Inflaton?

[WildspitzE]

Re: Inflaton?

I understand that we'll eventually see inflation because demand will be greater than supply eventually and other countries are going to realize the US dollar is not the best place to invest. I guess I don't see demand being greater than supply nor people wanting to buy for a year, possibly two. I'm at a bad area for unemployment though and malls, not just stores, are dieing off here so maybe it's a lot different in other parts of the country.

As discussed, what was the unemployment in Zimbabwe? Wiemar? Hyperinflation can happen with high unemployment. There are other material factors that may bite you in the ass if you only focus on unemployment.

[WildspitzE]

Re: Inflaton?

My guess is that Hoyes is right - no hyperinflation in the senior currency.

Not you too, what's with all this senior business? what the hell is a senior currency?

[Kadriana]

Re: Inflaton?

As discussed, what was the unemployment in Zimbabwe? Wiemar? Hyperinflation can happen with high unemployment. There are other material factors that may bite you in the ass if you only focus on unemployment.

You still need demand to be higher than supply, right? That's the part I'm having trouble with. People who less money to spend tend to buy less, right? I just don't see demand and supply equaling out for a while.

[ThePythonicCow]

Re: Inflaton?

what the hell is a senior currency?

It's the big dogs money (beware - I'm just shooting from the hip as usual, and I'm no where good enough shot to survive violent times.)

[raja]

Re: Inflaton?

is hyperinflation possible? Quote:

For a nation to experience a hyperinflation, all four of the following conditions need to be met: Large and growing external debt as a percentage of GDP with falling GDP (Yes, like the US.) Politically and economically isolated and irrelevant (Not like the US. Think: Zimbabwe.) No external demand for the currency (Not like the US dollar. Think: Iraqi Dinar.) Political chaos (i.e., tanks rolling down the street, not like the US.)

Haven't all hyperinflations in the past occurred when one country got into trouble, but the rest of the world was more or less O.K.?

Isn't the situation different now, with a global "crisis" and many countries printing money?

Wouldn't you say we are in uncharted territory? :eek:

I don't know the answers, but I think the questions are worth asking . . . .

Is there some mathematical way to determine the probability of hyperinflation? If the government printed enough money to pay all its bills -- and the state's bills -- what would that do to the value of the dollar? Hyperinflation . . . or just big inflation? What about if China and other creditor countries dumped the dollar?

[flow5]

Re: Inflaton?

The danger is not inflation or deflation. The trouble is with stagflation, (business stagnation accompanied by inflation). The rate-of-change in real growth will fall at the end of the year but the rate-of-change in inflation does not (all of which depends on the FED not changing course).

[ASH]

Re: Inflaton?

Thanks. I'm just wondering if we're on the edge of a deflationary spiral where so much of our economy is consumer based. You have everyone who has been unemployed about ready to run out of checks. You have everyone who has gotten a pay cut, furloughs or cut hours. Now, you have local government workers that are going to start having to let go of people. I know our local school district was asked to lay off 24 people including 19 teachers and we're a fairly small school district. You multiply that through out the state and that's a lot of people left to be laid off.

My impression is that whether or not we are on the edge of a deflationary spiral, stagnation, or mass inflation is primarily a matter of policy choice. I think the position of the inflationistas is that without intervention, a deflationary spiral is exactly what would result from the collapse of a credit bubble. However, the inflationistas believe (a) that the authorities will intervene to prevent a deflationary spiral, (b) that in a fiat money system the authorities have enough flexibility to ultimately succeed, and (c) that mass inflation will result from the intervention. I agree that judging by unemployment and measures of consumption, it looks like we're on the edge of a deflationary feedback loop. However, I personally think that the severity of the picture only serves to define how extreme the policy response will ultimately be.

[bart]

Re: Inflaton?

Hyper Inflation can not happen in a senior credit economy (Bob Hoye).

That depends on how hyperinflation is defined, and the time period in question.

For example, in the US we have had annualized inflation (monthly rate) per the CPI of over 60% in 1914, 6 months of over 20% in 1919 peaking over 35%, over 37% in 1933, 26% in 1939, 70%(!) in 1946 (and 4 months over 20%), and over 17% for 4 months in 1980.

And then there's this senior currency thing - the main issue to consider being how long it took for the pound to lose senior/reserve currency status. It wasn't decades.

And then there's Rome, which had some gigantic inflation especially from about 225-275AD. It wasn't hyperinflation but it wasn't small either... my best guess being well over 25% during some years. The silver denarius went from about 40% silver content in 250 to virtually zero in 275.

As consumer will not borrow the money to spend it, 'pushing on a string' does not work.

That sounds like [he whose name shall not be mentioned] "logic"... and the fallacy there is obvious and even somewhat silly in my opinion.

If "stimulus" or whatever you want to call it didn't work, we'd still be in the Great Depression... and no country would ever escape from recession. And credit is far from the only component of total money growth.
Note here that I'm not talking about what is wise or correct, just noting that its implying that no amount of money creation can counteract deflation. :rolleyes:



And as long as I'm on a roll, the whole Japan parallel is both based on the same bogus assumption (no amount of money creation can counteract deflation) and also completely ignores both the differences in the two cultures... and the actual record about total money supply in the chart below.

In plain English, when total money supply was growing above about 10% Japan was in inflation mode... and when it was about 6% or below, they were either level or mildly deflating.
Inflation peaked at over 30% in 1973-4.

[ThePythonicCow]

Re: Inflaton?

To my (idiot-syncratic) way of thinking, one has to be more careful when talking of inflation than when talking of hyperinflation.

In the case of hyperinflation, all you have to ask is "which currency gets flushed down the crapper?"

In the case of inflation, one also has to ask inflation of what, in which currency, as well as when?

In turbulent times, some prices are going up, some down, and some holding steady, and little holds a steady course for long. Whether or not that's inflation depends on whose ox is worth more (bad pun on "being gored" - sorry.)

The cost for much labor (wages) will go down, as companies squeezed by low demand and refinancing difficulties determine that workers will accept lower pay as an alternative to layoffs. Mortgage brokers down, bankruptcy lawyers up.

The price of things no longer deemed necessary (granite counter tops?) will go down, as sellers become more desparate. Eventually such prices might rise again, in a much smaller market.

The price of things we still find necessary may start back up again, as a result of the credit collapse having destroyed much productive capacity, resulting in erratic scarcities (this last item is I believe an iTulip prediction, so more likely correct than my other blatherings.)

Over time, with fits and starts, the cost of imports will go up, especially of oil, as oil producers try to wean themselves from so much dependence on the dollar, or as oil producers run lower on cheap oil reserves (take your pick.) This will push costs into oil importing countries. France got the short end of oil import access after World War II, so went to nuclear earlier; this will give them an edge up again. For Americans, such as myself, these costs will flow through to energy, heating, transportation, industrial production, food, etc relentlessly. We who are not economists will call this inflation. Sometimes the prices will annoy us more, sometimes the shortages (gas lines and empty food shelves are not well liked.)

Pensions and real estate sure don't look strong yet; one would have to predict further declines there in price or dollar denominated value. Insurance costs will rise, as insurance companies desparately try to cover for investment losses.

Inflation also has a time element, because many investments, debts and credits denominated in currency have time elements. If there is inflation in my wages, then it is easier for me to pay off debts I owe, but payments on debts owed to me are worth less if there is inflation in what I want to purchase next with those payments.

I imagine it as a big hydraulics problem, with money the fluid, flowing through a complex contraption of pipes, values, pumps, sinkholes, wellheads, and tanks. Unfortunately, they keep re-routing the pipes, lying about what the flows and pressures are, and hiding critical sections of the apparatus behind curtains and more lies, in order to deceive us and take our money (or so presumes TheParanoidCow.)

In hyperinflation, the money fluid vaporizes, blowing out all the weak spots and rendering the rest useless. Game over for that currency. Short of that, it's never simply more or less fluid, nor simply faster or slower flows. The system is non-linear, dynamic and under constant change and relentless pressure from conflicting forces.

[ThePythonicCow]

Re: Inflaton?

And then there's this senior currency thing - the main issue to consider being how long it took for the pound to lose senior/reserve currency status. It wasn't decades.

Isn't war the usual catalyst for such change?

[flintlock]

Re: Inflaton?

When did the pound lose its senior currency status? After WWI or WWII? If so, wasn't that mostly due to huge debt run up during the wars? See any parallels here between the US dollar and what happened to the pound?

[Andreuccio]

Re: Inflaton?

You still need demand to be higher than supply, right? That's the part I'm having trouble with. People who less money to spend tend to buy less, right? I just don't see demand and supply equaling out for a while.

As I understand it, there's two points you're missing. First, you're only looking at one side of the equation. Let's say demand for widgets drops, while supply remains constant. Prices would drop for widgets. But what if people want dollars even less than they want widgets? While the value of widgets might drop compared to anything else, like gold, it would rise in dollars, as the value of the dollar drops faster than the value of the widget.

The second point is that, while right now many things might be in oversupply, leading to a drop in prices, inventories are being replenished at an even lower rate than people are buying things. Once we run through current inventories, supply will be even lower than the (low) demand. I think EJ gave the example of all the restaurants going out of business. Once the oversupply is gone, the ones that remain will be able to charge a premium.

[bart]

Re: Inflaton?

Isn't war the usual catalyst for such change?

Yes... and war doesn't have to involve guns, etc. either.
See Sun Tzu... ;)

When did the pound lose its senior currency status? After WWI or WWII? If so, wasn't that mostly due to huge debt run up during the wars? See any parallels here between the US dollar and what happened to the pound?

Opinions vary on when it lost reserve status, but I place it in the mid 1920s. War was only one of the reasons, and parallels abound.

Note also that the US became the world's largest economy and beat out the UK in the 1870-1890 period. It wasn't until WW1 that the US became the largest exporter though.

[Roughneck]

Re: Inflaton?

The one thing that favors the inflation scenario is that it is beneficial for a nation with huge debts to debase it's currency and in doing so the debts. That is what leads me to believe we will have inflation down the road.The severity of which is up for debate.

[Kadriana]

Re: Inflaton?

The one thing that favors the inflation scenario is that it is beneficial for a nation with huge debts to debase it's currency and in doing so the debts. That is what leads me to believe we will have inflation down the road.The severity of which is up for debate.

And when it will happen. Ok, correct me if I'm wrong but even if you get a deflationary spiral, it eventually ends right? Demand will be higher than supply and prices go up. You will eventually get inflation. The question now is just when and like you mention, the severity.