What is the Crackup Boom?
Economics / Crack Up BOOM May 29, 2022 - 03:41 PM GMTBy: Nadeem_Walayat
The crackup boom as theorised by :Ludwig von Mises in the 1920's in the face of Austrian hyperinflation is when the masses wake up to the inflation game the government and the central bank have been playing, that of printing money on an epic scale that devalues the value of fiat currency resulting in ever higher price rise in the shops coupled with increasing lack of supply as prices rise due to producers / sellers inclined to slowdown the process of delivery for higher future prices in response to which the government prints even more money to placate the masses in response to demands the government do something to address the "cost of living crisis".
To quote Von Mises:
This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.
But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.
Now like all mega-trends this is the direction of travel that takes a number of years to unfold, however despite this it will still catch most off guard as most only awaken from their monetary slumber until it is too late to act! The signal for the crackup boom was QE4 of March 2020, during which the Fed balance sheet DOUBLED to monetize US government debt, in advance of which I warned during the quantitative tightening of 2018 that it would prove temporary and that when the next crisis hits the Fed would double it's balance sheet.
The US and most of the West is currently entering the quantitative tightening propaganda phase which as above will be a mere pinprick against the mountain of monetized debt and other assets parked on the Fed balance sheet, where perhaps at most we will see a 10% reduction in the Fed balance sheet down to about $8 trillion all in advance of the NEXT DOUBLING in the Fed balance sheet and with it a DOUBLING in the Inflation rate.
This article is an excerpt from my recent analysis waring of the underlying inflationary big picture and the direction of travel towards a Crack Up Boom The CRACK UP BOOM! Implications for Stocks, Housing. and Commodities, Silver Potential that was first made available to patrons who support my work.So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $4 per month. https://www.patreon.com/Nadeem_Walayat.
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By Nadeem Walayat
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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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