Katastrophenhausse - the crack-up boom

Alasdair Macleod is the author of this article, which tells us where our paper money is headed with the high levels of government and private debt.

Bruce

'Crucially, consumers assume that a dollar is a dollar and they never, for the purpose of day-to-day spending, question the value of paper money. People will say they are aware that the purchasing power of paper money declines over time, but they still expect the prices of everyday goods to be the same tomorrow as they are today. If they rise, they normally blame the retailer or perhaps some specific shortage, never realising that they are the victims of what they are otherwise aware of, the declining purchasing power of money. As monetary inflations progress there comes a point where this understanding changes. Increasing numbers of consumers will become aware that fiat money is losing purchasing power rather than the prices of goods rising. Trust in paper money begins to evaporate and the move into physical goods commences, gradually at first but then at an increasing pace. This is what the Austrian economist von Mises called “Katastrophenhausse” – the crack-up boom. Today, with paper money unbacked by anything other than public confidence in it, we are logically exposed to a new katastrophenhausse at any time, if that confidence is challenged.'