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Hyperinflation Vs. Deflation

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This is much more about gaging the opinion of the horde than it is for starting arguments - most of them have already been done on the "Gold" thread anyway. This is not meant for you to give an accurate prediction for any specific government figure, even the RPI is drastically low for a gauge of cost of living in most people's opinions, I mean what do you think inflation will be as defined by the average change in the cost of goods weighed by the quantity in which they are bought . Totally, totally different to what the governments measures.

Edited by agb41

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Inflation of 1% a month is high, but I don't think many would call it hyperinflation.

I knew someone would say that. There is no definition of hyperinflation that I'm aware of, and I'm not going to say "Will we be in Weimar Germany in two years". Don't believe Wikipedia.

As far as Japan goes, yeah some goods have gone up (specifically fuel yes) but imports have gone down in price a lot too. Importantly the money supply has been going up 2% YoY from the middle of last year, and isn't negative anymore, so not-so-surprisingly there has been a little inflation, but it's absolutely nothing like the level in the UK/US.

Edited by agb41

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Guest Skint Academic

I found out about biflation last night, which is inflation of commodity prices and deflation of everything else combined in one economy. I would have probably opted for that instead of deflation. Although just because I voted for deflation doesn't mean to say that I don't think the possibility still exists for inflation, it is just less likely IMHO.

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Guest Steve Cook

I need to get this straight in my head:

I may well have all of this back to front and generally a*se first. If so, I would greatly appreciate people showing me where my misunderstanding lies...

My initial understanding of inflation/deflation is that is strictly refers only to the money supply.

That is to say, if you create more money via lending, issuing bonds or printing the damn stuff, then you have inflated the supply of that money

Similarly, if debts are paid down/defaulted, bonds are repaid or money is otherwise destroyed then delfation of the supply of money occurs

The laws of supply and demand hold that, all other things being equal, if less of a particular thing becomes available whilst the the demand for it remains constant, then the value of that thing goes up, and vice versa. This is presumably why, when the money supply is inflated, its value goes down and so you have to spend more money buying the same items you bought last year for less. For a deflated currency, the opposite is true. Things cost less this year than last year becasue the money is now more valuable.

Rising prices of goods/services is not inflation. It is the result of inflation (of the money supply).

However, monetary inflation is (at least at the macro-economic level) an illusion. Or at least its effects are. What I mean by this is the following. To take a simplistic example:

Assume that an economy has 100 £1 notes in it. Assume that there are 100 items for sale, each costing £1. This economy works because there is a direct match between the money supply and the goods/services it can bv spent on.

Lets assume the government inflates the money supply so that now there are 200 £1 notes in circulation. However, there are still only 100 items for sale. The system will re-adjust such that the items in question will now cost £2 each. This means that the fractional supply and demand ratio between the money supply and the commodity supply remains unchanged in real terms even though there appears to have been a nominal change having taken place.

But....my initial understanding has now evolved into the following:

I find it helps me to think of money as just another commodity (albeit a rather special one in that it has the most versatile exchange value. It can be exchanged for virtually any other commodity)

In this sense, inflation/deflation can be seen as being a description of the relative supply of any commodity.

Assume I make widgets and I wish others to exchange their money with me for my widgets. If I make twice as many widgets this year as compared to last year, I have effectively inflated the supply of widgets. This will cause their value to drop (aassuming that the demand for widgets has remained constant). This is no different in principle to the inflationary principles associated with money.

There is one final thing I would consider:

If demand for a particular commodity falls (for whatever reason), the supply of that particular commodity can be then be seen as relatively being higher than it was prior to the fall in demand. This causes a relative inflation of the supply (and commensurate fall in excahnge value) of the commodity in question.

So, I guess in summary I would view inflation/deflation in the following terms:

  • Inflation/deflation refers to the relative supply of a particular commodity.
  • A consequence of changes in the supply of a commodity (assuming demand is unchanged) is a change in the exchange value of the commodity. In other words, the exchange value will rise or fall.
  • A change in the demand for a given commodity (assuming supply is unchanged) will cause a relative change in the supply of that commodity, in turn producing the same exchange value effect as inflation/deflation of the commodity (see above).
  • Inlfation/deflation is not a description of the exchange value of commodities. This is merely an effect of inflation/deflation

I would very much appreciate comments on the above. No problem if you think its all a load of old b*ll*cks. Please explain where it is though, so I can correct my understanding.


Edited by Steve Cook

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anyone?...... :lol:

I think everyone is over at the Halifax!

I agree with much of your summary, however I think you need to consider factors that limit a rise in supply following a rise in demand.

Sometimes there is a physical bar to increased supply.

Sometimes there is a time lag while producers gear up and get the relevent paperwork sorted out.

Often, the second case is presented as the first case in order to drive a bubble.

(Think tulips, think homes, think grain...)

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