Flipping from deflation to [hyper]inflation?

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SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2252
Flipping from deflation to [hyper]inflation?

Hey gang --

Right now as I understand it we're in a deflationary period.  Not too severe [yet], but there has to be less money chasing products around the economy just by virtue of the ludicrously large amount of wealth destruction we've seen in the last 9-12 months.   

So -- with the gov throwing money into the economy, as I understand it there will come a point where all that extra currency will start to move us into an inflationary [possibly hyperinflationary] environment.

My question is -- how long do you think it'll take to reach that point, and what will the first signs be of that flipping point?  (And if I've got my first two points incorrect, I'd appreciate knowing where my reasoning is fallacious.)

Thanks ya'll -- Sager 

joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
Re: Flipping from deflation to [hyper]inflation?

sager

this question gets posted here about once every two weeks.

if you go to the upper right hand corner of the page you will find a little box that says search. just type in inflation/deflation and you will get so many answers that by the time you get done reading them we will be out of deflation and into  inflation.

then the next question will be will we have hyperinflation? you can use the same resource .

myself i have this great crystal ball

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: Flipping from deflation to [hyper]inflation?

Sager -

Here's my thoughts on your question (no referral to having to search either)

The safe non-answer is it depends.  There are a lot of "ifs" with this one.  If the deflation is slow and flat, we may find a soft bottom that we can manage the bounce from.  Hopefully the release of credit will be much slower than demand such that inflation can be managed.  One way would be to require banks to increase their excess reserves - even though the money exists it isn't in circulation.  Not sure how to get around valuing the reserves a bank holds with regards to valuing the bank, but my gut sense is that it could be done with a ton of oversight.  There may be some sense to partial nationalization of some banks - I saw that the government bought a 36% stake in Citi - that's a lot of influence.

On the other hand, if the deflation is steep and fast, the government may have no choice but to open the floodgates.  That would suck I think.  Steep and fast into a turning point usually has a steep and fast rebound.  That scenario would be a lot tougher to manage.

Then again, scenario one would require competent leadership from our government.  Given that these boneheads were the assembly of idiots who got us into this mess why should we expect them to be the ones to lead us out???

See you in two weeks with the next question Cool

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: Flipping from deflation to [hyper]inflation?

quick summary before you search the other posts:

We don't live in a currency-based system any longer...we don't "print money."  We live in a system of auctioned credit.   That credit is deflating, due to reduction in velocity, massively in proportion to the little bit the Fed is adding to its balance sheet.  There's no way for government to inflate out of this.  So, deflation has a long way to go.  As it nears the end, who knows what will happen...unfortunately the govt won't remain passive and let the market figure it out.

RussB's picture
RussB
Status: Silver Member (Offline)
Joined: Dec 9 2008
Posts: 101
Re: Flipping from deflation to [hyper]inflation?

As China, Japan, and other massive creditors to America sweat over their dollar position, trying to figure out how to extricate themselves, and as in OPEC, Japan and elsewhere the calls grow for trying to switch away from the dollar to some alternative reserve currency, there's a growing world-historical tension.

I imagine at some point either someone's going to panic and do something impulsive, or something else will serve as the acute Sarajevo event, but something will trigger a run on the dollar, and although all sorts of stabilization measures will be attempted, that will be the commencement of the hyperinflation.

 

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2252
Re: Flipping from deflation to [hyper]inflation?

Thanks folks (for the answers) and thanks Joe2Baba for reminding me of the search feature.  It's been a long time since I've been such a newbie (and a long time since I've had to manage same [usenet, anyone?]) and I forgot the general imperative to Avoid Replicating Previous Effort.

On a more general note, being such a learner here is helping to remind me that it's good for the brain/soul to keep learning new things.  It's humbling and expanding at the same time.  Good medicine.

Thanks again -- Sager 

kennyq's picture
kennyq
Status: Bronze Member (Offline)
Joined: Jul 30 2008
Posts: 82
Re: Flipping from deflation to [hyper]inflation?

strabes, will you please explain to us a little more in detail about this:

" We don't live in a currency-based system any longer...we don't "print
money."  We live in a system of auctioned credit.   That credit is
deflating, due to reduction in velocity, massively in proportion to the
little bit the Fed is adding to its balance sheet.  There's no way for
government to inflate out of this.  So, deflation has a long way to go."

Thank you.

 

 

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: Flipping from deflation to [hyper]inflation?

Hi Kenny, it would take too long to post here.  I recommend reading this article from Steve Keen which explains the way our monetary system works:

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

And I'd also recommend this series of videos...13 segments, but worth it... 

And you might also read Irving Fisher's debt theory of deflation during the depression (precisely what's happening today...too bad he didn't influence modern-day macroeconomics more than just the Fisher equation i=r+inf)

http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf 

Amanda V's picture
Amanda V
Status: Gold Member (Offline)
Joined: Dec 31 2008
Posts: 262
Re: Flipping from deflation to [hyper]inflation?

Sager

I have some recollection of either reading, or listening to one of Chris Martensons podcasts that he thought approximately 6-8 months, in his estimation.  I think.  But Chris doesn't have a crystal ball either remember.

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