Friday, Mar 12, 2010
Understanding hyperinflation and money supply
Kitco: Bernanke's Dilemma: Hyperinflation and the US Dollar
One fact that is clear in every historical example of hyperinflation is the rejection of the currency of a given country either by other countries or by its own citizens. The simplest explanation of hyperinflation is that when the credibility of a government, or of its central bank, breaks down, the recognition of this fact is expressed as a race to shed the currency and to divest of the government’s bonds. The cycle of hyperinflation is driven not precisely by the supply of money but by its velocity because the competition to shed currency concentrates purchasing activity in successively shorter time periods. Within a given interval, more consumers and businesses seek to buy a limited supply of available goods.
Posted by debtfree @ 08:09 AM (434 views) Add Comment
4 Comments
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1. debtfree said...
Yes I know you shouldn't post on your own article but this is best explanation of hyperinflation you'll find. Some people don't understand fully what it is and how it occurs. Adding on, a friend just sold their place for 15% more than the last offer that fell through to a cash buyer. You have to ask if you had lots of cash wouldn't you rather buy property than hold the cash ?
2. mrflibble said...
You have to ask if you had lots of cash wouldn't you rather buy property than hold the cash ?
It all depends where you are buying... Property in the US looks very tempting given how much it has fallen but property in the UK is still way over priced. Locking cash into an illiquid asset that has a long way to fall (UK) doesn't sound like a good plan to me. There are better vehicles around to protect your wealth from inflation than buying an over priced house. I am honestly tempted by the US though, a nice pad in Florida or California sounds ideal to me...
3. Emily said...
"Adding on, a friend just sold their place for 15% more than the last offer that fell through to a cash buyer. You have to ask if you had lots of cash wouldn't you rather buy property than hold the cash ?"
No. Given that house prices are going down* and wage inflation is close to zero.
*OK only for one month so far so not exactly a trend yet, but with the prospect of more job-cuts, lack of inflation inflating debts away, tax-rises, consumer prices rising and house prices well above long-term trends they're hardly likely to go up.
4. Crunchy said...
Hyperinflation, food shortages.