know I was thinking about it though Dave because we’re looking at the news with Venezuela it’s so sad. I don’t think people really understand the tragedy of hyperinflation but the tragedy means that you know some people literally don’t eat. I heard the latest statistic that their inflation rate has blown to 42000 43000 percent where a month’s wages will buy three cups of coffee. At this point you know when you look at something like that whether it’s the fire here in Durango or the hyperinflation Venezuela a lot of it is tied to context. You have the appropriate context efforts take place in the teens and early 20s.
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Venezuela Hits 43000% Inflation - Money Is Worthless - McAlvany Commentary 2018
At this year's annual Robin Hood conference, which was held virtually, the founder of the world's largest hedge fund, Ray Dalio, talked about asset bubbles and how investors could detect as well as deal with bubbles in the marketplace. Q1 2021 hedge fund letters, conferences and more Dalio believes that by studying past market cycles Read More
The McAvaney weekly commentary covering monitary economic and geopolitical news events. So that's the problem is we've created a structure within the financial markets which requires greater and greater liquidity to see those asset prices maintained or propelled to higher levels. If you don't provide the liquidity you see what Druckenmiller described as potentially the greatest deflationary collapse the world has ever seen. Now here are Kevin Orrick and David McElhaney welcome to the McAvaney weekly commentary from Kevin Orrick along with David McAvaney. Well the fire we've been talking about has spread now to fifty two thousand acres. You know David we're in week 5. We knew we had a very dry environment. We knew that we could expect something like this. It's amazing to me how quickly something like that can blow up. We've got a whole community that sounds like they've been smoking Camel filter list cigarettes for the last five weeks. It's a lot of swimming. It's a lot of smoke every day. You know I was thinking about it though Dave because we're looking at the news with Venezuela it's so sad. I don't think people really understand the tragedy of hyperinflation but the tragedy means that you know some people literally don't eat. I heard the latest statistic that their inflation rate has blown to 42000 43000 percent where a month's wages will buy three cups of coffee. At this point you know when you look at something like that whether it's the fire here in Durango or the hyperinflation Venezuela a lot of it is tied to context. You have the appropriate context efforts take place in the teens and early 20s.
You had the reparations payments from the Treaty of Versailles. And you know there was an unsolvable problem. And yet they've found a way to move forward through the printing presses. But the context was set and that was an insurmountable debt that had to be repaid that an insurmountable debt that had to be repaid was the backdrop issue that was the primary issue feeding into the Weimar hyperinflation. You could have looked at Venezuela and seen something like this coming years and years ago. And certainly we've got the fuel to feed the fire here in Durango and it kind of is just a matter of time before you have a lightning strike or something else that gets started. Well and it's not just Venezuela. I mean we can look at our own economy and say look at the trillions of dollars that have been printed in a way that's a little bit like a dry forest. It hasn't turned to inflation yet but I'll just tell you with the dryness that we had over the winter this year the environment changed enough that I called my insurance agent and raised my fire insurance on my house knowing that we probably would have something like this. We haven't really experienced much inflation right now in the United States. Kevin this is one of the points that I was going back and forth with Bill King here in recent weeks because this issue of the monetarist school of thought assuming that the monetary base as it increases it translates into greater inflation right. That's what we're taught. Inflation is everywhere and always a monetary phenomenon. RIP money you get inflation decrease the printing you should have a deflation.
That's the theory. So what do we have here is that rule no longer applies is it. Milton Friedman being thrown out on his ear and the whole theory being turned upside down and inside out or is it a question of sequencing the fixation that I had with Bill King in a conversation and globalization is this link this link between what should be a monetary axiom create lots and lots of credit and money and you end up with inflation and something that has reduced or tamed inflation in the short run. So again is globalization that trend. That's what I wanted to know. Is it the trend which has taken the monetarist equation out and ended it or is it something that we're just waiting for. I know from our conversations in-house with Doug Noland and others who focus on credit. Clearly there's been massive inflation in asset prices and the central bank community has done a masterful job of focusing the liquidity flows towards one particular place. And so rather than seeing a radical increase in the cost of goods and services we have had a radical increase in the price of assets as intended as the playbook was set out by Ben Bernanke during the crisis. Well look at the 20th century. Could you imagine Dave if they weren't printing money and we were on a gold standard how much prices would have actually dropped. The cost of living would have actually dropped as we globalized because what you're doing when you do the globalization thing right. You're actually becoming more efficient with labor what have you.
Now I'm not necessarily saying I'm a proponent of current globalization but our prices and our cost of living should have dropped and so what they've done instead. You're talking about changing the equation. We should have had the kind of deflation that's good for all of us. But instead the Federal Reserve has been printing and moving that money to where actually my cost of living is still increasing. I mean look at the Fed's inflation gauge here within free market circles there is the story of the pencil and how it's created and what goes into creating the graphite that goes into the lead part and where you harvest the wood from and where that metal band at the end which holds the eraser on. Where do you get all of these parts and how long does it take to create a pencil. If you're doing the project alone print the value of all the markets in the value of free trade and the value of mobilization in that sense is that you get to specialize and when you specialize the cost of a pencil instead of being worth 20 or 30 dollars because of the labor hours that go into it now cost pennies it cost pennies and it means that nobody really thinks about the cost of a pencil anymore. Those are the benefits of a deflationary environment where we actually see a massive increase in our living standards because things get cheaper. Now you look at the Fed's inflation gauge and we have these numbers out here this week. They prefer something called the PC PC core over the CPI. You and I are stuck with a consumer price index and that's the reference that we have.
That's the reference they use for cost of living adjustments et cetera et cetera. But they prefer the PC core it's now 2 percent. Yeah they started using that primarily in 2012 didn't they. We're now back to 2 percent for the first time since 2012 and not so surprising study here in the last week or to show that Social Security benefits by 34 percent less today than they did in the year 2000 is a retired person. That's exactly right. Yeah has their standard of living with what they've been bringing in dropped a third. Absolutely right. So you get your goods and services which are in fact rising faster than the cost of living adjustment and is that a shocker the cost of living adjustments of course are tied to the CPI. The CPI ends up understating inflation and it's a huge benefit to the government in terms of the benefits that have to be paid out to individuals the obligations that gap. There's a decent difference between PC and the way they measure their own inflation and the CPI which ties them to a long term payable obligation and the CPI just doesn't reflect real world inflation. It's going to be an interesting saying when the public finally discovers this you realize that there's enough people in the general public who are experiencing some level of discontent. There's a baby boomer angst which is tied to making ends meet in retirement. And this is one of the contributing factors. What does your money by you. Well by 34 percent less than it did in the year 2000. You can see that income is not matching up with expenses.
Well when we really haven't experienced the kind of inflation that would represent the amount of money that's been printed. You know I remember Adam Ferguson we read his book and then we were very pleased to have him on the program. His book was when money died. And that was probably one of the better books from a human interest perspective on the inflation in Germany. Certainly one of the archives I would go back to and listen to. Well one of the quotes that he has on the last two pages of the book when he's going back and analyzing what happened to Germany. Here's what he said just in short he said what really broke Germany was the constant taking of the soft political option in respect to money. The takeoff point therefore was not a financial one but a moral one. What we're talking about here Dave is a moral issue. Let's look at Venezuela here for a minute. Let's look at what Maduro is doing who by the way he handily won another six year term I'm sure those elections weren't rigged since the people aren't eating. That's right. Well this is the question of the hour actually with hyperinflation it's the question of the minute there in Venezuela. You have a real time laboratory for financial and monetary mismanagement and it's based on a political ideology. Honest. I can't believe that there is still a debate here in the United States on the merits of socialism. We continue to elect people who are proponents of some degree of socialism and of course in the ivory tower. It's a free for all for really the dominant themes of academia. Well this isn't just a pocket thing.
This is a life type of thing. We're talking true bleeding here. Well because the cost of bad ideas is not merely wasted tuition dollars. That's not the cost of bad ideas in the 20th century as the 20th century has attested to. You have massive amounts of human suffering and death that are attributable directly to bad ideas. Hyperinflation is a monetary panic. And yes it is an extinction event for a currency. And that's what you get in that book by Adam Ferguson. When Money Dies it's a currency extinction event but it's coupled with social collapse and social collapse peace gets very complex. I like the way you framed.