HFQ Snippet 27[?] a

PeterZ wrote:

Rhobair has spent all the liquid assets the CoGA owns. He has sold the secondary holdings of the CoGA. He has increased taxes, tithes, and mandated investments in CoGA issued notes of various forms. The effects of these policies is to suck out all the capital out of the private sector that services the needs of all the non-war production. That means production of those products and services has been reduced and prices are rising on what remains. Increased tithes and rising prices means that fewer people are able to purchase what goods are available.

This adds up to hyper inflation waiting to happen.

I disagree. Some of those acts are inflationary, but some are deflationary.

Spending all of the liquid assets of the Church of God Awaiting, for example, is inflationary, provided that they weren't being used before. One way they might have been being used is as loans to the various principalities. I recall that being one of the ways that the Church exerted influence over those principalities. If the Church ceased loaning those assets then that would be deflationary to the same extent as the Church spending those assets would be inflationary, with the net result being a wash.

Increasing taxes, tithes, and mandatory investments are all deflationary because they take money out of circulation. Obviously, it becomes a wash again once the Church spends the proceeds.

The issuance of notes, so far as those notes are able to circulate as money, is the only act you've mentioned that is outright inflationary.

You are correct regarding some of the effects. My preferred way of looking at it is that private production will necessarily give way as war production comes to dominate. Wars are seldom sufficiently slow as to allow themselves to be financed by increasing productivity. In the absence of fiat money I expect to see increasing privation as private production falls, but I expect to see it on Safehold without hyperinflation, and perhaps without much inflation.

Hyperinflation has a very specific definition in economics. Price hyperinflation starts when inflation exceeds 50% per month, and ends when inflation stays below 50% per month for a year. We can quibble about hyperinflation on Safehold due to the different lengths for months and years, but in rough terms for a gold-based economy, Safeholdians would have to mine, refine, and coin enough marks to increase the amount of gold minted in the entire history of the world (not including jewelry and other non-monetary uses) 56 fold. The difficulty of producing 980 years worth of gold fifty-six times over in the period of just one year is unimaginable.

~Tonto

Hi PeterZ,

Kudos for the excellent post, as usual.

My main quibble is that while Rhobair said he had to sell all the CoGA secondary properties back in HFaF [IIRC], he hasn't yet, the new temple notes he's requiring all the still wealthy people he can find are based on the pre-war valuation of only a third of the CoGA's secondary properties, so he still has some capital reserves left.


** MAJOR ADDENDUM **

My apologies; having reread the August chapter 2 pertinent section, Duchairn said he's secured the new notes with "the value of about a third of the mother church's REMAINING secondary properties", so having sold half of the secondary properties already this third is actually a sixth of the secondary properties, so only a third is left.

Again my apologies for the error.

** MAJOR ADDENDUM **

Rhobair knows he's destroying the CoGA or jihadi economies; he's told the rest of the Go4 what was happening and what he was doing to keep the jihad going, but none of them apparently have bothered adding up all the clues he's given them, which shows how sheltered or insulated they've been for decades in the temple, to realise that the rest of the continental economies have effectively been plundered to keep it going and shrinking, NTM there's a limit to all things as you describe so well; this last measure may be the final nail in the civilian economy for all too many businesses, multiplying the catastrophe geometrically.

Magwair knows the agricultural machinery in the KotTL is breaking down at ever increasing rates, but with no replacements because of the SoS, thus food production is going to be less than last year in what remains of the CoGA nations, but how soon does the rest of the Go4 [not Rhobair] pick up on that?

If they're effectively blockaded from Howard by Sharpfield, where will the extra food needed come from?

Another good trigger for the hyperinflation that could explode after the MHoG are defeated this summer is discovering temple mark counterfeits, which Charis could afford to make using the Mohryah Lode that were quite accurate except for 10-20% less precious metal, spread across the CoGA nations by Nynian's organization, if the SSK doesn't have its own reserve of precious metals to use, which after centuries of accumulating wealth it ought to, as I've suggested before.

Regarding all the BS farmers burning their fields and fleeing, we don't know what percentage are serfs, but the fraction is probably between 80-90%, and I'm pretty sure they know the EoC insists on liberating all serfs, with which the RoS agrees, so I think most will stay if they expect to get "200 acres and a dragon" etc.

Either way of course, what food they produce won't be going to the KotTL, so they will still be short of food for all the other refugees.

Given many such refugees will go to Zion, this may indeed be part of Rhobair's plan for next winter, which isn't all that far away.

L

PeterZ wrote:

n7axw wrote:*quote="McGuiness"*And Japan largely recovered because a U.S. firm (who shall remain nameless) basically handed them the transistor, and their electronics industry took it and ran...*quote*

That didn't turn out to be a bad thing. A prosperous and stable Japan has been a good thing for the rest of the world.

Don

No it wasn't. Yet, none of what happened to the US and the Earth during that period has a parallel in what the CoGA is going through.

Rhobair has spent all the liquid assets the CoGA owns. He has sold the secondary holdings of the CoGA. He has increased taxes, tithes, and mandated investments in CoGA issued notes of various forms. The effects of these policies is to suck out all the capital out of the private sector that services the needs of all the non-war production. That means production of those products and services has been reduced and prices are rising on what remains. Increased tithes and rising prices means that fewer people are able to purchase what goods are available.

This adds up to hyper inflation waiting to happen. The biggest factor will be how much food will be grown in all the jihadi nations not in a war zone. If the GH and the AoG gets whacked, the Border Kingdoms will be wide open to the Allies. Dollars to donuts the border Kingdom farmers flee and either leave their crops or burn them. However many refugees flee Zion-ward will be additional mouths the Temple Lands have to feed. Lord knows that Harchong won't be able to grow and ship enough food Eastward with the ICN in the Passage and the Gulf.

So once this summer passes, the jihadi economy shrinks further with Howard well and truly severed from Haven AND the Border land producing only resources draining refugees instead of anything economically accretive. Even if these refugees are put to work for room and board building the tools of war, they will still need food, clothing and shelter that is growing ever more expensive as production and transportation of those necessities grow more limited due to a whole host of reasons.

That makes Zion a serious powder keg come winter as masses of refuges slowly starve or not so slowly freeze, news of the concentration camps spread, the reformist successes begin to fray the confidence of the faithful and Owl's and Nynian's efforts to undermine the CoGA position escalate to bring about some serious boiling. No, not the Great depression, the parallels are more like the French Revolution.

Hi Tonto Silerheels,

Excellent points, but I have a few nits too.

I think PeterZ's main point in his first paragraph was that all the distortions in the mainland economies caused by the Go4's jihad is rapidly increasing inflation in the naturally shrinking private non-war sector, so while some economic models might consider it a wash, most people not profiting from the war spending are hurting more for the necessities of life they can no longer afford.

That in turn hurts the economy as a whole, getting worse until its noticed and addressed, but that won't happen until after the jihad [and Clyntahn] ends.

It was in HFaF that Duchairn knew that breaking the Siddarmark economy would break the KotTL's, which hasn't happened yet, but the avalanche is accelerating.

Regarding the new notes, bought at par, we know they've been trading well below that since MTaT [April, ch 17], that some of the remaining bankers, brokers and merchants knew then the temple couldn't cover all its notes, so there will be few takers now unless they too are further discounted than those earlier, because everyone left [so far] is stuck with them and those with the cash to buy are too smart to do so [preferring hard cash a couple years ago in the same chapter], meaning the velocity of the money remaining is going to slow even more; that might seem deflationary but increasingly discounted notes [from those forced to sell] circulating are inflationary, and given the size of the notes it means many major transactions that the economy depends on will drastically evaporate as businesses scale back purchases and just survive for now, until the temple loses, which many of them according to RFC already anticipate.

Then there's the considerable potential for panic among many or most TL's who will wonder after the MHoG is defeated; if, as according to the predictable rumor that being found with temple marks could cost them their lives etc, would exchange them for whatever they could get; which could cause quite a run on temple marks, well below their real bullion value, NTM rather inflationary.

I suspect ending all the stupid policies Duchairn's created for the jihad will be such a relief to the remaining CoGA continental populations that he hopes they'll be far more willing to accept whatever accommodations he makes with the heretics/alliance.

You're quite right on the technical term of 'hyperinflation', but double digit inflation is no piece of cake either.

But I'm curious if you could make your final paragraph's mathematics more plain, please; since I think most posters need more of your intermediate steps in order to follow all your logic.

L


[quote="Tonto Silerheels"]PeterZ wrote:

[i]Rhobair has spent all the liquid assets the CoGA owns. He has sold the secondary holdings of the CoGA. He has increased taxes, tithes, and mandated investments in CoGA issued notes of various forms. The effects of these policies is to suck out all the capital out of the private sector that services the needs of all the non-war production. That means production of those products and services has been reduced and prices are rising on what remains. Increased tithes and rising prices means that fewer people are able to purchase what goods are available.

This adds up to hyper inflation waiting to happen.[/i]

I disagree. Some of those acts are inflationary, but some are deflationary.

Spending all of the liquid assets of the Church of God Awaiting, for example, is inflationary, provided that they weren't being used before. One way they [i]might[/i] have been being used is as loans to the various principalities. I recall that being one of the ways that the Church exerted influence over those principalities. If the Church ceased loaning those assets then that would be deflationary to the same extent as the Church spending those assets would be inflationary, with the net result being a wash.

Increasing taxes, tithes, and mandatory investments are all deflationary because they take money out of circulation. Obviously, it becomes a wash again once the Church spends the proceeds.

The issuance of notes, so far as those notes are able to circulate as money, is the only act you've mentioned that is outright inflationary.

You are correct regarding some of the effects. My preferred way of looking at it is that private production will necessarily give way as war production comes to dominate. Wars are seldom sufficiently slow as to allow themselves to be financed by increasing productivity. In the absence of fiat money I expect to see increasing privation as private production falls, but I expect to see it on Safehold without hyperinflation, and perhaps without much inflation.

Hyperinflation has a very specific definition in economics. Price hyperinflation starts when inflation exceeds 50% per month, and ends when inflation stays below 50% per month for a year. We can quibble about hyperinflation on Safehold due to the different lengths for months and years, but in rough terms for a gold-based economy, Safeholdians would have to mine, refine, and coin enough marks to increase the amount of gold minted in the entire history of the world (not including jewelry and other non-monetary uses) 56 fold. The difficulty of producing 980 years worth of gold fifty-six times over in the period of just one year is unimaginable.

~Tonto[/quote]

lyonheart wrote:

But I'm curious if you could make your final paragraph's mathematics more plain, please; since I think most posters need more of your intermediate steps in order to follow all your logic.

Thank you for asking; I'm flattered, and I love mathematics.

I'm not sure how deeply you want me to go into the mathematics. The short story is that 1.5 ^ 10 = 57.665. The 1.5 figure comes from the fact that generalised prices are 1.5 times as high at the end of the month as they were at the beginning, if inflation over that month was 50%. The 10 comes from the fact that Safehold has ten months in a year. I assumed, without stating, that inflation was 50% each month over the course of the ten month period. Thus, prices at the end of the year were 57 times as high as they were at the beginning. A regular worker earning one mark per day at the beginning of the year should expect to earn 57 marks per day at the end. A wheelbarrow priced at one mark at the beginning of the year would be priced at 57 marks at the end.

The way I justified using that equation is slightly more esoteric, and uses many more assumptions. It basically comes to V = PQ/M, with V representing the velocity of money, P representing the overall price level, Q representing the quantity of goods and services produced, and M representing the money supply. Normally, and over short periods, the velocity of money can be considered a constant, and the same is true of productivity, so the equation can be rearranged to P = aM, where a is just some constant. That means that generalised prices go up and down smoothly with the money supply.

In our case, the starting money supply is equal to the amount of gold minted since the beginning of time. (I assume that all the gold (and silver) that's minted in that time continues to be used as money. It doesn't get lost or turned into jewelry or doorstops. So, Pf = 57.665 Pi, by assumption, where f stands for final, and i initial. We have Pi = aMi, and Pf = aMf, so solving for the money supply we have Mf = 57.665Mi.

On Safehold that money has to come from mining, refining, and coining gold and silver. Assuming that huge loads of jewelry aren't melted down and turned into money, new supplies have to be mined.

Now, if hyperinflation truly continued for a year the velocity of money would increase greatly as people endeavored not to hold money. They would want to spend it before it became worth less. However, as a simplifying assumption, it worked as in my original post.

Productivity, too, would change, but the direction is unclear. It might go up as businesses tried to respond to their higher sales, or it might go down as people's efforts were diverted away from production and toward mitigating against the ill effects of price inflation.

~Tonto

Hi Tonto Silerheels,

Thank you so very much for the clarification!

Things are much clearer.

Thanks again!

L

Tonto Silerheels wrote:lyonheart wrote:

But I'm curious if you could make your final paragraph's mathematics more plain, please; since I think most posters need more of your intermediate steps in order to follow all your logic.

Thank you for asking; I'm flattered, and I love mathematics.

I'm not sure how deeply you want me to go into the mathematics. The short story is that 1.5 ^ 10 = 57.665. The 1.5 figure comes from the fact that generalised prices are 1.5 times as high at the end of the month as they were at the beginning, if inflation over that month was 50%. The 10 comes from the fact that Safehold has ten months in a year. I assumed, without stating, that inflation was 50% each month over the course of the ten month period. Thus, prices at the end of the year were 57 times as high as they were at the beginning. A regular worker earning one mark per day at the beginning of the year should expect to earn 57 marks per day at the end. A wheelbarrow priced at one mark at the beginning of the year would be priced at 57 marks at the end.

The way I justified using that equation is slightly more esoteric, and uses many more assumptions. It basically comes to V = PQ/M, with V representing the velocity of money, P representing the overall price level, Q representing the quantity of goods and services produced, and M representing the money supply. Normally, and over short periods, the velocity of money can be considered a constant, and the same is true of productivity, so the equation can be rearranged to P = aM, where a is just some constant. That means that generalised prices go up and down smoothly with the money supply.

In our case, the starting money supply is equal to the amount of gold minted since the beginning of time. (I assume that all the gold (and silver) that's minted in that time continues to be used as money. It doesn't get lost or turned into jewelry or doorstops. So, Pf = 57.665 Pi, by assumption, where f stands for final, and i initial. We have Pi = aMi, and Pf = aMf, so solving for the money supply we have Mf = 57.665Mi.

On Safehold that money has to come from mining, refining, and coining gold and silver. Assuming that huge loads of jewelry aren't melted down and turned into money, new supplies have to be mined.

Now, if hyperinflation truly continued for a year the velocity of money would increase greatly as people endeavored not to hold money. They would want to spend it before it became worth less. However, as a simplifying assumption, it worked as in my original post.

Productivity, too, would change, but the direction is unclear. It might go up as businesses tried to respond to their higher sales, or it might go down as people's efforts were diverted away from production and toward mitigating against the ill effects of price inflation.

~Tonto

Lyonheart has captured my basic point. I would emphasize that all the new taxes are being spent on the jihad. The forced purchase of notes has the effective impact of a very targeted progressive tax. A tax that targets those that most profit from the jihad by using the average income for the past 5 years iirc. So the aggregate effect is to force the liquidation of savings and circulate it in the economy.

Let's review this economy. Its is labor intensive because there is no power to leverage people's muscle. The liquidated savings then circulates down to the laborers. Furthermore, tithes can be paid in the foyrm of productive output. That's another way of saying profits on the materials produced. Duchairn has effectively targeted significant pools of savings and profits and forced their liquidation into war production. A large portion of that capital will end up in individual workers hands. This pool of funds will be tithed back to the CoGA and used to purchase the increasingly expensive necessities of life. What these funds won't be able to do is be used to fund increases in non-war production.

The result of Duchairn's policies is to increase currency in circulation by forcing the private sector savings to be circulated through increased taxes into areas where people cannot save. That will have the impact of increase gold production for the prewar economy because more currency is circulation. Demand for goods will increase as workers spend their income. The supply of goods demanded by these workers shrink as less capital is available to support the non-war economy. Prices skyrocket. As the CoGA forces get whacked, the market overall will lose faith that the CoGA is good for whatever notes they floated. Any savings that have escaped Duchairn will continue to elude him and force him to actually print money with the force of the inquisition behind him or stop the jihad. That strikes me as a setup for uber if not hyper inflation.

I would quibble with the model you used and the assumptions attendant with it. The model used assumes that savings is either captured as a function of V, the velocity of money, or a reduction in M, the money supply. As described above either assumption clouds effects of Duchairn's policies when using this model. That is true because savings are being liquidated and the velocity of money is increasing. By savings I mean hoarded gold not deposits in a lending bank account.

Tonto Silerheels wrote:PeterZ wrote:

Rhobair has spent all the liquid assets the CoGA owns. He has sold the secondary holdings of the CoGA. He has increased taxes, tithes, and mandated investments in CoGA issued notes of various forms. The effects of these policies is to suck out all the capital out of the private sector that services the needs of all the non-war production. That means production of those products and services has been reduced and prices are rising on what remains. Increased tithes and rising prices means that fewer people are able to purchase what goods are available.

This adds up to hyper inflation waiting to happen.

I disagree. Some of those acts are inflationary, but some are deflationary.

Spending all of the liquid assets of the Church of God Awaiting, for example, is inflationary, provided that they weren't being used before. One way they might have been being used is as loans to the various principalities. I recall that being one of the ways that the Church exerted influence over those principalities. If the Church ceased loaning those assets then that would be deflationary to the same extent as the Church spending those assets would be inflationary, with the net result being a wash.

Increasing taxes, tithes, and mandatory investments are all deflationary because they take money out of circulation. Obviously, it becomes a wash again once the Church spends the proceeds.

The issuance of notes, so far as those notes are able to circulate as money, is the only act you've mentioned that is outright inflationary.

You are correct regarding some of the effects. My preferred way of looking at it is that private production will necessarily give way as war production comes to dominate. Wars are seldom sufficiently slow as to allow themselves to be financed by increasing productivity. In the absence of fiat money I expect to see increasing privation as private production falls, but I expect to see it on Safehold without hyperinflation, and perhaps without much inflation.

Hyperinflation has a very specific definition in economics. Price hyperinflation starts when inflation exceeds 50% per month, and ends when inflation stays below 50% per month for a year. We can quibble about hyperinflation on Safehold due to the different lengths for months and years, but in rough terms for a gold-based economy, Safeholdians would have to mine, refine, and coin enough marks to increase the amount of gold minted in the entire history of the world (not including jewelry and other non-monetary uses) 56 fold. The difficulty of producing 980 years worth of gold fifty-six times over in the period of just one year is unimaginable.

~Tonto