble under inflation? Damned right!
The AF of L and CIO just had a terrible break up, with a quarter of its members going their own way. Why? Because wages have not kept up with prices, as ALWAYS HAPPENS under inflation. Savers are virtually non-existent, as ALWAYS HAPPENS under inflation. Prices rocket up, as in housing, as ALWAYS HAPPENS under inflation. Have houses increased in value? No, as they are the same houses, but under inflation, everyone is gambling, as ALWAYS HAPPENS under inflation. Merchants are gleeful, as are realtors, as prices escalate. But eventually, the game of musical chairs must come to a shuddering halt, as all the high prices merchandise, houses, cars, etc find no buyers, because wages have not kept up with price increases.
Why save under inflation? You lose big time, as I have mentioned many times before.
All situations are different when history repeats itself. In France, merchants felt happy as prices went up, but their game of musical chairs ended rather quickly, as wages didn’t keep up. There was no one left to buy their expensive merchandise, and they went down the tubes. Today, we have credit. Lots of credit! Immense amounts of credit. Credit, credit, credit is everywhere, and people are begging me and others to borrow. Please borrow, they urge. Autos are being sold at “employee prices,” and how much longer can this go on? They tried zero percent finance, and that worked for a while. It fizzled out after a couple of years. Now we have employee prices to everyone. After that, what is next in the auto industry? Every time a new gimmick comes along, the auto industry’s profits on each car go down. Does the auto industry have a huge problem in the wings, since they seem to have exhausted every sales gimmick known? We will see, but how about real estate?
Has the musical chairs game of real estate about run its course? Have the inflated appraisals and 100% or more mortgages about sold all the over-priced houses they can? Musical chairs is a fun game. You know how it works, don’t you? There is this row of chairs placed back to back, and there is one for every person. The music starts, and every one runs around the chairs as fast as they can, and one chair is removed after the music starts. There is one chair short, in other words. When the music stops, one person is out, because he or she can’t sit in a chair fast enough. This goes on till there is only one chair and one person sitting in it left, and they are the winner. Sound like autos and houses? To me it does.
In France, as everything collapsed, the working classes didn’t have enough money for food even, as their wages had not kept up with inflation. Inflation was going so fast, that it was impossible for wages to keep up. Government began feeding the people, because they would starve if they didn’t. Where did government get food? I don’t know, but if you think there isn’t a similarity today with food stamps and welfare of all types, you aren’t either thinking or observing. Minimum wages today, won’t allow a person with dependents to live literally. Well then, let’s feed them with food stamps, rent subsidies, utility subsidies, and the like. Let’s have free busses to take the geezers to the store if they can’t afford a car or are too old to drive. Let’s pay their doctor bills with Medicare and Medicaid, because they can’t afford to pay it themselves. Let’s give them Social Security to keep them alive, because they couldn’t survive without it. The economic apple cart has truly been upset by inflation, and perhaps as in France during the 1790’s, it is all coming down to the finale. The tragic finale, if you please.
In France, after and paper money became totally worthless, due to the amount of it in circulation, plus having no value anyway, what were they to do? Guess what? People began using gold and silver as money. It was the only thing of value. They had to have something of VALUE to trade or barter for something else of VALUE, such as food. All the promises of government, and all the flood of government issued paper money, eventually ceased to have any value, regardless of government’s promises. It was the market at work literally. Total loss of faith in the paper money, which is all that paper money has going for it anyway faith. The market ALWAYS WORKS, and it is currently working full bore in all respects. Gold and silver may be manipulated, which they undoubtedly are, but manipulating something of actual, tangible value, can’t last for long.
Manipulating tangible values for inherently valueless pieces of paper, in the long run, is totally futile. Saving in worthless pieces of paper or their denominations in savings accounts, T-Bills, bonds, and the like, in the long run is pointless. History always repeats itself, and this is true with dollar debasement. The things that have postponed it as long as it has, are massive amounts of credit, the fact that it is the world’s reserve currency, and the US has managed to keep its status as a powerful nation. The facts belie all of this however. The US owes more than anyone else, and the dollar is being printed in such huge quantities, that the end must eventually happen. Unlike France in 1795, there are instant communications around the world, and currencies can be transferred in the wink of an eye. Also, there isn’t a single currency that is backed by anything, so the entire world operates on a fiat system. This is getting too long, so I’ll continue next week. Protect yourself.