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Author: michaelantonfischer (Page 2 of 3)

About the coming hyperinflation

Jack Dorsey earned himself a lot of push back, when he spoke about hyperinflation coming to the US a while ago. Recently, Bavarian politician Markus Söder has stated a similar thing for Germany and the media barely reacted.
So, is hyperinflation coming or not?

As I explained in my last article, the current economic situation is historically completely unprecedented and only slightly comparable to the fall of Rome, which means that all I will say below is my pure conjecture.

With that said, let’s look at why I think widespread hyperinflation in the Euro-Dollar System is the most likely scenario.

Before we can go into why hyperinflation is likely to come, we need to first understand what it even is. Common definitions describe it as an inflation that has surpassed 50% per month (or some say per year), while inflation in that context means increase in CPI (consumer price index).

This definition is misleading, for two reasons:
Firstly, inflation historically meant the increase in uncovered money supply. Under this definition, inflation really showed the potential for price increases in all markets and functioned as an early warning sign.
With the new definition, focussed purely on consumer prices, it’s become a useless lagging indicator.

Under a credit money, inflation hits the economy via the Cantillion effect. Persons, companies and industries closest to the source of new unbacked money get access to new currency tokens first. This means nothing else, but that the first effects of money stock inflation, hit closest to the dollar fountain.

So, initially creating money causes the prices of stocks, bonds, derivatives and real estate to go up. Since this is an effect seemingly enriching the rich, so it is welcomed by The Elites™.

Creating money out of thin air can stay confined to the financial markets for a very long time. Only once it has reached a critical level in inflating asset prices, especially real estate, will inflation break the first dam and flow from the financial economy to the B2B economy.

The cause of this dam break moment usually is twofold:

  1. Prices of resources and real estate get speculated up alongside bonds and co., making it necessary for companies to either increase prices or run at a loss.
  2. The spiral of paying for debt with new cheaper debt reaches a velocity when the normal business of companies and banks becomes insufficient to ever pay off the debt, so production becomes just a charade to justify ever higher loans.

We saw the first point happening before the financial crisis in 2008, and it was the number one reason for the crash to occur. Unfortunately, instead of letting companies fail or increase prices, the government forced them to resort to point 2. Thus, after a short correction, housing prices got bid up even harder.
Central banks dropped rates to zero and real rates significantly into the negative. Some central banks, like the ECB, even had negative rates on retail bank deposits, effectively punishing banks that did not leverage to the max and lend out everything they can.

Now, before you shake your fists at these evil bankers, consider that the only reason, this has not blown up completely, was the actual decency of the retail bankers.
They refused to go onto the relentless lending spree the central banks wanted them to. Especially during the height of the Covid-19 crisis, when central banks lowered reserve requirements to effectively zero, bankers explicitly kept some remnants of reason in their credit policy.

Sadly, their restraint was far too little and much too late, for we can see the second dam of inflation cracking now.

When the B2B sector cannot compensate the increases of asset prices, resources and real estate any longer nor hide them under fake money, eventually the consumer prices will rise.

This is something that we can see happening since 2019.

Now, rising consumer prices alone don’t cause hyperinflation. There is another factor that needs to come on top, to turn inflation into hyper mode.
This is where the second misleading part of the “50% of CPI” definition comes into play.

Hyperinflation is not merely fast inflation. There is a significant difference between the two. Inflation is when prices increase because the money stock gets inflated. Hyperinflation occurs, when people lose faith in a currency and start to flee.

This fleeing a currency happens in lockstep with the breaking of the dams. First, the banking sector stops using the money tokens to get more money tokens, but rather to get assets. This is when real estate and stock bubbles begin to form.

In the second stage, companies lose faith in the currency and stop focusing on their production, but rather on inflating their share price, buying back stocks, etc.

The third and last stage starts when consumers lose faith in the currency and stop using it for saving. Usually, this begins with the richer citizens, who reduce their cash holdings and invest more into stocks and housing. Then the middle-class follows suit. Finally, the poor people try to flee the collapsing money system, but being unable to afford the better hard assets, they resort to immediate consumption.

Once this stage has started, we get close to the point of no return, after which a collapse of the currency is unavoidable.

As you can see, nowhere in this process did I even mention the CPI inflation numbers and in fact, during Covid-19, we quietly entered stage three before official CPI had even passed 5%.

Thus, a much better indicator of impending hyperinflation is to closely monitor the behaviour of banks, businesses and ordinary people. Which unfortunately means one needs to use the art of praxeology on the data, instead of trying the Keynesian “one number indicator” approach.

To recap, so far, we have analysed the path of inflation approaching hyperinflation up to about December 2021. The interesting question is now, what 2022 and beyond will bring.

If we want to make an educated guess about the future, the only way to do so is to look at historical patterns. Especially the Weimar Hyperinflation of 1923 and the Great Depression of 1929. For a more profound understanding of the first, I recommend reading Argentarius.

When the third stage of inflation is reached, a government and its central bank have three options. The first is to continue the money creation. This is the scenario that inevitably leads into hyperinflation.

The point of no return in this case is crossed, once the money tokens lose their ability to defer a transaction in time. Signs of this happening are, when people relentlessly spend every pay cheque promptly. This is often accompanied by the so called wage-price spiral. Wages and prices race each other to ever higher levels, stores cannot keep up, with relabelling, workers demand salaries to be paid weekly, then daily, then upfront and so on.
Another sign is, when factories and stores go bust do to what Alfred Lansburgh called “selling themselves poor”. This occurs, when prices go up so fast that a factory cannot replenish their supplies because the earnings of the last batch cannot make up for the rising prices in raw materials. Stores in this situation cannot restock their warehouses because wholesale prices are suddenly higher than the resale price they charged for the old stock.

Indicators for a “selling ourselves poor” market are -besides the aforementioned bankruptcies- an increase in barter transactions and state regulations against “usury”.
At the time of this writing, in early April 2022, the Turkish economy has already crossed this line and Germany as well as other EU countries are uncomfortably close to it, with politicians openly discussing price controls.

After this point of no return, a monetary system cannot be saved. A currency reform is inevitable, and every day delay further destroys a nation’s infrastructure and capital stock.

So, what can a government do to prevent this point of no return to be crossed? Obviously, the easy answer is:
“Do the monetary reform NOW!”

Unfortunately, I know of not one case in history, where a government was forward-looking and wise enough to choose a little pain now, over a lot of pain later. I guess, there is no glory in prevention and leaders who aren’t concerned about glory are rare.

One way out is to let people chose their preferred medium of exchange on their own. This usually leads to people reverting to a gold standard. The downside of this approach is that it leads into the so called “deflationary” crash, like in 1929. People, realizing that their gold or gold-backed alternatives are worth significantly more than the qualitatively poor products the inflation has born, resort to saving as much as they can and crunch the inflation economy to a halt.

If the government allows this crunch to happen, the aftermath will be short-lived and the economy will quickly detox and recover.
If the government resorts to interventionism to soften the fall, the effect is the opposite, leading to perpetual crisis that can be resolved only by reform or war. Historically, governments had unfortunate tendencies to resort to the latter.

So now that we have understood why a hyperinflation or a “deflationary” crash are the only probable options, let’s explore, why I consider the first to be the more likely.

I could take the easy way out and end this article, by stating that Keynesianism is the government-backed economic doctrine and that it is afraid of nothing more than deflation, so for this reason alone, hyperinflation must be the outcome.

But where would be the fun with that? Especially since Keynesians have caught themselves in an epic catch-22.
On one hand, they say that in times of recession, the monetary policy must be relaxed and interest rates lowered. On the other, if inflation is running hot, interest rates must be increased and monetary policy tightened.
What their handbook does not say, is what to do when you have both. Recession and high CPI numbers.

Unfortunately, we are entering Q2 of 2022 not only with a beginning recession and CPI inflation around the world approaching double digits, we also have some once in a century crisis scenarios piling on top of each other.

Incompetent government responses to a virus, a ship stuck in the Suez Canal, earthquake in Japan, power outages in China, a war in Europe. It’s hard to imagine a more complete list of “How to destroy global supply chains” than this. So with news like this, the obvious thing to do for a government is to further exasperate the situation. Governments can get really creative with this, maybe locking down some of the most important industrial cities in the world or stopping energy trades with one of the top suppliers of oil and gas.

In this macro environment, if you are one of the economists who still forecasts a growth in the world economy for this year, please send me a sample of whatever it is you are smoking.

To me, it’s clear that by the end of autumn 2022, we will be in a recession like we have not seen in at least half a century. In 2023, we will likely have double to triple digit price increases across almost all product groups, paired with great depression era and beyond declines in GDPs.

This will bring any government under pressure to do something, and the easiest thing to do for a government in that situation is to print money like there is no tomorrow.

And so, the hyperinflation will begin…

Now, the burning question you may have, is:
“Historical hyperinflations always happened in countries competing with a gold standard, so how will a Fiat vs Fiat hyperinflation look?”

More on this… next time.

A dire warning to real estate investors*

Those who have been following me for a while know that I love investing in real estate, especially affordable housing projects.
So, it might surprise you that, even though I’m long real estate and expecting the Dollar and Euro to devalue against houses at an ever-increasing pace, right now, I have to warn you.

If you are highly leveraged (60%+ debt to current valuation), I would try to deleverage, if I were you. Sell properties at the absurd valuations we have right now, until you can survive a 30% to 40% crash.

Why do this now?

While central banks will very likely have no choice, but to keep flushing liquidity in the market, many signs signal a shake-out.
One such signal is the US 30-year fixed mortgage rate, which has been really shooting up recently.


What this means is that all investors who need to refinance, need additional mortgages or simply have no long-running mortgage rate agreement need to pay more. Which for many people who invested in the last three years can easily surpass the thin margins and make them go bust.

Another even more worrying signal has just emerged here in Germany. The Sparkasse Banks are a group of local banks, who finance a high percentage of homeowners mortgages.

Over the past 5 years, if you had a high credit score, they would lend you 100% sometimes even up to 125% of a property valuation, with little to no down payment. All the while, interest rates were often below 1%.

This has suddenly changed now.

Many Sparkasse Banks now charge over 2% even for top credit score clients, and are unwilling to accept less than 30% down.
Some even go so far, as slashing the value of properties-as-collaterals to 65% of the market value or less.

This means that these banks are pricing in a significant drop in prices. And their evaluation might very well become a self-fulfilling prophecy.

If banks do not lend as readily and at higher rates, this alone puts pressure on the housing market.
If moreover the banks discount collateral, this can be fatal.
Normally, a change in rates and prices mostly affects people currently buying or selling or whose mortgage rate is not fixed. This is changing now.

Over the past few years, with banks lending 100% and more to the value, they now have relatively little collateral against their loans. This is critical for two reasons:

Number 1:
Central banks here in Europe and around the world had a moratorium on how much collateral banks need to hold, in some cases dropping the requirement to zero. These have expired or will expire soon. So banks need to increase their collateral to liabilities ratios.

Number 2:
When market prices even drop slightly, this gets leveraged by the new collateral requirements and the discount banks apply to the market value.

The potential impact is that not only will it get harder to find buyers solvent and creditworthy enough in the housing market. Even existing loans that get paid diligently can get under pressure.
When banks decide or are forced to decrease property valuations, they need to increase their collateral. And basically every mortgage contract contains a clause that—should the bank need to revaluate your property and securities—they can ask for additional down payment or deposits.

In a normal market, this is not a problem. Most investors in real estate historically purchased with 80% debt or less. Furthermore, housing prices went up most of the time and if down, it was only minor fluctuations.
This time, the macroeconomic situation, the COVID-19 policy fallout and the real estate hype of the past decade, may become a deadly mixture.

If liquidity drops enough to draw prices down even by just 5%, the chain reaction, of banks panicking, central banks doubling down on their errors, etc. can easily exasperate the drop into a 30% to 40% crash.

For liquid investors, this will be a great buying opportunity, but for new and highly leveraged investors, this will be disastrous. Many will be forced to sell their properties at a loss and get stranded with a lot of debt, without any means to pay it off.

Don’t be one of them.

So with China’s real estate sector crumbling, the US housing market looking worse than in 2008 and the historically rock solid German real estate market showing cracks, why am I still bullish long-term?

Simple. We are currently in an unprecedented macroeconomic environment. Collapses of Fiat money have happened many times, but to find the last time a Fiat currency comparably strong as the US dollar, you have to go down all the way back to the third and fourth century Mediterranean.
And even with the collapse of Rome, there are differences that make today’s situation completely unprecedented in my view.

First and foremost, the Roman Denarius always competed against Gold and Silver currencies. A total Fiat world economy like today is historically unique.
Secondly, the fall of Rome was playing out in centuries. The fall of the US empire is playing out in mere decades and accelerating.

So while all of this makes the future less predictable than ever, there are historical patterns that likely apply. One of them is that enemies of the collapsing empire will first resort to hard currencies to drain the struggling foe of resources and capital.
This can already be seen, with Russia de facto coupling the Rouble to Gold and asking for energy deliveries to be paid in Roubles.

Another process that is going on, is the breaking free by the de facto colonies of the United States, which in this case may be called “de-globalisation”. And since the US hegemony is built upon debt and (mostly) not military occupations, the virtual colonies around the globe, will get a relatively easy way to shake off their chains. By means of the rapid devaluation of Fiat currencies, their national deficits are easily paid off, if they own gold or Bitcoin, which I expect to reach astronomical exchange rates vs the Dollar in the next decades.

If history can give any indication for the future, then the most likely scenario (my estimation ~60% likely) is a 6 to 24 month severe draw back in the housing market, followed by a price explosion and potentially hyperinflation.

More about hyperinflation… next time.

*none of this is financial advice. It all depends on your personal situation, so do your own research, make your own decisions.

Valuta – First Letter

Now we come to the second Part of “The Essence of Money” called “Valuta”. In this series of letters, we will learn how money functions in international trades and how (in a Gold standard world), Gold and Fiat currencies interact.

One of the most important lessons lies already in the introduction. Why is it that we accept the laws of nature, when it comes to physics, but not economics?

Unconcerned about the worried look of the farmer and equally indifferent to the satisfied smirk of the fruit grower, the sun has blazed down, obedient to some law of nature that we do not know. We took refuge in the shade, we fought the embers with water where we could. But we have not been able to force the fireball to dampen its rays, we have not been able to command the winds to draw a protective curtain of clouds in front of the burning light. We have been able to subordinate ourselves humbly to the higher power, to adapt ourselves wisely to the facts: that is all we have been able to do.
Most people also realise this and make no attempt to grind themselves up in a useless struggle with nature. They do not rebel against the laws which they have recognised as eternal and unchangeable. But why do they act so sensibly only in the field of the forces of nature, and not also in the economic field? Why do they believe they can dictate the direction of development by arbitrary interventions and measures of force as they see fit? Why do they deliberately overlook the fact that the economy, too, has its eternal laws, to which there is no other wisdom than subordination and adaptation?

Essence of Money – PArt II. Valuta

Our efforts to meddle with the natural laws of economics, are at best not effective, but often futile. You can’t argue with Math, Physics… or human nature…

The laws of economics infallibly cause this cause to produce that effect. Pay attention to this causal connection, respect it, act according to it, avoid the cause if you don’t want the effect, but don’t miss wanting to change the connection and bend it in a direction that suits you. ‘Economic development, too, has its one-time rule and does not ignore those who violate the principle that ‘two times two is four’.

Essence of Money – PArt II. Valuta

How dire these consequences can be we already saw in Part I. “On Money”, but we will learn many more examples in Part II. to IV.

[…] almost all our social struggles, with their attendant symptoms of political incitement, public immorality, general unscrupulousness in acquisition, epidemic robbery and murder, are a consequence of this disregard for economic laws: Indeed, even the German Revolution of 1918 was largely due to this disregard, because the arbitrary manipulation with the yellow coin, even more than the war, brought about the division of the people into the group of the exploiters and that of the exploited, and thereby created the mental disposition for the collapse. 

Essence of Money – PArt II. Valuta

On Money – Twelfth Letter

Let’s have a look at the final letter in Argentarius’ “On Money” collection of letters today.
This letter is what I call the “anti-MMT smackdown”. Lansburgh here anticipates arguments that are currently -100 years later- being made by MMT economists like Maurice Höfgen from Germany.

If one looks at the matter in the light of day, the whole question of currency is basically only a harmless example of multiplication. One simply has to multiply all one’s expenditures by 10 or 100 or 1000, according to the devaluation of money or the increase in prices. Objectively, this means nothing, because every expenditure of one is an income of the other, and therefore the income also increases by 10, 100 or 1000 times. One only has to get used to adding a zero to all numbers in traffic life.

Alfred Lansburgh: The Essence of Money – Part i. On money

According to Argentarius, monetary downfall is as bad or worse for a country as losing a world war and we will soon see why.

This harmlessness, my son, cannot be countered strongly enough, for the ignorance that expresses itself in it borders on the criminal. It is bad enough when a nation slides down the slippery slope of inflation in clueless recklessness. But if it then blithely ignores the consequences of this slide or tries to see the best side of them instead of taking hold of the reins of the state and putting the brakes on in time, then the people are hastening towards their doom. For, to put it in meagre words, the decline of its currency is probably the greatest misfortune that can befall a nation. Even a lost war does not bring it such serious immediate damage as the ruin of its monetary system.

Alfred Lansburgh: The Essence of Money – Part i. On money

Lansburgh realizes that economists that make this claim, fail to account for the Cantillion effect, which means that the people closest to the money printer benefit because they get the newly printed money first, when prices are still low. This of course means that people who are the farthest away from the money fountain lose out.
Inflation is a silent, hidden means of redistributing money from the poor to the wealthy.

Above all, they overlook one significant circumstance: the devaluation of money, i.e. the multiplication of expenditure, affects the whole. The counterpart to this, the increase in income, however, benefits only a fraction of the population, and this fraction, of course, to such an extent that the relationship between income and expenditure improves extraordinarily. And it is mainly capital, in so far as it possesses material assets, which profits in this way. On the other side, however, which only learns about the moment of the increase in expenditure from the devaluation of money, are, apart from the pensioners, who are particularly severely damaged, mainly the mentally and physically working classes, the civil servants and the state pensioners.

Alfred Lansburgh: The Essence of Money – Part i. On money

Everyone who possesses claims expressed in money, such as interest, pension, salary, wage, pension and the like, is harmed to the extent of the deterioration of money. Anyone who owns certain real assets, such as real estate, livestock, furniture, stocks, etc., is normally neither harmed nor benefited, because the real assets rise in price by approximately the same amount as the money in which the price is expressed loses purchasing power. (Forcible harm, such as that done to homeowners by the state’s housing policy, is not considered here.) Finally, everyone who owns advertising values, i.e. factories and machines, and produces real values with them, as well as everyone who sells these products, profits from inflation; and this because the selling prices of his products, i.e. his income, adapt themselves faster to the falling value of money, i.e. rise faster than his expenses for wages, rent, interest, taxes, etc., and because this favourable relation appears not once, but many times, with each act of sale anew. In short, the first class is expropriated by inflation in favour of the third class.

Alfred Lansburgh: The Essence of Money – Part i. On money

But not only does inflation redistribute, it damages and hurts economy and the society in various other ways as well.

Now one could take the view that compassion is not a matter of economics and that one should not view the process through the lens of sentimentality. One rises high, the other sinks low, that’s just human fate. What matters is not the individual, but the whole. But this is precisely where the catch is: although these processes seem to affect only certain classes of people, it is the totality that suffers the most serious damage. First of all, from a moral point of view: In the whole nation, even if it is straightforwardness and honesty itself, every sense of right and fairness is gradually disappearing. Namely, because all classes, even the inflationary profiteers, believe themselves cheated by the state. And indeed, we know that money is a right, namely a right to obtain goods of a very definite value. And what is law must, as is well known, remain law in a state of order. No right, however, must stand more securely and last longer than the right of possession, which is embodied in money, for in trusting in its existence, states and peoples conclude sacred treaties which are valid for 100 years and more. This right, this right of all rights, has been grossly violated by the state, which has decimated the value of money through inflation. Every worker, every civil servant, every pensioner feels cheated out of his or her rights by the state, which is supposed to protect them. But also the beneficiaries of the deterioration of money, who, so to speak, feed off the fat of the general public, feel that their rights are threatened by the state, because the state demands from them the taxes that it needs in order to alleviate, at least to some extent, the misery for which they themselves are responsible. Since only a few of the beneficiaries know the real connection between their income and the misfortune of others, and most of them attribute it to their own efficiency, which is only the effect of inflation, they regard it as an act of violence and a disenfranchisement when the state wants to tax away part of their profits. Hence the general ‘tax evasion’ […]

Alfred Lansburgh: The Essence of Money – Part i. On money

With this letter, the series about money is complete, and we have learned the basics, of how money works. In Part II. “Valuta”, we will learn how money affects international trade and the global economy.

Stay tuned.

On Money – Eleventh Letter

First they ignore inflation, then they deny inflation, then they tell you inflation is good, and finally, they blame it on somebody else.

Central banks have been lying about inflation, since their inception. Their lies were exposed by Argentarius over 100 years ago. Yet to this day, people believe the same old claims.
The only way we can prevent history from repeating itself, is to study history.

The terrible effect, dear James, which an arbitrary increase in money has on the ‘value of money’, i.e. on the size of the claim to goods embodied in money, is usually only recognised rather late. The effect must already be quite profound, the deterioration of money must have reached an ominous degree, before the state or the central banks admit that the devaluation of money is a consequence of their own wrong monetary policy. But once they have recognised this and publicly admitted the connection between the devaluation of money and so-called ‘inflation’, something happens that could be called amusing if it did not have such serious consequences. The state or the central bank then try to mitigate inflation in a very specific way, in a way that clearly shows that one can suspect the connection between monetary debasement and inflation and still have very amateurish views about money.

Alfred Lansburgh: The Essence of Money – Part i. On money

Particularly eerie is the fact that already a century ago, central banks were trying to get people to use “cashless” methods of payments.
Even more horrible is the fact that today, the banks are even more disingenuous about the reason they want to get rid of cash. They tell us it is “to combat money laundering”, when in fact they want to be able to inflate or deflate the money supply at will.

There is no doubt that it was a mistake to issue such large quantities of banknotes and thereby weaken the value of money. It would therefore be necessary to attempt to withdraw a part of the banknotes, but in such a way that no holder of a banknote suffers a loss as a result. Cashless payment transactions are best suited for this purpose.

Alfred Lansburgh: The Essence of Money – Part i. On money

And unsurprisingly the calls for central bank currencies, which means nothing else than citizens having an account directly with central banks, is not new either.
The reasoning behind it, is that this way the central bank can print money (or destroy it) directly without the middle men in the commercial banks. Which is precisely why they weren’t given this power in their mandates because this would give them far too much power.
The concept of digital central bank currencies (CBDC) is even more insidious, however. Because unlike the analog ledgers of the last century, a digital ledger would be much less difficult to manipulate and can be coupled to personal information; creating a social credit score that goes deeper into society than anything Orwell imagined in 1984.
Therefore, it’s imperative that we defend ourselves against this power grab by buying the only asset they cannot manipulate – Bitcoin.

That is why, my dear son, you will always hear the praise of cashless payments sung when inflation and monetary distress have reached a high level. With pleas and threats, with enlightening writings and with the well-known imperatives (‘Pay cashless!!!’ ‘Promote remittances’ ‘Fight inflation!’), the public is urged to hand in their banknotes and have an account opened for them, either with the central bank itself or with another bank which in turn has non-cash dealings with the central bank. In fact, the propaganda is usually successful. The private credit balances at the banks, the bank credit balances at the central bank experience a considerable increase, which clearly shows how much banknotes would have had to be issued if the public did not now often pay by cheque and transfer instead of banknotes. Only one thing remains missing, and that is – success.

Alfred Lansburgh: The Essence of Money – Part i. On money

The reason central bankers can pull this scam on us is that so few people understand what money really is. (And I suspect even many central bankers don’t.)
Namely, a right, born out of a transaction. Money’s sole purpose is to represent and guarantee that a good or service that has been delivered, is correctly compensated for with other goods or services.

As I said, this would be very amusing if it did not show in such a frightening way at what a low level the knowledge of money and its laws still stands, even when one has finally understood the connection between inflation and monetary distress. For, to put it briefly, my dear fellow: the whole idea of wanting to fight inflation by promoting cashless circulation is hare-brained nonsense. Cashless transport may be a very useful institution under certain circumstances (by no means always!). But it cannot counter inflation for one very simple reason, namely because it is – itself – a part of inflation. Money, it cannot be said often enough and loudly enough, is not only identical with the monetary signs that one encounters in traffic. In its essence, money is nothing material at all, but something abstract: a right to purchase goods. Whether this right is embodied in gold bars, in coins, in cash notes, in bank notes, or finally in current account balances, is completely irrelevant. The only thing that matters is that there are only so many rights to draw goods as the traffic with its daily services and counter-services generates from itself.

Alfred Lansburgh: The Essence of Money – Part i. On money

So please don’t be fooled, cashless payments neither fight inflation nor money laungering.

And every note, every sight deposit arbitrarily created by the state or a bank is surplus, bad money. Whether the arbitrarily issued banknotes are left to circulate quietly or whether they are withdrawn and replaced by book credits, so-called ‘giro money’, is of no importance. Or have the wrongfully issued rights to goods been eliminated because they no longer pass from hand to hand in physical notes but in incorporeal giro money? Will even one single iota of purchasing power in the country be exercised less if payment is made in non-cash instead of cash? And that is what matters: Less purchasing power must be exercised if one wants to reduce the price of goods or, which is the same thing, increase the ‘value of money’.

Alfred Lansburgh: The Essence of Money – Part i. On money

On Money – Tenth Letter

Can there be too little Money?

No, as Argentarius explains, this is a ridiculous notion. Here are a few highlights from today’s letter:

In the first paragraph, Lansburgh addresses the common misunderstanding that money supply must be growing, if the economy grows, with a brilliant analogy. He then exposes the real intention of those crying for more money, namely that they want to gain more than their fair share of the purchasing power.

As old as money, dear James, is the complaint of people that there is ‘too little money’. This is a misunderstanding that I dare not hope will ever completely disappear from the world. It will probably only ever be a very few people who realise that ‘too little money’ is an absurdity. Money is the scale according to which the available goods are distributed among the population, and one can only increase the individual portions of goods by increasing the quantity of goods, but not by lengthening the scale. Whoever complains that he has too little money, in reality complains only that he has not sold enough goods or services and has therefore only been able to procure a small portion of the available quantity of goods.

Alfred Lansburgh: The Essence of Money – Part i. On money

Next he tackles the issue of why Gold is valuable, which is much different, from what Gold bugs claim to this day.

The actual superiority of gold money – in the eastern part of the world of silver money – has a far deeper cause than the whim or obstinacy of the great masses. The relative stability of value of gold money is rather due to the fact that the production of such money is beyond the arbitrary power of the state.

Alfred Lansburgh: The Essence of Money – Part i. On money

Argentarius then proceeds to dissect the “Gold Standard” further and unknowingly presents the case on why Bitcoin will be better money than Gold almost a century after his writing.

Namely, that it is only produced by performance.

The advantages of Bitcoin over Gold here are twofold:
1. Golds total supply is not transparent, so Banks storing Gold can cheat.
2. New technologies (mining machines, asteroid mining) can make the production of Gold easier, while Bitcoin’s difficulty adjustment ensures that supply increases predictably.

The requirement that performance and only performance gives rise to money is ideally fulfilled in the case of gold money (or money fully backed by gold). Such money can never produce more than is justified and needed by human intercourse, which exchanges performance for performance. And since the quantity of money, or the relation between this quantity and the services, decides on the purchasing power, on the ‘value’ of the money, gold money, in which the quantity or the relation cannot undergo any arbitrary shift, is stable in value. Exactly as stable in value, however, would be any other money that arises exclusively from performance, that is produced by circulation itself and is not forced upon circulation from outside according to any principles whatsoever.

Alfred Lansburgh: The Essence of Money – Part i. On money

Finally, Lansburgh makes the case, for why central banks are not only unnecessary, but outright dangerous institutions.

The privilege of all central banks is thus based on the twofold error that the ‘value’ of money has nothing to do with the amount of money in circulation in the country, and that only gold, or the possibility of exchanging it for gold, gives money its stability of value. Whereas in reality it is just the other way round: Gold as such has no influence on the ‘value of money’, whereas the money supply has the sole influence.

That is why, my dear fellow, all central banks without exception have failed as soon as they wanted to put it to the test and make a considerably increased quantity of notes available for circulation – for instance in war or in a crisis.

Alfred Lansburgh: The Essence of Money – Part i. On money

If you want to hear the full reading of this letter for free, you can do so on YouTube.

Or you can get the full version of the book on Amazon.

On Money – Ninth Letter

Hi guys,

In the ninth letter of On Money, we will learn the reason, why the money market has so much power today and why this necessarily creates a society split into the haves and have nots, where the gap between rich and poor must grow ever wider.

Luckily, Argentarius was no socialist and explains, why the “social policy” usually hurts the poor and middle class more than it helps.

The upcoming lections, will show us a way out of this dilemma.

And with this glimmer of hope… to the reading…

On Money – Eight Letter

Hi Guys,

Today’s letter is an extraordinarily important one for all my fellow Bitcoiners. Because today’s letter debunks one of the most stubborn myths about money, namely the deflationary crash.

Of course Argentarius lived too early to be confronted with the Keynesian myth spun around the Great Depression, so he can not directly counter their lame “arguments”.

But he rather brilliantly takes away the ground these “arguments” try to stand on to this day.

In this lecture Lansburgh will show us, how circulation of money is controlled by economic activity and not the other way round and how interest is the self regulating driver of economic activity.

Viewed from this perspective it is clear of course, how misguided central bank policies are that lower the interest when they want to stimulate economic activity.

Lower interest to stimulate the economy is the equivalent of giving a patient who just got his leg ripped of by a shark adrenaline  and cocaine to stimulate him.
Of course for a while it will seem to work, but in the end the therapy must prove fatal, if the doctors don’t come to their sense.

The same is true for the Euro-Dollar system, with it’s negative interest rates today. All this cheap money can ever stimulate is drug induced pseudo-economic activity, while at the same time, the real economy is bleeding to death.

And with this gruesome picture in your heads… to the reading…

On Money – Seventh Letter

Hi Guys,

In the 7th Letter of On Money, we will learn the answer to an economic conundrum that is plaguing economists of 2021 as much as it did in 1921.

Namely, the connection between economic growth and money.

Maybe you have heard some economists claim that excessive money printing causes inflation, while others claim that the velocity of money causes inflation.

The latter thus claims inflation can’t happen today, because the velocity of money is at record lows today.

What both of them don’t understand is can be learned from this letter. Firstly, we must distinguish between “useful” and “idle” circulation of money.

Money circulates productively, when it is used to build new products, real estate and companies. While it circulates idly, when it is inherited or used to purchase shares from the stock market.

Idle circulation is not bad per se, it is only bad, when the idle circulation eats up the useful circulation as we see today.

In a healthy economy, price determines the velocity of money and the rate of production determines the price.

So if you want to increase the useful velocity of money, production of goods must be increased, until the point, when prices become so cheap that it becomes more desirable for people to invest their money in existing companies, rather than new enterprises. This is both the driver and regulator of economic growth in a healthy economy, where the number of money tokens is relatively stable.

But what happens in our money sick economy today?

By means of the virtual printing press we give massive amounts of new money signs to those people who usually use their money mostly in idle circulation, namely banks, big corporations etc.

By this Cantillion effect, we transfer purchasing power from the normal people, who usually buy goods and services, to those who buy shares and exiting real estate. 

We thus artificially transfer money from useful into idle circulation and thus, seemingly the velocity of money goes down.

But by putting money into idle mode, we create the effect that prices of exiting houses and other assets, like stocks (think buybacks) inflate.

And the more money the central banks press into the market by means of QE and cheap credits, the faster and higher these existing asset prices rise.
Thus the asset prices outpace the rate of return on newly created goods and services.

This forces producers to increase their margins, think shrinkflation, low quality goods, exploitation of workers, environmental pollution.

Effectively the environmental disaster we see happening is largely not the fault of rampant, free market capitalism, but rather the consequence of the central planners at the FED, EZB and all the other central banks, happily creating money.

But the longer this goes on, the less potential there is for manufacturers to cut costs, so at some point, necessarily production must fall. This is what we saw in 2019.

Bizzarly, the Covid crisis saved producers, because it both artificially lowered production further and by means of government bailouts and handouts, increased their margins.

Nevertheless, producers will need to increase their price and/or reduce production the more money central banks blow into the financial sector.

And when this happens, at some point all the dams break and suddenly the money that has been idling in the financial sector, rushes into the economy and creates hyperinflation.

It’s nearly impossible, to predict when such a tipping point is reached, and it might well be that we are already past the point of no return, but what is certain is, that if monetary policy continues as is, the Euro-Dollar system will go into hyperinflation.

And it will be far worse than that in Germany in 1923.


Because in Weimar Germany the world reserve asset was Gold. And today it is the dollar. This is an unprecedented situation in history.

Usually when the dominant currency collapses, people switch back to gold, but there is not gold currency to switch to and to make matters worse, the gold market is heavily manipulated by central banks and with paper gold.

So in my opinion -and this is not financial advice- our only way to rescue our purchasing power, is Bitcoin.

And with this grim prediction and the orange silver lining, to the reading… 

Audio Book Argentarius: The Essence of Money: Part I. On Money – Sixth Letter

Hi guys,

Today we will study how money is born and how it dies.

In the sixth letter of On Money by Argentarius aka Alfred Lansburgh, we will put together the pieces from the first five lessons and thus create a precise understanding of why Libertarians are not overly dramatic when they say:

Inflation is theft.

It is indeed theft and in this lecture we will learn how it works.

So all in all a lesson more important for you than you might think, because at the time of filming this late in 2021, inflation in the USA and Europe has hit 40 year highs, if you trust the official numbers and levels not seen since Argentarius was writing in Weimar Germany, if you look at the actual uncovered money supply.

And on that happy note… to the reading…

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