True Cause Of Hyperinflation: Central Bank Insolvency | Dr. Ingo Sauer
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- Опубликовано: 30 июн 2024
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Dr. Ingo Sauer of Goethe University Frankfurt joins Forward Guidance to share findings from his 360 paper on Hyperinflation in 1923 and its connection to central bank insolvency. Sauer argues that severe impairment of central bank assets, and not the printing of vast amounts of central bank liabilities (money), was the primary cause of extreme inflation witnessed 101 years ago in Germany, Austria, Hungary and Poland. Sauer inverts the causal line of exchange rate depreciation, money supply increase, and inflation, and he also shares his concern about the current state of the balance sheet of the European Central Bank (ECB). Filmed on March 5, 2024.
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Ingo Sauer’s RUclips channel: / @wissenhatkeineneigent...
Ingo Sauer’s 360 page paper, “The Lessons from 1923 for the Euro Area: Enlightening the Dark Side of (In-) Solvent Central Banks’ Balance Sheets”: papers.ssrn.com/sol3/papers.c...
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Timestamps:
00:00 Introduction
00:17 Overview Of Dr. Sauer's Theory On The Ultimate Cause of Hyperinflation: Central Bank Insolvency
06:25 Dr. Sauer's Concerns About The Euro
10:42 Setting The Stage For German Hyperinflation in 1923
13:53 The German Mark During World War I
21:00 The Assets Of The Reichsbank Increasingly Became Dominated By German Government Obligations (Not Commercial Bills / Collateral Advances / Gold)
29:23 Central Bank Insolvency (Not Money Supply Increase) Caused Hyperinflation in 1923
34:13 VanEck Ad
36:08 Failed Attempts To Stabilize German Mark And Inflation, 1919-1922
41:04 Reichsbank's Holdings Of German Treasury Bills Highly Correlated To (In)Solvency Factor
44:21 Explaining Sauer's "Solvency Factor"
46:49 The Mark's Short-Lived Rally In 1920
56:29 The Mechanics Of Central Bank Insolvency
59:01 Reichsmark Insolvency Led To Depreciation Of The Mark, Which Led To Hyperinflation
01:01:55 Money Supply Did Not Cause Hyperinflation, Argues Sauer
01:14:29 The Explosion In Reichsbank's Money Supply Was Mostly Paper Cash, Not Bank Reserves
01:22:23 Reparations' Impact On German Solvency
01:26:42 The Rentenmark And The Halting Of German HyperInflation
01:30:07 Central Bank Profits and Yield Curve Dynamics
01:34:18 European Debt Crisis (2009-2015)
01:36:05 Fed As Dealer Of Last Resort, European Central Bank (ECB) As Market Maker Of Last Resort
01:37:27 ECB Is Less A Central Bank And More Of A "Headquarters" For Domestic Euro 01:Central Banks (such as Bank of France, for example)
01:39:43 Origin Of Fed, And Clearinghouse Loan Certificates As National Currency Before The Fed
01:43:38 Why Has ECB Balance Sheet Expansion Post 2008 Coincided With Disinflation (Or Deflation), And Not Hyperinflation?
01:47:04 Sauer's Fears About The ECB And The Euro
02:00:07 The Mechanics Of Monetary Financing
02:17:52 Interest Rate Risk Is Not A Systemic Concern
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets. 
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Finally, you can easily access Bitcoin in a low-cost ETF with the VanEck Bitcoin Trust (HODL). Visit vaneck.com/HODLFG to learn more.
Only a fool gambles on bitcoin or any crypto. Go to play horses.
Marathon session holy cow
I like this extra long recording. Also I've always liked that usually Blockworks videos are long enough to develop subjects well.
This is excellent analysis. Thank you professor and thank you blockworks.
Excellent analysis and very likely more important for contemporary times than many expect
Jack and Dr. Sauer: thank you so much for releasing your paper without paywall. Look forward to reading it after this excellent webcast.
I love the internet! Thanks Jack for shining more light on this fascinating topic, bitcoin people always point to this period as endless printing causing the collapse, but as Sauer points out it was the lack of faith in the institution and the reckless FX defending with the gold. Such a misunderstood period of history 1920s Germany :)
If central bank insolvency was an actual risk, can someone explain how Japan still exists as a country?
Japan has no lack of foreign assets. Quite the contrary. Try replicating their policies, for instance if you were Cuba, and you'll quickly see some problems.
If oil and gas in the US shale oil sector peak and run down, confidence in the USD and USTs would erode.
True, but it’s not that simple. First, the US dollar is the world’s reserve currency that creates demand that normally wouldn’t exist. Second, all the other global fiat currencies are being abused as bad, if not worse, than the dollar. Along those lines: China, Europe, and Japan are also net energy importers. Third, the massive US military and CIA will work to punish, or overthrow, any country’s leadership that becomes resistant to taking US dollars for its resources.
US crude oil production is down 400,000bpd since December, from a high of 13 million bpd to 12.6 million. It looks like shale is already starting to peak.
@@SzymonStasbarrel counting is worthless. That shale oil never existed.
They will cut off US oil exports.
Nonsense.
Brilliant !!!! … now I need to listen again to pick up all the bits I only partially absorbed … interesting in so many ways … EU risks … 1920s understanding … Fed difference / risks … Argentina today !!!
I'm listening to it the second time right now
Thanks for this excellent discussion. It answered several questions I have been struggling with for a few decades. A very valuable contribution, Dr. Sauer!
Absolutely fascinating interview. I had to listen to it a couple of times but definitely worth it!
I am ever so grateful to Dr Sauer for debunking the quantity of money "theory" by Friedman. It never made sense, and still doesn't. For instance, considering just myself; I have never had any urge to spend money just because it was sitting on my bank account. Never. Thus, the quantity of money has no effect on demand and no effect on prices. It may have been different when I received an increase in INCOME, then possibly once or twice I did allow myself to increase spending also, thus affecting prices. It has always bugged me that Milton Friedman could not see this difference, and it particularly bugged me when he got the Nobel prize. But, there again, the Nobel prize for Economics is nearly as flawed as the one for Peace...
Classical economics seems to discount the effect of money velocity (measurable) and dismiss the public's perception of money value (not measurable). As we saw in Germany and Argentina, when the public perceives the value of their currency depleting rapidly, they dump it for goods or assets. This increases velocity and causes inflation as the public demands more currency for their valuable goods and assets as people anticipate currency value degradation. In Argentina, the "austral" currency restored stability when it was dollar pegged, and the German Rentenmark was backed by land rents and so could achieve stable perceived value and actual velocity.
Exchange rates can measure purchasing power parity, but it is at a loss to explain the _why_ of currencies going worthless on the FX exchanges, notwithstanding Dr. Sauer's attempts with central bank (in)solvencies. Central banks can only act as a buffer to exchange rate stability, and only then when global customers can find nothing to buy from another country using that other country's currency.
Bot even half way though and already one of my favorite episodes of monitary theory from anywhere. I find myself in constant alignment with Dr Sauer's reasoning especially in ways where I have found criticism with others. And though this support I feel my own convictions growing.
Excellent explanation of the effect of central bank insolvency. Thank you.
@@keyisersoze Although central banks cant technically go insolvent (they simply can print their own curreny as long as there is no forign claims) the conecpt of insolvency can still apply to them. Thats the case when they are not able to defend the exchange rate.
central bank insolvency is a relative game. I would say all central banks are insolvent because they have monetized so much government debt that there is no way they can be paid back. It is just some central banks are less insolvent. e.g. ECB is less insolvent than the Argentinian central bank.
I only have a limited background in economics but I find economics fascinating as it touches our lives every day. Decades ago I questioned the approach of monetary theory and its long term sustainability in my macro economics class. Especially the tools and approaches of monetary policy of price stability and maximum employment coupled with arcane and inconsistent fiscal policy favoring the institution of plutocracy. I never did follow through my professors recommendation on changing my major to economics. In hindsight better that way.
I worked for over 20 years at the Federal Reserve and lived in Europe when the euro was introduced. I agree and found Dr Sauers analysis very interesting including the outliers and differences between the US and Europe surrounding demographics and energy policy. I agree in whole the U.S. has its problems attempting to retain its privilege of world hegemony and Europe having its own set of issues as outlined by Dr. Sauer.
Now can we just focus on balancing our budgets, including social security which will require a reduction in benefits in 2030. Governments need to learn to balance budgets as much as households need to do and relying on only a service oriented economy in our world of globalization is unsustainable.
I respect this guy’s work on central bank balance sheets, but I often feel discussions around inflation tend to avoid circumstances beyond monetary and fiscal policies. Most hyperinflations seem to coincide with events that severely damage the productive capacity of the economy. In response, government officials tend to choose the more palatable option of inflation over deflation. In the German example discussed here, they lose ability to produce enough food, use gold to import food, are forced to pay huge reparations in marks (which they can print), have significant productive assets like mines confiscated by France and Britain, and lost a huge amount of the labour force in the war. How would you respond? Let people starve or try to print your way out? No wonder they ended up producing such a vengeful generation.
Good points
Thanks guys!
looking sharp Jack!
Interesting and informative thanks
I watched this whole thing, and there were a lot of interesting ideas, but I feel like I only got 20% of what he was saying because he kept going on confusing tangents. I'd love for you to someday bring on some other expert who read his big paper and can explain it better.
TL;DR - The rest of the world realized Germany was bankrupt after the war, so wouldn't trade in the Reichs (global) mark, and insisted on hard value assets in trade. Nobody wanted the currency inside the country, so the currency's velocity went to near infinity causing the hyperinflation. The Rentenmark was an asset back currency (land rents), so it was accepted in internal trade, where the Reichs mark had no intrinsic or faith value. It was only after the Reichs mark was backed by _something_ (according to Ingo, by central bank recapitalization), that it could be accepted as a currency of any value both externally and internally. This leads to exchange rate stability and drop in inflation levels as the velocity drops to reasonable levels.
I did not read his paper and could only get through 50 minutes of the interview. But I lived in Argentina, so already intuitively understood unbacked currencies, hyperinflation, money velocity, and central bank (in)solvency.
More Enlightening than Friedman and Schwartz.
30y bond yield so close to flipping 2y bond yield🎉 salute your equity shorts
The problem is, is that the central Bank like politicians are supposed to be acting in the best interest of the citizenship that provides that value.
When national treasuries treat their central banks as a piggy bank to be raided, this is the logical outcome.
Maschine ingo
his statistical test sense makes sense to me
Ja
How can you willingly and consciously ignore private bank money creation and derivatives. Academics vs practitioners
Lissen to the first three sentences of Sauer again. Case closed.
@@Diogenes_83425That isn't conclusive in my opinion. This study is extremely narrow in that all the hyperinflations took place during WW1 and WW2. There have been dozens of other ones after that that would conflict w/his thesis. Because every hyperinflation happening now is because they can't get access to private bank money and are forced to print and debase, which is my point. System now is extremely different
@@skillz4life360 1. German Hyperinflation did not take place during WW1 but in 1923.
2. There is no "private bank money"
3. "They" (whoever that is) can’t get access to their citizens funds because of the very reasons Sauer pointed out. One doesn’t lend money (= buy sovereign bonds) to a debtor who is bancrupt. The printing is not the cause but merely a symptom.
@@Diogenes_83425 I think you're splitting hairs when you know exactly what i meant... it took place during that span of time between the start of WW! and WW2. It also took place as a result of WW1. And i'm not sure what you mean, but maybe we're just talking over each other bc of terminology. I'm talking about offshore private bank balance sheet expansion when they (Any bank issuing dollar-denominated loans located outside the united states) have no direct ties to the Fed or dollar authority. This whole system was created in the late 50s and is the system we use today, so it is completely missed by his studies is all i'm saying
So this boys and girls is your lesson for today, why everyone should have a little physical gold or silver hidden at your arm's reach when the shtf.
Btc may be ok , but gold is always ok.
I'm admittedly bummed that I didn't go with my gut instinct & buy bitcoin few months back when it was $20k - $25k range. is it too late to get in and make profits? i have set aside $450k to get fully invested this year
Anything under 69k is a good buy. It's still advisable to work with a fiduciary advisor instead of relying solely on speculations..
The only issue you might have is the fear of missing out, just like everyone else. A good number of people discredit the effectiveness of financial advisors in exploring new market opportunities, but over the past 10years I’ve had a financial advisor consistently restructure and diversify my portfolio/expenses and I’ve made over $1million in gains… might not be a lot but i'm financially secure.
great gains there! mind sharing details of your advisor pleas? i've started gaining more cash flow with my employment and looking at putting money into stocks and alternative assets that can help build wealth over time
She goes by ‘’Melissa Terri Swayne’ I suggest you look her up. To be honest, I almost didn't buy the idea of letting someone handle growing my finance, but so glad I did.
I just looked her up on the internet and found her webpage with her credentials. I wrote her a outlining my financial objectives and planned a call with her.
Ja? Ja? Right? Ja?
U.S.A. has "Forever Stamps". Germany "Overprinted" their stamps, with new values. Then they "Overprinted" their revalued "Overprinted" stamps with another "Overprint". Talk about inflation, wow.
Hence CBDC's soon?
Instead of insolvent: desolvent or dissolvent?
In terms of the de facto insolvency is he referring to being politically insolvent i.e. total lack of trust or confidence?
Or is it the absolute value of the balance sheet relative to other cb balance sheets? Fiat balance sheets😅?
The central bank accumulates bad debt that the government can no longer pay back with good money. After eliminating the government bonds on the bank's balance sheet the purchasing power of its assets no longer can support the reserves of the financial system, so it needs new equity capital to support the purchasing power at a new price and deposit level.
Ya
Ja
ya? ya! ya? ya? ya
Inflation is always caused by money creation. There is no such thing as push or pull or raw material caused inflation.
Obviously, you somehow missed the point in this discussion. Inflation is not caused by money creation. There is no one "money". That's why Friedman's "inflation is always and everywhere a monetary phenomenon" pearl of wisdom had turned to ash (or perhaps excrement).
@velisvideos6208 so you print 1000 trillion dollar and throw it out of helicopters, it doesn't create inflation? Because money printing doesn't create inflation. And I somehow missed the point
Yes, you are right, you somehow missed the point..."Money" however it is defined, does not cause high inflation. Rampant over-demand might do so (ref theUS federal deficits at present). Sauer's argument is that a central bank's insolvency will cause hyperinflation because currency users will try to escape by swapping to foreign currencies (eg Argentina). This seems correct to me because I would behave like that myself. If you don't, good luck.
And, to be exact, there have never been any helicopters throwing out money in our neighbourhood. It may be different where you live, but somehow I have my doubts.
@@velisvideos6208 it's called a hypothetical, to test a theory
Just imagine for a moment comparing Argentina to europe... Look at the liabilities of the treasuries + ecb vs total wealth in europe... Common be serious...
It isn't a question of size, but long term policies (internal and external). Europe can become a giant Argentina, if we will it to be.
@@velisvideos6208 Likewise Argentina can return to being a G-7 nation as it was 100 years ago. Argentina is resource rich and reasonably productive, but productivity is bled off by a bloated government sector.
price at rest 5% float strong buy. :)
do not pass around
ya?
Inflation is the devaluation of the currency. True inflation is minimum 10% Year
Exactly, i allways say, 10% average of the s&p500 is just the inflation adjusted of the holding assets
So it's basically 2008 all again possibly
He is typical German. "We are not even one nation". We have one currency union, and have common obligation. California is not a country! California does not pay for military, but Greece does, so Germany can pay less. Greece has obligation as a country! This is why it need assistance from ECB. Germany wanted cheap labor, faster trade among European nation with Euro, preferable access to markets. You ate our lunch, now pay for it! Poland does not have € and is doing fine. So does Denmark. So does Czech and others. Without € only country being way worse would be Germany itself.
This is an interesting comment. Certainly, as a currency union we do have a common obligations. Nevertheless, if Greece spends 3.5% of her GDP on defence, it does not directly follow that Germany or anybody else can spend less. This is in fact a salient point: in the US, the federal government is responsible for the external heavy items, like defence, foreign relations, foreign assistance etc. In the EU, these are predominantly national responsibilities. Defence oblications in Europe come predominantly from NATO, which includes almost all EU members, and a couple of non-EU members. Still, personally, I would advocate for minimum EU defence obligations in addition to NATO. We must be strong together, with or without the US.
BTC$1M2030, then 1 BTC = 1 BTC (goes to 0, but not really)
The definition of inflation is the expansion of money and credit
Nothing more
Nothing less
@@philiscoolerthanuinflation = expansion? sounds like doublespeak. gud thing money n credit can be created out of nothing ad infinitum - sounds fair 👍
Every country's IRS is treated as the enemy. Very little taxes get paid.
100 years ago the US government relied mostly on customs and duties to pay their national bills, so this was not an issue. It's only when governments outstrip their mandates either through carrying out war or increasing the size of the welfare state that they have to institute an "IRS". Even the alcohol (excise) taxes imposed since the late 1700s were hated and resisted.
move 10% of your savings into solid gold coins and take physical delivery / custody of them.
then go back to sleep. you are safe.
buy bitcoin, gold is old man's rock
sure kid. you are going to go far !!@@nattoe
This is a great sleeping aid.
Lol the government wouldn't just take an asset... wow dude you dont know the history of the us government going back just 50 years 😂😂😂😂 ill not listen to your advice 😂😂😂
The US confiscated private gold holdings, and Argentina confiscated dollars from dollar denominated accounts held in country by foreign banks. Even the "takings clause" of the US Constitution is routinely violated.
I love when people talk about hyperinflation. Lets me know in advance they're either an idiot or a scam artist.
You think that applies here? He’s done the work to merit your respect
@@johnfarley1212 I stand corrected; was not expecting a scholar. Usually (not on your show particularly, but just in general) I find it's a lot of investors and pundits who are wildly irresponsible and ill-informed about what hyperinflation actually is, and what causes it; they're just looking to stoke panic and shill some crypto or gold. My mistake for judging book by headline, in this case; usually it's the right bet.
says an idiot lol
Hi@@ericfrith6358, thank you for being open-minded. I agree with you that often people who talk about hyperinflation are quacks - this is why I so vigorously defended Ingo against your initial comment.
-Jack (JohnFarley was my personal account)
drink everytime he says "ja". lol
Say "Nuclear Vessel's".