Do all roads lead to hyper-inflation?

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codeblue's picture
codeblue
Status: Member (Offline)
Joined: Apr 21 2009
Posts: 13
Do all roads lead to hyper-inflation?

First, I say thank you to Chris M. for causing a drastic (but good) paradigm shift in my thinking.  It truly has changed my life.

 

Lately, I have been trying to understand deflation vs. inflation/hyper-inflation. I’ve almost determined that there are too many variables to predict what might happen.  But because understanding the implications of the topic will be immensely important to all of us as we enter the future, please allow me to express my speculation on the subject.  Please critique my analysis as I encourage you to provide your different perceptions and comments.  I also realize the issue is debated frequently and I apologize to those in advance that will refer me to previous posts.  From all the information I have gathered and read, the following is where I believe we are and where we are headed:

 

Right now we are experiencing a period of deflation.  This is a result of a massive credit bubble that is/has been deflating.  In other words, the credit bubble was really, really large.  So large, that no amount of new money that the fed infuses into the system (under current reasonable possibilities) will result in inflation.  In addition, much of the current money infusion went to banks, and the banks are holding on to the money (it’s not in real circulation—at least not yet).  Finally, the overall Velocity of money has slowed down due to loss of credit, jobs, etc. (money circulating slower is deflationary).  These three factors point to deflation—where we are now.

 

Deflation will continue for a time.  The question then becomes—for how long? 

 

There will come a time when all confidence is lost in the dollar (I know—it’s already started).  Does this happen quickly or does this happen slowly over time?  If it happens quickly what triggers this?  I’m not sure—maybe the treasury/bond market, maybe war, maybe complete loss of faith in government/rule of law.  Result is hyper-inflation caused by a heavy increase in the Velocity of money (not necessarily an increase in the money supply--of course the printing of money will add to the problem, but it’s the Velocity that is the key to starting it).  The world dumps dollars to buy anything tangible and/or other currencies resulting in higher prices--much higher.  [Side note:  In this example I’m considering hyper-inflation and a drastic rise in prices as one in the same]

 

However, if the loss of confidence in the dollar happens slowly over time, then how long does deflation last?  We know that the US debt is so large, it’s only a matter of time when the US either defaults on the debt, or the debts get diminished (Crash Course).  If the debt is defaulted, then what?  My guess is that it quickly leads to loss of faith in dollar/government and we’re right into hyper-inflation (through Velocity).  The other possibility is the debts get diminished through inflation.  So is this steady inflation? Or does this turn into hyper-inflation?  Probably anyone’s guess but eventually something will trigger and it would turn into the latter.

 

Do all roads lead to hyper-inflation?  Timeframes? Other perspectives?  Please comment.

 

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 547
Re: Do all roads lead to hyper-inflation?

Codeblue,

I think the questions you ask are all good, and I think the things you are wondering about are the things you should be wondering about.  What you should appreciate, IMO, is that no one will be able to answer your specific questions.  There is no answer.  These topics are the subject of endless debate.  The variables are too complex.  The global economy is an incredibly complicated and interconnected ecosystem.  Try not to feel as if you must have an answer to these questions or that you must know what is going to happen.

Maybe you'll have to reach your own conclusion, but here is where I come down after doing a lot of reading and thinking:

  • No one knows what is going to happen, particularly when it comes to specifics.  But,
  • There is an advantage to understanding the OVERALL PICTURE, being familiar with GENERAL TRENDS, appreciating the RISKS and POSSIBILITIES and being prepared for what MAY come.
  • It is dangerous to be too sure about anything.
paranoid's picture
paranoid
Status: Silver Member (Offline)
Joined: Feb 27 2009
Posts: 140
Re: Do all roads lead to hyper-inflation?

Some experts are first calling for massive deflation (which we are in now and according to them may continue for a while) before the inflation hurricane hits

codeblue's picture
codeblue
Status: Member (Offline)
Joined: Apr 21 2009
Posts: 13
Re: Do all roads lead to hyper-inflation?

Lemonyellowschwin:

Thank you for your comments.  It is exactly what I needed to hear; and I agree with your conclusions.

Thank you again.

 

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