Thoughts on Hyperinflation

[ThePythonicCow]

Re: Thoughts on Hyperinflation

Thank god we still have some unordinary minds in North America.

yes.

While those are true - they represent only one historical path to currency destruction. The logic tree of currency destruction has many branches.

agreed.

However, this can may be kicked down the road for quite some time yet.

Yes, it could be.

[Starving Steve]

Re: Thoughts on Hyperinflation

With unions and labour on their knees, and with wages falling, and falling even in nominal dollars, it is difficult to see how we can get into a wage/price spiral ahead. Bernanke is the ultimate Republican, and sadly, this Repuke was re-appointed by Obama to head the Fed. This bunch calling themselves Demos in Washington are either the dumbest of the dumb, or they are the ultimate Republicans, i.e, crony-capitalists. It is difficult to ignore the campaign contributions the Demos are taking from the biggest banks in America.

[Quincy K]

Re: Thoughts on Hyperinflation

Hyperinflation doesn't depend much one way or the other on where the jobs are or are not.

Wage inflation is one (not the only one) of the mechanisms that can be involved in ordinary inflation.

But hyperinflation is the collapse of a currency. People no longer want it. They lose confidence in its value. Any of it they have, they spend quickly on whatever they can get that might be useful, for they are convinced that it will soon be worth much less, if nothing. The government usually responds to the economic turmoil and rising prices on essentials (food, gas, heating oil) with price controls and money printing. This spirals out of control and the currency joins the history books of failed currencies.

I never understood why some people find this so hard to understand.

[Quincy K]

Re: Thoughts on Hyperinflation

Let me play devil's advocate: Who says bond prices will collapse at some point? So long a Bernanke keeps printing to buy and rig treasury bond auctions, everything looks just fine, forever. And not just Bernanke is doing this, but all of the central bankers are doing this. The entire world is awash in paper money and sovereign debt.

Yes, nuclear war or another 9/11 attack might trigger a run on bonds. But the bond bubble is secure so long as Bernanke and his clones at the other central banks keep buying bonds--- even their own bonds back.

Inflation (money-printing) is very forgiving. Let's not forget that point. Politicians love inflation and will never abandon inflation (kick-the-can) economics. This is a worldwide love-affair with inflation, and only a worldwide collapse with mass starvation due to hyper-inflation would end this love-affair.

The guys over at Zerohedge had a piece articulating this exact theory; that hyperinflation will start with a collapse of bond prices as everyone will run from paper, any and all paper, into tangibles. I'm sure the Fed has a answer to this...like the continued monetization of any and all paper.

Dried timber in a forrest can be very dangerous. But it is completely harmless if there is no match to light it.

[touchring]

Re: Thoughts on Hyperinflation

Yes - that is the question.

My second best guess is that the dollar will collapse, but not so easily. First there will be a period of substantially increased economic pain for Americans.

My best guess is that I'm wrong <grin>.

There are too many parties that want the dollar to retain value - the billionaires in America, the oil producers, China, Japan. All of them will have everything to lose if the dollar loses value.

So, not so simple. ;)

[bpr]

Re: Thoughts on Hyperinflation

Actually, I am starting to doubt whether hyperinflation will happen in America that is part of a global economy.

How will inflation happen if jobs, work and money are exported to India, China and rest of Asia all the time?

Hyperinflation is not the "mainstream" opinion here on iTulip, if I read EJ correctly. It is for long-term high inflation (>5%), which can happen easily with the busted economy we have here. Inflation at that level for a number of years would be devastating for a population as indebted as ours is, and it would be a slow death for the financial services industry (FIRE) that is such a large part of our economy.

There are too many parties that want the dollar to retain value - the billionaires in America, the oil producers, China, Japan. All of them will have everything to lose if the dollar loses value.

So, not so simple. ;)

Not so simple, but inflation is coming nonetheless, IMO.

The oil producers are safe, it seems, provided they didn't go over the rail with debt as Dubai did (Dubai, as I understand it, is not a serious oil producer, but relies on it neighbors for financing).

But the larger consumer-service economies are going to be butting heads for the next few years:

Outsourced Call Centers Return, To U.S. Homes

What this means for the U.S. is not "hyperinflation", but wage stagnation and limited investment, perhaps a real crash in commercial real estate. What it means for India I'll leave others to speculate. India may already be on the verge of hyperinflation.

Ultimately, it's all about food. There is no hyperinflation happening if people are still talking about housing prices or the stock market. Hyperinflation is when everything you own won't feed all the hungry folks in your family, and you're the wealthiest person in your family.

I don't think this will happen in the U.S. (and I pray it won't). But I don't see all of the emerging economies getting out of this without a lot of pain. In the U.S., there is likely to be a lot of wealth lost, and a lot of poverty, but not on the scale of the emerging economies that boomed in the past decade.

[ThePythonicCow]

Re: Thoughts on Hyperinflation

There are too many parties that want the dollar to retain value - the billionaires in America, the oil producers, China, Japan. All of them will have everything to lose if the dollar loses value.

So, not so simple. ;)

I agree not so simple.

I do not know if all the parties who could crash the dollar do not want to.

[Jay]

Re: Thoughts on Hyperinflation

Hyperinflation, inflation, deflation...will any of it happen in the world today?
I believe that the US dollar is heading towards zero in value. And that will result in a very rapid depreciation of the US dollar and ALL currencies against such stores of value as gold, silver and oil.
Let's see why that is.

The reason people want dollars is that they can make MORE dollars from them.

Citizens also want dollars to particpate in the global economy. Without a few bucks you can't get on Amazon and buy plastic stuff have it delivered to your door and then have it break a few weeks later. American's love their plastic baubles and will do what they need to do to make (or be given by Uncle Sam) enough dollars to buy their fix. Most citizens have no idea what a Treasury debt instrument is.

It's the financial economy that wants dollars.

When and if it becomes evident that the jig is up, that by using and holding dollars you will LOSE dollars, then we enter hyperinflation. The crack-up boom when people holding dollars buy ANYTHING they can to get rid of the dollars.

The god-damned joke is that the financial economy gets as many dollars as they want while most everyone else gets squeezed. They LOVE this game. They have been killing it in the last few years. Why do they decide to puke Treasuries ever?

Treasuries are their life blood, at least for TBTF or most anyone else with a big enough position who might get itchy feet domestically. Even internationally, the power players make out like bandits in the system. European banks were flooded with free cash during the big crunch. Financial bigwigs and important heads of state are on the same Treasury take. The few large holders who might make a difference have up to this point been neutralized by fear of losing their existing stash through depreciation, fear of what might happen in the tumult of a new global geopolitical regime and currency order, and the fact that they are kings right now if they don't touch a damn thing. Why would they blink?

The Chinese elite are doing well. The Russian elite, the same. Euro-aristocrats, even better. The only potential problems they have are 1) will their respective domestic constituents, the newly poor, get pissed and rise up? 2) will the foreign elites surrender their pride, and for some their ingrained cultural beliefs, enough to go along with an anglo-saxon driven agenda?

Even with civil unrest, the global elite have plenty of options. They have access to a lot of suppressive technology, and you can use your imagination here and for me it isn't necessarily a pleasant thought. The powerful are going to attept to own most everything and everyone on the outside will be on lockdown. In a way, once you understand the workings of compound interest and debt, this is an inevitable process that has up to this point in history always ended in strife and/or debt jubilee.

Who cares if this ends in hyperinflation, a gold bar won't let you buy a freakin vanilla wafer in a word with a currency controlled by a single power, you'll need to split rocks with a hammer for that wafer. The only things for sale in gold will be blackmarket goods; locally grown, or locally crafted. Please tell me why this won't happen, the elites will shoot themselves in the foot and self destruct? They are ******* smart and know what they are doing. Maybe they will eat themselves, but the world won't look the same at that point.

Sorry to be so blunt, and likely negative to some. I am a forward thinking person and make things happen in my real life, but I'm also an uncompromising realist at heart.

[touchring]

Re: Thoughts on Hyperinflation

The Chinese elite are doing well. The Russian elite, the same. Euro-aristocrats, even better. The only potential problems they have are 1) will their respective domestic constituents, the newly poor, get pissed and rise up?

This is the last thing that will happen. I saw a documentary on the French revolution in the late 18th century. I can tell you that the late 18th French people were much more liberal than the Chinese today.

Let's be realistic, farming tools and knives can never fight machine guns. If the French elite and army were willing to massacre a hundred thousand peasants, the French revolution would have never happened.

[Quincy K]

Re: Thoughts on Hyperinflation

This is the last thing that will happen. I saw a documentary on the French revolution in the late 18th century. I can tell you that the late 18th French people were much more liberal than the Chinese today.

Let's be realistic, farming tools and knives can never fight machine guns. If the French elite and army were willing to massacre a hundred thousand peasants, the French revolution would have never happened.

I don't want to sound like an anarchist, but do you know how easy it is to make a bomb? The fight from the common man against the elite will be underground and not above-ground.

The majority of upheaval will have little to do with knives or machine guns.

[charliebrown]

Re: Thoughts on Hyperinflation

dollars have value because they can be used to extinguish debt. So in an over indebted society with dollar denominated debt, dollars have demand.
I suppose the problem occurs when new debt is to be created, if the impression exists that the interest rate on the debt will not cover the loss of purchasing power then debt will not be created. If the price of a car will increase 5% next year, will I keep my money in a one year bond at .5% or just buy the car now? What if there was debt jubilee, would the demand for dollars dive?

[EJ]

Re: Thoughts on Hyperinflation

There has never been a hyperinflation of a reserve currency in history. Ignorance of the basic conditions of hyperinflations is necessary to even discuss the possibility. Only politically and economically isolated countries have ever experienced hyperinflation. There wlll be no US dollar hyperinflation and discussion of the possibility on the iTulip forums will be quickly shipped off to Rant & Rave forum where they belong. The only possible precondition of a dollar hyperinflation is a WWIII which, if it were to occur, will present our members with more pressing matters than currency valuations. Should the currently well controlled decommissioning of the dollar as a sole reserve currency go ary, global central banks have plenty of official gold to use to re-anchor the system. The U.S. has over 8,000 tons, more than any other, the ultimate back-up plan for any fiat reserve currency. The U.S. always get it right.

[a warren]

Re: Thoughts on Hyperinflation

The U.S. always get it right.

The US always get it right. The US always get it right. The US always get it right.

Does this mean the US are going to get inflation right. And right is 100% over a five year period. Or does it mean something else?

[grapejelly]

Re: Thoughts on Hyperinflation

There has never been a hyperinflation of a reserve currency in history. Ignorance of the basic conditions of hyperinflations is necessary to even discuss the possibility. Only politically and economically isolated countries have ever experienced hyperinflation. There wlll be no US dollar hyperinflation and discussion of the possibility on the iTulip forums will be quickly shipped off to Rant & Rave forum where they belong. The only possible precondition of a dollar hyperinflation is a WWIII which, if it were to occur, will present our members with more pressing matters than currency valuations. Should the currently well controlled decommissioning of the dollar as a sole reserve currency go ary, global central banks have plenty of official gold to use to re-anchor the system. The U.S. has over 8,000 tons, more than any other, the ultimate back-up plan for any fiat reserve currency. The U.S. always get it right.

When in the world has there been a fiat reserve currency besides now, EJ?

How can there not be a hyperinflation given that there is no choice but to inflate due to the enormous debt baked into the system?

Whatever you want to call it, I doubt we'll have wheelbarrows full of money to buy a cup of coffee. But there is no question in my mind that the currency will be utterly and completely worthless, could be 10 years from now, 5 years, 2 years, 20 years. I call that a hyperinflation, as in total depreciation to worthlessness.

There is nothing unreasonable about that position. I think what is unreasonable is to say the US always gets it right. Or are you joking?

Of course there is plenty of gold. There is more every year aboveground than the year before.

But it's a question of how much that gold will be "worth". If gold becomes money again, each unit of gold will be worth quite a lot more than it is today, in terms of goods and services. So by "re-anchoring" the system, we are really talking about the end of the current system and a new one developed based upon gold as money again?

[medved]

Re: Thoughts on Hyperinflation

The US always get it right. The US always get it right. The US always get it right.

Does this mean the US are going to get inflation right. And right is 100% over a five year period. Or does it mean something else?

US does not always get it right, but being the biggest bully on the block it can always make others believe so.

100%/5yr is about 15%/yr. This is not that bad. Some countries got through this situation without much damage.

$US lost about 98% of its value in 80 years !!!!

So what, it comes down to 5%/yr.

There is only one thing more amazing than the compound interest: the compound currency depreciation.