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This article appears in the December 25, 2000 issue of The New Federalist.

Weimar-Style Hyperinflation Pushes Energy, Destroying Economy

by Richard Freeman

Dec. 20, 2000 (EIRNS)--A group of Washington State-based industries, including Boeing, one of America's largest companies, last week petitioned the Washington Utilities Commission for emergency relief from high electricity prices. According to Melinda Davison, the group's attorney, one company in the group paid $60,000 for one day's worth of electric power on Dec. 11, 1999. For that same day this year, that company faces a cost of $6 million, an increase of 100 times, or 9,900%, in only a single year. Most of that increase came in the last two months.

Increases of 500%, or 5,000%--even above 10,000%--in electric and gas prices, are and have been occurring across the country during the last year. Since energy is the lifeblood for the economy, skyrocketing prices devastate industry and agriculture, infrastructure, and people.

What is happening refutes Wall Street's contention that what we are seeing in inflation are "mere exceptions" caused by local conditions. Instead, it strikingly confirms what Lyndon LaRouche has been saying, that the U.S. is in the grip of Weimar-style hyperinflation, which is exploding on a global scale. This hyperinflation is governed by the same principle as the hyperinflation which ravaged Weimar Germany starting in 1922, and reached gale force from March through November in 1923.

The chief force driving the world into hyperinflation is the insane monetary policy pursued by U.S. Federal Reserve Board chairman Alan Greenspan, magnified by deregulation of and speculation in U.S. energy generation.

In the period August-October 1998 (inclusive of the Sept. 23 failure of the giant Long Term Capital Management hedge fund), the world financial system was at the point of meltdown. Fed chairman Greenspan responded by going on a wild money-printing spree, to prevent a collapse. One concern was the highly speculative $300-trillion derivatives market. As a result of Greenspan's actions, the rate of increase of the monetary aggregates exceeded the rate of increase of the financial aggregates bubble, a critical condition for generating hyperinflation.

Simultaneously, since mid-1990, the financier oligarchy has accelerated the push to deregulate U.S. electricity and gas generation. This disaster has created conditions for entities in the Britain-centered raw materials cartel, like Enron and British Petroleum, to reap huge speculative profits.

These two processes have reinforced each other, erupting into the hyperinflationary spiral.

Price Escalation

As indicated, hyperinflation of energy prices destroys industry, agriculture, infrastructure, and families. For each company or industry shut down by high prices, far more is lost: Orders are gone, wage-earners earn no wages, and the multiplier effect shuts down other companies and industries.

In line with the 9,900% increase in energy prices reported in Washington State, consider the following:

  • In many states, the price of natural gas has leapt from $3 per British Thermal Unit (BTU) in June 1999, to $21 per BTU in December 2000, an increase of 600%.

  • In California in 1999, the average price charged for electricity sold via the California Power Exchange (the center through which energy is sold in the state's deregulated market) was $31 per megawatt. However, in 2000, deregulation went more fully into effect. By Dec. 11, the price for a megawatt hour on the Power Exchange had shot up to $1,099--a rise of 3,400%.

  • In King County, Wash., which includes Seattle, the sewage facility reports that its cost of operation has risen from $5,000 per day to $540,000 per day, an increase of 10,700%.

Shutdown

This energy price increase of several orders of magnitude, smashes to bits all production relations.

Take Tacoma Power, the electric utility owned and operated by the city of Tacoma, Wash. It draws much of its power from hydroelectric, but low water levels have caused problems. Normally, in a regulated market, Tacoma Power could hunt around for extra power at a regulated and affordable market price. But under deregulation, such affordable power supplies do not exist. Tacoma Power must buy extra power at price levels that have increased 5,000% since last year. Tacoma Power announced energy surcharges of 43% for residents and 75% for business, raising their rates effectively by those percentages.

At a public hearing Dec. 18, a Tacoma Power spokesman revealed that the surcharges may not be the last. The spokesman also volunteered that if conditions do not worsen between now and October 2001, in that period Tacoma Power will have to pay an extra quarter-billion dollars to procure its power supply, above its budget. But Tacoma Power has only $100 million in cash reserves; that will last a few months. Thereafter, even with further price increases, cutbacks may be ordered in the power it supplies.

Likewise, the King County sewage system may not have the money to operate.

In our Dec. 18 issue, New Federalist documented the ruin caused by the price explosion (see "Energy Deregulation Causes Mass Factory Shutdown, High Prices"). Trying to benefit from deregulation, Kaiser Aluminum decided to shut down its Spokane, Wash. plant, and to make money selling its electricity (which was contracted at a lower price) on the spot market where it can get a higher price. But beyond Kaiser, within weeks, one-third of all the aluminum, pulp-and-paper, and plywood-producing facilities in the Pacific Northwest could have serious problems with cost of energy--and shut down.

This will have national economic significance; the multiplier effect on a national scale will shut down whole industries across the country.

As LaRouche has indicated, these are not local aberrations, but symptoms of Weimar-style hyperinflation, caused by fundamentally flawed policy. At this advanced stage of crisis, global bankruptcy reorganization, backed up by energy re-regulation, becomes the only solution.

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