Is hyper-inflation truly inevitable?

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GR8TFUL's picture
GR8TFUL
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Is hyper-inflation truly inevitable?

There have been lots of posts on this site regarding deflation versus inflation. At the moment deflation seems to be winning out, but I think if we were to poll everyone on this site the majority would argue that inflation--in fact hyperinflation--will occur at some point in the not-too-distant future. However, I read or heard something recently (don't remember where) that caught my attention:


The U.S. stock market has lost nearly half its value in 2008, and markets around the world have lossed similar large amounts. Don't have any idea what the actual $ #s are, but certainly in the trillions of dollars. That money has simply vanished--poof--it's gone! And unlike homevalues, this was real money, no? So, although the FED is creating new money out of thin air, if they print 1 or 2 trillion dollars, but that same amount of money has been lossed, the two offset one another and at the end of the day it's a wash.

 What am I missing or not understanding?

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Re: Is hyper-inflation truly inevitable?

GR8TFUL,

 I am not the best at explaining this, but I will try:  Neither gains nor losses are real until you liquidate your position.  That about sums it up.  For example, say you bought 5,000 shares of GE at $20/share in 2002 ($100,000 investment), and held it through today.  In October 2007, the stock traded at 41.03.  You would have shown a paper gain of slightly over 100%.  If you had sold then, you would have pocketed a profit of a little over $100,000.  However, if you had not sold then, and were still holding it now, your investment would be worth $17.07 a share, or $14,650 less than what you purchased it for.

This relates to net money creation or destruction as follows:  Your paper gain of slightly over $100,000 was not the result or cause of net money creation.  The dollars somebody would have used to pay you for those shares when they were worth $41.03/share would have been real, previously-created dollars.  They only seem like "new" dollars from your frame of reference, but the dollars themselves were not "created" by GE or the market in any way.  Had you sold then, your profit would have simply been the result of someone else transferring their dollars to you.  What if you held your shares through today, showing a paper loss of $-14,650?  Well, the $100,000 you paid for the shares are still out there, somewhere.  You paid those $100,000 to somebody.  If you decided to sell today, someone would pay you $85,350.  What happened to the $14,650?  They were not "lost" from a global economic perspective.  Someone out there has your original $100,000, unfortunately that someone is just not you.

The news outlets sometimes talk about money going to "money heaven".  However, I do not see how that can happen unless they are referring to unliquidated gains (don't get me wrong, these are very important too), or using the fram of reference of each investor that lost money.  Of course there is a "money heaven" for gains that were never sold, but otherwise, money can only be destroyed in one of three ways:  a) you burn it/destroy it b) you hide it so well nobody can find it, including yourself or c) you increase the quantities of it so that the value of all existing monetary units depreciates. 

Don't get me wrong:  paper gains have a very real effect on the economy even though they are not "real money".  People and businesses leverage themselves based on the presumed value of their savings and investments, make purchasing decisions, get loans, etc.  But the number of physical dollars themselves, at least in our fiat-currency economy, can never decrease - they can only get shuffled from one person to another or increased via central bank printing.  In a non-fiat economy, I suppose they could decrease by being cashed in for whatever is being used to back the currency - usually gold.  They could also still increase in number, but only via increases in gold (or some other hard commodity) that get deposited in banks in exchange for demand deposits (which used to be known as money).  

Hope this helps, although I don't feel entirely comfortable with my own explanation.

Patrick  

 

 

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Re: Is hyper-inflation truly inevitable?

GR9TFUL,

 To answer your original question:

The trillions lost by the stock market collpase were "paper gains".  Therefore, increased printing by the fed will not be offset by such losses. 

Patrick

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Re: Is hyper-inflation truly inevitable?

One of the great misperceptions folks have is that "I have my money in the stock market".  No, you don't.  The money went to the person who sold you the stock.  What you have is a piece of paper that you will eventually need to sell.  If you sell it at a loss, your money didn't vanish, you just couldn't find anyone willing to pay as much for the piece of paper as you did.  The money was gone on day 1.

Example:  I buy a share of stock from Fred for $20.  He takes his family out to dinner and spends it.  The company later goes bankrupt and I can't sell my stock.  The papers report "$20 lost in stock market".  The $20 didn't vanish, it was given to Fred who traded it for a steak.  

This also goes to the misperception of "money on the sidelines".  For every dollar that came out of the market, someone had to put a dollar in.  It nets to zero in that sense.  While, unlike Futures trading, stocks aren't a zero-sum game, you can't take money out of the market unless the same amount is put in by someone else.

Jim 

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Re: Is hyper-inflation truly inevitable?

wdstk46,

Thanks for saying what I was trying to say in 1,000 less words!  I have one disagreement though.  When people refer to "money on the sidelines" they could be referring to one of two things:  If they are referring to money that was taken out of the market, of course you are right - they could only take it out if someone else put money in - therefore, no net difference.  However, they could also be referring to the stockpiling of money in 401ks and mutual funds that come from automatic withdrawals from people's paychecks.  The money managers in charge of the 401ks and/or mutual funds can and sometimes do "sit on the money".  Since this is not money that came from the sale of stocks, but rather money that came from automatic deductions from paychecks or other deposits into mutual funds, then it can be truly considered "sideline" money. 

Patrick

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Re: Is hyper-inflation truly inevitable?

Another way of looking at the inflation/deflation issue is that you really can't have a meaningful debate about it unless you define what is being inflated or deflated.  You can have decreasing asset values and increasing consumer prices.  You can have an increase in money supply and a decrease in asset prices and assets.  Personally, I think we will have a prolonged deflationary period in things like cars and homes but we will ultimately have inflation in things like gas and food prices.

Inflation looks inevitable in most consumer goods but I do not think hyperinflation is inevitable.  Hyperinflation is a pretty rare phenomenon and I still have some faith that we have some people in government that would prevent it from happening.  If anything, they can come up with a new currency (like the Amero) and replace the dollar which would obviously create its own problems.  I just think that a plan B is probably already in place, waiting for the day if/when the dollar completely collapses. 

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Re: Is hyper-inflation truly inevitable?

This may be way too simplistic but here goes. I had to think about it and this is how I see it.

The concept of money can usefully describe two types. Working money and Lazy money. Working money is what someone is prepared to expend their effort for and only exists while their effort is expended. For example baking bread or building houses.

Lazy money sits in banks, under beds or in someones back pocket. When someone buys something already in existence, oil, a house, stocks, bread etc. Nothing changes except ownership which is trivial. The money used is Lazy money. 

Deflation occurs when less people work and more lazy money sits in banks (or wherever)

Inflation occurs when more people work and less lazy money sits in banks (or wherever)

At the moment treasuries are printing more lazy money that is sitting in banks with fewer and fewer people working.

If or when lazy money tries to get people (poor suckers) working for it we will see inflation. People will find that they need more and more money to get people to do the same work.Thats why anything not already in existence, like newly baked bread or new houses will cost more. It is quite possible that things already in existence will not cost any more until inflation has got hold as it is working money that will be expanding first.

Hope this makes sense. I am sure I will be corrected if I am wrong. Lots of economists around here.Smile

Don

_____________________________________

7 billion people can be wrong, very wrong

 

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Re: Is hyper-inflation truly inevitable?

Gra8ful's question is one I have been grappling with as well....trying to figure this out since the deflation/inflation debate carries quite a bit of personal consequences that one should prepare for. I appreciate all the answers but I am not finding myself understanding this issue and I am still more than confused. First of all, I do not understand why the stock market figures so prominently into the original question and some of the answers posted. As I understood the deflation/inflation "question," the answer lies with the Fed (and also Treasury as far as stimulus goes) creating more dollars and therefore cheapening those dollars. I beleive that one of the crash course sections dealt with this (something about the price of bananas on a boat maybe??? I'll have to find that one) but, as I understand it, it more or less boils down to a supply and demand equation. If there are lots of dollars out there, the supply brings down the price. Hence in the Wiemar Republic they created lots of currency and it became worthless. The U.S. is "creating" a lot of dollars - right? Inflation is the obvious outcome, right? That seems to be the very basic conclusion but apparently it is not so simple. Deflation is all the rage right now but is it really even our very near-term future? There seems to be a "price destruction" in tangible assets such as houses, commodities etc but I just can't imagine that inflation, even hyper-inflation, won't win the day with the huge amounts of money the govt is creating and, I suppose, eventually being somehow used. Can someone provide a cogent explanation or even argument for where the economy is headed: deflation/inflation? Maybe I need to take Econ 101 again? (But somehow I don't think I'll get the right answer there. Undecided)

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Re: Is hyper-inflation truly inevitable?

lisa, i believe you are correct when you ask why the stock market figures into the equation, the stcok market does not destroy or create money, it just tranfers the money. just like every good student of the crash course should know, 'all dollars are loaned into existence'. so now that we know that banks turn $1,000 into $10,000 through fractional reserve banking, we can see that $9000 is magically created. but what happens when there is a default, the bank has to take the loss and the money is destroyed, or better yet, written off. so with so many defaults that have happened and will happen the federal reserve is looking to plug the holes left by defaults with new money (it's not actually new money, it's magically created from your savings account) to prevent deflation.

if the fed were to do nothing about deflation, people would be scrambling for hard money as it became more rare, deflation would take hold, our current debts would become more more expensive, defaults would accelerate, and the viscous cycle would ensue. of the options; deflation or inflation, i would much rather choose the inflation route... and so would bennie. 

 

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Re: Is hyper-inflation truly inevitable?

Lisa G,

As someone pointed out, fractional-reserve banking leads to highly-leveraged banks.  That is, although the bank only borrows X amount from the Fed, they are allowed to lend 10X (or thereabouts) into the economy.  With the mortgage-industry credit collapse, many banks have had to de-leverage.  That is, they are calling loans back, not making new loans, etc.  This is referred to as a "contraction" in the money supply, and it can result in deflation.  When you take leverage into consideration, you understand why only a 4-5% default rate on outstanding loans can have the same effect as a 40-50% default rate in a non-fractional reserve banking system.  That's why banks are deleveraging.  They have to bring their ratio of liabilities to assets down - a lot.

If the Fed did nothing, it is feared that deflation would take hold.  Prices would come down because there is less money in circulation in the economy.  The money is actually really there, it's just being held by banks and/or foreign buyer's of US Treasury bonds.  In any case, it's not in any of our pockets chasing cars or houses or hamburgers.  If deflation took hold, incomes would come down, US tax revenues would come down, and economic activity in general would come way down.  This would make the credit crisis worse because everyone's loans would become more difficult to pay off (you're making less money but have to make the same payments).  It's a very scary downward spiral and the Fed will do anything and everything to avoid this.

So, the Fed is creating gobs of money and using it to buy US Treasuries.  The US Treasury is using some of that money to buy "toxic" assets from banks, lend money to the Big 3, and coming soon to a neighborhood near you, bailing out little Johnny's lemonade stand, probably.  Upon aquiring these Treasury bonds, the Fed is inflating it's asset collumn, which it uses to lend money (again printed out of thin air) out to banks.  So you have money being added from two sources - the US Treasury in the form of buying assets from banks, and in some very scary cases, taking equity positions in companies (AIG); and from the Fed, in the form of it's usual lending of money to banks.

The strategy is to inject enough money into the system to get the banks' liability/asset ratios back to normal and unclog the credit freeze.  Once the credit freeze is unclogged, they hope, businesses will again be able to borrow, and therefore hire, people will borrow to buy cars, houses etc, and so on and so on.  Note the recent CC graph on free money from the Fed.

So where does inflation or hyper-inflation come into play?  First of all, we've already seen how good the Fed is at timing it's credit expansions or contractions - pretty bad.  In fact, they seem to figure everything out 12-24 months after it's already happened, so many people fear that they will overshoot and go on creating dollars long after it is necessary.  Remember, easy money is what got as into this problem to begin with.  Imagine what yet another bubble popping will do to us.

Secondly, all these dollars being created, like all dollars and as the CC shows, are loaned into existence.  That means that after that supposed magical day when the economy has been saved, we are going to have to start paying these dollars back.  That will mean higher taxes, just as our baby boomers enter their 2nd or 3rd or 4th year (depending on how long you predict this downturn will be) which will require higher taxes anyway, further dependence on owners of US debt, and further weakening of the $ as a reserve currency. 

Hope this helps. 

 

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Re: Is hyper-inflation truly inevitable?

The short answer to your question is, in my opinion, "no".  Hyperinflation is within the realm of possibility, and some would even argue that it's likely.  But it's not inevitable.

As others have pointed out, we're seeing tremendous demand destruction and deleveraging of credit markets that has wiped out trillions of dollars of wealth.  The Fed is fighting this by injecting huge amounts of money into the system.  So far that hasn't shown up in the real economy, but as Chris M. points out there is often a 12-18 month lag time before that occurs.

Historically it has proven very difficult to find that "sweet spot" where enough money is injected into the economy to reflate it without going too far and causing serious inflation on the other end.  Most often governments overshoot their goal, and hyperinflation ensues.

Even hardcore deflationists like Mish concede that reflation and then
inflation will happen at some point.  If the government continues on
its current course, it does seem inevitable that inflation will occur. 
But that doesn't necessarily mean hyperinflation will.  There's always a chance that fiscal discipline could be imposed and we could interrupt the process.

Not much of a chance, mind you, but a chance nonetheless.

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Re: Is hyper-inflation truly inevitable?

Jim Willie has a very interesting article on FinancialSense.com that argues against people (including Mish Shedlock) who champion the deflation argument.  Willie says says that folks who think deflation is king are missing some key elements in their arguments that renders their arguments incorrect.  The article, " False Diagnosis of Deflation", was posted on January 2, 2009, and is at http://www.financialsense.com/fsu/editorials/willie/2009/0102.html.  

Here's a quote:

"...My role is not to take umbrage, but rather to engage the debate. Mike Shedlock also has too narrow a view of events, and regards deflation as having taken victory laps. He too makes improper interpretations, since too focused on the tangible real economy, without valid incorporation of unorthodox financial data. The analysis of monetary matters, such as inflation versus deflation, must take into account the ‘Double Booking Economics’ very carefully. See the Shadow Banking System, and bring them into the analysis. CONCEPTS LIKE MONEY VELOCITY MUST ADAPT OR BECOME IRRELEVANT. Many monetary tectonic shifts have occurred, which must alter the analysis"

Willie has strong beliefs about intervention in the markets, so be forewarned if you go to read the article, depending on what your belief system on that topic is.

I would be very interested to hear others' opinions on his arguments regarding deflation!

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Re: Is hyper-inflation truly inevitable?

Ok Now where to we go to learn what Double Booking Economics is?

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Re: Is hyper-inflation truly inevitable?

"What if you held your shares through today, showing a paper loss of $-14,650?  Well, the $100,000 you paid for the shares are still out there, somewhere.  You paid those $100,000 to somebody.  If you decided to sell today, someone would pay you $85,350."

We might want to point out that the $85,350 is now worth quite a bit less than it was worth when he/she originally bought the stock in 2002. So, the loss is greater than $14,650. In the current inflationary environment (discounting the last few months) one would have to realize a return of more than 10% a year (see Shadow Government Statistics for true inflation rates) in order to realize any gain from their stock holdings.

 

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Re: Is hyper-inflation truly inevitable?

   

Hey jerry_lee-

   Fair question.  I went back to the Jim Willie article to see if I could get an answer for you.  I found his definition for "double booking"  later on in the article.  I'll add that quote here to try to help clarify things:

   "...In just the last few years, the growth of credit derivatives, traded over the counter, has been enormous. This is widely recognized. The annual growth levels lie in the 40% to 60% annual range. How can the deflationists ignore this? THIS IS MONEY IN FLOW, NOT COUNTED BY DEFLATIONISTS IN MONEY SUPPLY DATA. It is an important blind spot of theirs! Do they not call it money when gigantic swaths in the billions are traded, and enter the bank systems via the back door, recorded off balance sheet (read: double booking) [bold mine], but used in the flow of operations? Dr Banker* claims the entire US banking system has depended vitally upon such flow of funds in order to conduct a decade of bank operations! Furthermore, the credit derivatives contracts represent a perverse cancer of money itself. Cancer must be accounted for. Does a sick man weigh less officially, after discounting the cancer tissue? No!"

  My take on what Jim Willie is saying about deflation in his article (not just the quotes here) is that there are two aspects to our banking system and economy: the "tangible real economy" (the "for public view" banking system and economy, and the traditional data associated with that) and "the Shadow Banking System" (the behind-the-scenes banking system, and the unorthodox data associated with that that he believes has a major impact on our economy).  I think what Willie is saying is that analysts who champion deflation, but are only considering the for public view banking system and traditional data, have too narrow a view on things.  He thinks they are making incorrect conclusions because they are not seeing critical data that they should be including in their analyses.

   To a layman like me, this sounds like an intriguing, potentially sound argument.  But I'm no expert, and so I am curious to hear others' takes on the points Willie makes in his article about deflation.

   Here is the link to the Jim Willie article again for those who may have missed it: http://www.financialsense.com/fsu/editorials/willie/2009/0102.html

* Dr.Banker is an anonymous banking insider interviewed for an iTulip article that Willie quotes in his article

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Re: Is hyper-inflation truly inevitable?
r101958 wrote:

We might want to point out that the $85,350 is now worth quite a bit less than it was worth when he/she originally bought the stock in 2002. So, the loss is greater than $14,650. In the current inflationary environment (discounting the last few months) one would have to realize a return of more than 10% a year (see Shadow Government Statistics for true inflation rates) in order to realize any gain from their stock holdings.

I agree, but that is not relevant to the purposes of the discussion.  The original post asked whether the collapse in asset values offsets the increase in the money supply.  I was trying to point out that just because the value of a stock went down, that does not correspond to a decrease in the money supply in the economy.  The investor's original $100K was paid to the seller of the shares, they didn't dissapear into "money heaven".  

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Re: Is hyper-inflation truly inevitable?

Isn't it possible that hyper-inflation can result without currency?  I mean, even in a barter-type relationship, could/does this occur?  And if so, does this mean that hyper-inflation is only dependent upon value (of anything).  If this is true then value is sentiment.  If value is sentiment then hyper-inflation is not inevitable; i.e. sentiment is not necessarily inevitable or true to be brought about 100% of the time.  It might be likely though (probability says less < 1 ?)

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Re: Is hyper-inflation truly inevitable?

 

Definition of inflation:

A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

If we have more money in the system than stuff or as an extension more money that other peoples money.  Price goes up or it takes more of our money to purchase items from other countries in their money.

That aside, thinking about this has given me more clearity on just what the all over problem is:

1) We (the USA) has lost almost 55% of our net worth in the stock market, but  this is all paper money based on nothing as many have explained previously

2) The Government (USA) has pumped money into the bankers (or people that messed up the stock market), but this is also paper money based on nothing.

3) Our money (USA) is based on the world confidence that we can pay our T-bonds back.

Correct me if I am wrong but once the world has no confidence in our T-bonds, that is the time when we have only 2 ways of paying the T-bonds we have out there back:

A) Make alot more money and give it to our creditors (other countries) this will lead to hyper-inflation on goods that we purchase from other countries and we purchase alot of goods from abroad.  In addtion to that, other contries can purchase our goods more easily since they will have a lot of our money, raising prices on items we purchase made here this leads to more hyper-inflation. 

B) Default and rebuild our monetary system with another base and start making stuff again.  Alot of pain here but we still have the know how to do it.  The hard part is that the bankers, financial planners, investment bankers and all the people that are in the financial system will topple and they are the people making the rules.

Is hyper-inflation truly inevitable? NO, however it does not look so good.

We have to make some big changes as a people.

 

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Re: Is hyper-inflation truly inevitable?
Quote:

Isn't it possible that hyper-inflation can result without currency?  I
mean, even in a barter-type relationship, could/does this occur?  And
if so, does this mean that hyper-inflation is only dependent upon value
(of anything).  If this is true then value is sentiment.  If value is
sentiment then hyper-inflation is not inevitable; i.e.
sentiment is not necessarily inevitable or true to be brought about
100% of the time.  It might be likely though (probability says
less < 1 ?)

I'm no economist, but based on what I know and understand, inflation is defined as an increase in the supply of the medium of exchange. Therefore, it is always possible if the medium of exchange, be it barter or currency, be that fiat or commodity-based, increases faster than the supply of goods or services.  An example of this occurring is when Spain brought hordes of gold back from the New World.  They had a sound currency based on gold, yet they devalued their currency due to the disproportionate amount of gold they introduced into their economy from the new world. I think this example is in the Crash Course, or no?

I do not understand what you mean by "sentiment".  Inflation refers to an inflation of the money supply.  We don't pay more because we feel our money is worth less.  We pay more because producers who experience shortages raise their prices in response, either for profit our to re-invest in their productive acticities and increase supply (to meet the increased demand).  This trickles down to the rest of the economy, and soon everything is more expensive.  The only thing that remains the same are your hard-earned savings, which now have reduced purchasing-power.

Note that in the absence of confiscation of property through war or
forcible seizure (as a-la-Spain), a commodity-based currency cannot be introduced into
an economy without a corresponding exchange of goods and services between that economy and the economy providing the gold (or other backed-currency).  In fiat-systems, forcible seizure or confiscation occurs everytime any central bank inflates the money supply, "seizing" value from all previously existing monetary units.  Of course, I'm sure they don't like to think of it that way.

 

 

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Re: Is hyper-inflation truly inevitable?
pinecarr wrote:

  

I am curious to hear others' takes on the points Willie makes in his article about deflation.

   Here is the link to the Jim Willie article again for those who may have missed it: http://www.financialsense.com/fsu/editorials/willie/2009/0102.html

I was not impressed by this article. I think Jim is committing the very sin he accuses others of making. Here's one example of something important Jim is overlooking (and there are more): http://market-ticker.denninger.net/archives/703-Uh-Oh.....-Monetary-Flat...

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Re: Is hyper-inflation truly inevitable?

ds, thanks for responding to my question, and the link to the Karl Denninger article "Uh Oh...Monetary Flat Spin".   Good stuff!  I'm going to try to learn more about the phenomenon that he describes (M1 multiplier -velocity of money- now being < 1), as it seems to have big implications on where we may be headed (deflation vs inflation). 

BTW, it looks like others here also think the author of the article you referenced has important ideas that need to be discussed.  Have you seen the new thread, http://www.peakprosperity.com/comment/11807#comment-11807?  It specifically talks about Karl Denninger and his ideas about deflation.

Thanks again for taking the time to respond!

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Re: Is hyper-inflation truly inevitable?

PB

 

"The investor's original $100K was paid to the seller of the shares, they didn't dissapear into "money heaven". "

This doesn't seem correct to me regarding a stock or the stock market.

Consider the case of a stock split (or IPO, but let's keep the money in trade for a while.) Someone holding 200K now has twice the number of stocks with a 2:1 split. They sell 1/2 and they have 100K in cash and someone has converted savings from cash into stock. Similar to fractional reserve banking, the 100K is invested in another stock and that seller then invests ... All the while, each is paying more than the shares cost at an earlier time and the market rises. Not on any new money, but just the 100K getting passed around, while people are convinced that prospects are good and they can sell and get real cash when they want. It will buy fewer shares, but that doesn't mean that the price doesn't rise, only that the priceX#shares = 100K. Then suddenly, one day someone realizes, this isn't going to work, This widget maker can't grow the way thought. SELL SELL! The stock plummets. That one sale for x shares sets the price for the 100 million shares outstanding. When this revelation affects the entire market, all those who came into the market, buying ultimately if you trace it back, the initial offering, see their money evaporate, or their "potential wealth" evaporate. This because the price of all the outstanding shares has been set by the trading of relatively few shares. Their savings account which went to some business has evaporated. The company put it into plant and equipment, or advertising, or buying machinery to build widgets which no one is going to need. This equipment is now worthless with no prospect for being used productively, and all the shareholders "shares" are just as worthless. The kicker is - everyones shares are worthless. Their money is gone. Wealth has been destroyed. Similar to fractional reserve banking, they bought in, sold, bought another stock which was up in value, and so on. The price ratchets up until it breaks. Someone gets the dollars from selling their x shares, but all the others, who bought the ipo or split with their savings and who didn't sell, they lose and the loss is real. You can see it sitting in car lots rusting, or hanging on department store racks gathering dust. If the widget maker bought the raw materials (and labor) on credit and now can't pay, that original IPO investment is totally destroyed. It isn't even distributed to the workers or raw material providers. If it had been burned rather than turned into a worthless widget you could see the ashes. It's destroyed in either case.

-Caasi

Caasi's picture
Caasi
Status: Member (Offline)
Joined: Aug 17 2008
Posts: 23
Re: Is hyper-inflation truly inevitable?

Sorry, PB. I just read the last part of what I posted. I didn't mean that the dollars can't be tracked. They can, it is just that as a value recoverable by the shareholder it has disappeared. Whether it went to a CEO bonus, or whatever, the dollars remain. I intended it to read that as far as the shareholder or the stockmarket, it is gone. Unrecoverable. As written it sounds like the money disappeared, which it doesn't.

That's why my first sentence "...regarding a stock or the stock market"

-Caasi

pleaseremoveme's picture
pleaseremoveme
Status: Silver Member (Offline)
Joined: Jan 24 2009
Posts: 115
Re: Is hyper-inflation truly inevitable?

If only it were inevitable: you could all just stop worrying about what is going to happen, and start focusing on survival...

A huge part of the money supply is commercial bank credit, but that is declining, as mortgages are foreclosed, businesses are going bankrupt, and commercial banks are not lending out the money they get from debtors who are paying back their loans. So the increase in the base money supply by Bernanke, may not do too much to increase the total money supply... as yet.

The intension of the government is to generate a lot of inflation to lighten the burden of all the outstanding debt. By the end of this year, they may be succesful. But that's just 'superinflation', 'reflation' or 'stagflation', and not yet hyperinflation. The current outstanding debt is still putting a lot of deflationary pressure on the economy, so the risk of inflation getting out of hands is still small.

In a couple of years, however, the US government may have to:

- keep fighting the war of terrorism, or some other wars

- spend ever more on entitlements and health care

- invest in green energy

All these things require actual goods and services, whose prices are rising quickly, because of inflation. The government cannot print these, but it can print more money. And that's it. Printing more money induces more inflation, which induces printing more money. A hyperinflationary spiral is born.

But the future in uncertain, and other scenarios may unfold. I don't think a second Great Depression is less likely than hyperinflation.

Note that the Weimar republic, first experienced hyperinflation because it had a debt in french francs to pay and government printed to much money, and then about eight years later experienced a great depression because of a credit crunch - two financial crises in such a short time. Let's not hope that the US is bound to repeat all of Germany's mistakes...

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