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Hyperinflation Vs Deflation


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I would like to amend mine slightly.

I still see hyper-inflation, but without better definitions of inflation and deflation in the topic, I say JUST ENOUGH infltion to bring about currency change.

either high or hyper over a 5-10 year period.

from now.

so hyper still with thecaveat of currency change.

Pardon me, but How does currency change prevent hyper?

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ok I only just got back from a drink and a nice meal.....

Deflation - complete lack of lending - a drying up of liquidity - a decline in all asset prices - lots of sales... chronicly low economic activity

my caveat Is if the Devils own Banker (aka the evil Paulson) manages to wrest control of the money suppy from congress and run the presses ... Judging by current discussions this now look unlikely... but I'm flexible...

I reserve the right to buy gold/silver if it looks like we are going that way....

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Guest Mr Parry
I thought it would be fun to make a list of who believes in hyperinflation or deflation. To keep things simple, just add the word deflation, hyperinflation or high inflation to the bottom of your post and i'll add you to the list. If you have a post rambling about inflation or deflation I might not know which camp you are in. If you don't want to add your name then don't add the token word at the end of your post.

As for myself I've been in the hyperinflation camp since last summer mostly on the influence of CGNAO and my own analysis of the facts/ miss trust in government. But until this week hyperinflation was avoidable, now it most definitely isn't. I know last summer barely one or two people believed in hyperinflation and even the mention of the word resulted in a mountain of personal insults thrown at the poster. But now I truly believe we could have a sea change in opinions, maybe more people believing in hyperinflation than deflation?

I'll add that although I believe hyperinflation will occur I'd give my left arm for it not to because I setup a business selling useless stuff to the UK from China so I need sterling to stay a reasonable value so that makes my view somewhat more balanced than cgnao, injin etc. The names on here will stay for eternity (re: life of the website) so it will show your convictions to your beliefs- I strongly expect most of you will not add your name because you aren't confident enough in your belief one way or the other.

The List - 25/09/08







slurms mackenzie










High inflation-



The General



Flat Bear


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High inflation just hoping that hyper doesn't happen but I can see no sign of a Volcker figure yet.

For me it has always been about how the Fed deals with the US current account deficit and Bernanke's pathological fear of the Great Depression. The Fed showed their hand with the AIG bail-out - nuff said.

edit - I voted high inflation

Edited by prophet-profit
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it doesn't prevent it at all, it's a consequence of it.

yes, I see that, but for a new currency to work, all debts and credits would have to be cancelled.

This would mean property rights would have to be cancelled surely.

What I mean is, if you purchased a thing and still owed, then the proportion you still owed would be cancelled and converted tothe new currency equivalent?

Where does that leave the serfs? I have no idea how these things have worked in the past.

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Where else are all the shorters, fund managers and investors going to put their (our) money but in commodities and oil. This will cause inflation in food, heating, travel etc. The stag will happen coz we are all debted to the hilt, can't borrow, won't be able to borrow, and there is no credit to be had. NO amount of bailouts can change this, they will just stop the financial houses from collapsing.


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I used to be in the deflation camp quite firmly, but I am not so sure now. I've been reading something of the history of the bond markets and war. It's quite amazing how long investors will accept negative real bond yields for in times of crisis. Governments will load up on debt, and our pension funds will buy it. Even some rich people will sacrifice some of their cash. The monetary expansion will be colossal, but only slightly higher than credit destruction of the credit crunch.

I would say we are in for inflation once the politicians get their way, which will be as soon as unemployment becomes more important than moral hazard.

For house prices it's deflation, and we won't see another property bubble in the major economies for a long time.

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Considering that most of the credit bubble of the past decade is due to rising real estate values, unless the vast majority of people who spend money on food clothes flat screen TVs etc own a few hundred barrels of Oil and have a stash of Gold, their 'net worth' will be heading south so they will be able to spend less.

No brainer...deflation...we're already seeing it in the property market. However I expect the cost of some things like holidays etc to rise as the number of providers dwindles.

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You can triple the money supply and still suffer deflation.

That's what happens when the money you add to the supply does not go anywhere, or goes one step from the auction and stays put as collateral to improve a balance sheet, credit rating or risk profile, when the total value of transactions falls, when monetary velocity slows.

I agree adding money to monetary supply is inflationary, all other things being equal.

However all other things are not equal, there is huge void in monetary supply at the interbank level. The money added to the current supply of dollars is intended to bridge this void, it stands to be tested though whether even $700 billion is enough to span the current chasm that has opened up. With some of the biggest and most successful firms ever already falling into the void.

Not so much of this money is pouring out of these banks into the real economy as wages, bonuses, fees, investments, utilities, etc.

The central banks can pump as much money into the wholesale markets as they like but they are simply pushing string, since there is currently little demand for additional credit on the street.

Central banks adding $100's billions to currency supplies is not what's pushing up prices, we are importing inflation via the global energy market. Cheap goods are no longer so cheap, global shipping is no longer so cheap.

The price of money has risen with the rising risk of default.

What is really happening in our economy is that the velocity of our money supply is slowing. i.e. we are holding onto each pound we earn a little longer than we used to. Central banks are putting money in at the top in order to make up the shortage of moving cash on the street. But it is not getting that far down the chain due to the ongoing banking crisis.

Even so, at this current time the economy has little demand for additional credit, indeed the only group demanding credit are broken banks and bust financials who need the money in a desperate attempt to tie them over until the crisis passes. It is a crisis in the value of financial assets, and these firms are right a the coal face.

It is the largest deflationary bust I have ever seen. And yes, I have seen them before.

Though I agree with nearly everything written here, I think we will have NEITHER inflation nor deflation as conventionally thought of. The problem is that both inflation and deflation have become separate schools of thought, yet they both offer valid insights.

The inflation school focuses on the money supply, yet often neglects to look at both the supply of money and credit. The mess we are in now has arisen from the Greenspan years of cheap money and credit leading to over-inflated house prices. We have already had inflation [in asset prices] in the boom and now we are seeing the deflationary bust. The inflationists are right to be concerned about the huge reservoirs of money both abroad and domestically. However, the deflationists are right to point out that the velocity of money is extremely low and virtually frozen which is keeping inflation in check.

Inflationists are now pointing at the Paulson Plan. Paulson has in his sights the frozen credit markets and he believes that if only Congress gives him an even bigger bazooka he will be able to get the money markets up and running again. Even if Congess agrees and gives him his bazooka, it may, in reality, turn out to be a water pistol and have no effect on normalizing these markets.

The bigger picture is undoubtedly a deflationary bust as all over-valued paper assets deflate. However, there may be a wild card for the deflation school this time round which is why I distance myself from the deflation camp. Deflationists tend to take the position that “cash is king” but this may be deeply problematic. The wild card is a possible sharp devaluation of the dollar/pound. As the debt imbalances build up in the currency and the creditor nations start to lose confidence in it, there is a very real chance the dollar itself could deflate. If this happened, asset prices such as houses are likely to stop falling and reverse upwards. Those left holding dollars may see a loss of purchasing power and a much nastier form of “inflation” different to the relatively harmless one of the cost-push inflation of the seventies.

In sum, in regards to whether we have inflation and deflation, I say we have neither insofar as both of these schools are limited as explanations of past economic events. Today, we see something completely novel. Yet these terms are still extremely helpful in order to attempt an explanation of what we are facing. If I was pressed on whether we had inflation or deflation I would say we had something of a hybrid monster of the two widely conceived.

The irony is that though we have deflation, the inflationists, who tend to hedge against having all their worth in a single currency, may well, due to a devaluation of weaker currencies, be in the winning position.


Edited by roman holiday
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It was pointed out above out that if an excessive devaluation/run were to occur then interest rates would have to rise exacerbating a deflationary bust.

To some extent that is happening here now. The BoE would dearly like to reduce interest rates but the fall in the pound is one of the stated factors stopping them.

Hi H~ But what if there was a sudden devaluation on the dollar... where it lost say half of its value in a few days? Is this not possible? I am wondering if this could be a variant on the "Ka Poom" theory... and instead we got a "Ka Splat".... instead of going out with a boom.. it may go out with a whimper.

If the devaluation was sudden enough, surely there would be a run on the currency. Plenty of other currencies in the world.

Edited by roman holiday
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