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View Full Version : Deflation or Hyperinflation??




socialize_me
10-15-2008, 06:52 PM
Which do you think will happen?? The Federal Reserve is no doubt pumping MASSIVE amounts of money, trillions in fact, over the past couple years which would result in hyperinflation is most other scenarios; however, since banks are so overstrapped and so overburdened, how can this liquidity and credit being poured into the banking system result in hyperinflation?? I mean if the financial institutions are suffering massive losses from derivatives speculation, then really no hyperinflation can exist, can it?? It's only hyperinflation if the money goes out to the public...if the government gave me $1 trillion and I didn't loan it out, what difference does it have over the circulated money?? I understand monetary policy and inflation, but I just want to understand how hyperinflation will result from pumping money into a void that just keeps soaking it up.

John of Des Moines
10-15-2008, 06:58 PM
There will be deflationary pressure on some things such as real estate and used cars. But just wait until China tells Mr. and Mrs. One Hung Loe that they should start spending their money instead of saving it. They'll be spending it on the same things we buy. Go down any aisle at Wally World, Best Buy, or your local supermarket and ask yourself if somebody in China or India would like to buy the same product you are? If yes, that equals hyperinflation. Food, guns and bullions is what people need to invest in now.

socialize_me
10-15-2008, 07:00 PM
Ahh yes...I see now. The Sino-Dollars will flood back into the United States...but still, I don't think the Fed's actions are hyperinflationary in the current scenario...if you pump money into a black hole, no matter how careless and deadly it would be in a normal economy, it doesn't make a difference. But now I remember from all the foreign debt we have and how we're basically owned by foreign nations.

John of Des Moines
10-15-2008, 07:05 PM
Well yes, the Fed's action if by itself would cause an inflationary effect but that could be spread out over say 5 years. But the dollars held in foreign reserves is what will cause the real hyperinflation. Listen to Peter Schiff and he goes in to detail about this.

AJ Antimony
10-15-2008, 07:29 PM
The Fed only promotes inflation, they're not in the deflation business.

Oyate
10-15-2008, 07:34 PM
Which do you think will happen??

Both are already happening. These are some of the most mis-used and misunderstood words. If you really want to know the truth, we are in some ways in what people to understand to be a deflationary period within the general context of inflation.

Here's how to understand it. The purist definition of deflation is contracting credit and/or money supply. Inflation is expanding credit and/or money supply. Simple as that.

The simple expectation is that deflation will produce falling prices and inflation will produce rising ones but in todays multiply manipulated markets, nothing is what it seems.

Right now we're seeing contracting credit and an expanding money supply, and they'll think of some new stupid term for it. But for most of us, who cares? All we know is our dollar buys us less and less of what we need to survive each year, and this trend will continue due to interventions like the Billionaire Bailout.

So for you and me, inflation is what to hedge against

Dequeant
10-15-2008, 07:36 PM
Which do you think will happen??

Inflation. It's the only one the fed can't control. As Bernake himself correctly said, a simple fix for deflation would be to drop massive amounts of cash out of a helicopter.

Inflation is a beast of a different color, and one that the fed will have zero control over when it does hit full force.

Crowish
10-15-2008, 07:38 PM
hyper-in-deflation

The Lantern
10-15-2008, 08:39 PM
Which do you think will happen?? The Federal Reserve is no doubt pumping MASSIVE amounts of money, trillions in fact, over the past couple years which would result in hyperinflation is most other scenarios; however, since banks are so overstrapped and so overburdened, how can this liquidity and credit being poured into the banking system result in hyperinflation?? I mean if the financial institutions are suffering massive losses from derivatives speculation, then really no hyperinflation can exist, can it?? It's only hyperinflation if the money goes out to the public...if the government gave me $1 trillion and I didn't loan it out, what difference does it have over the circulated money?? I understand monetary policy and inflation, but I just want to understand how hyperinflation will result from pumping money into a void that just keeps soaking it up.

The FED is so messed up we will have hyperinflation and deflation at the same time. It will depend upon where you live.

CUnknown
10-15-2008, 10:17 PM
There have been lots of discussions about this. The general impression that I get from listening is that we are in a period of deflation right now, but soon-ish (6 months to a year), we will see inflation like we've never seen. Perhaps not quite hyperinflation yet, but very substantial inflation, perhaps in a few years running totally out of control.

The floodgates have been opened by the Fed to control deflation, and they will be almost impossible to stop. Best case scenario is that the Fed can try to minimize inflation, meaning only 10-12% (reported) and maybe 15%-25% (actual). Or something. Hopefully we won't get to Zimbabwe's 11 million percent. :o

MsDoodahs
10-15-2008, 10:31 PM
A couple of things to toss into the mix...

First, even some of the banks they nationalized didn't need any money. (JPMorgan and someone else, can't remember which one.)

Second, many regional banks don't need any money. (Read an article on this earlier today, too.)

Third, the inter bank lending isn't a problem of not HAVING money - it's a problem of CONFIDENCE. The money is there - the banks just won't lend to each other because they don't know if the bank they are lending to might be in trouble.

The loss of confidence is related to the Lehman failure , from what I'm reading.

As best I can tell, the "toolbox" they are using seems really to consist of only ONE tool: money creation.

The result is that they're trying to fix the lack of confidence by doing the only thing they can - throwing money at the problem. They're throwing it in different places in different ways, but it all comes back to the same thing: throw money at it.

ghengis86
10-15-2008, 10:36 PM
A couple of things to toss into the mix...

First, even some of the banks they nationalized didn't need any money. (JPMorgan and someone else, can't remember which one.)

Second, many regional banks don't need any money. (Read an article on this earlier today, too.)

Third, the inter bank lending isn't a problem of not HAVING money - it's a problem of CONFIDENCE. The money is there - the banks just won't lend to each other because they don't know if the bank they are lending to might be in trouble.

The loss of confidence is related to the Lehman failure , from what I'm reading.

As best I can tell, the "toolbox" they are using seems really to consist of only ONE tool: money creation.

The result is that they're trying to fix the lack of confidence by doing the only thing they can - throwing money at the problem. They're throwing it in different places in different ways, but it all comes back to the same thing: throw money at it.

Exactly; the Fed can only do one thing and that is inflate. So whereas other deflationary pressures are seen in certain sectors due to the multiple influences (think oil), the net effect will always be inflation over time. The Fed can't do anything else! Its just that simple.

Even if the money they are creating goes into the "black hole" of bank balance sheets, the money and debt is real and will just end up somewhere else. So maybe the banks hold onto the cash; our national debt just jumped another trillion. Its always going to end with inflation

enjerth
10-16-2008, 01:25 PM
IMHO, we are experiencing the recession right now. The economy is shrinking, despite their efforts to jump-start it. Demand is falling, and so the excess supply forces deflation.

But as the government and the Federal Reserve do everything within their power to stop this they will cause hyperinflation. It doesn't hit right away, but they will surely stop deflation.

RonPaulVolunteer
10-16-2008, 01:25 PM
We will see, are seeing, both.

ItsTime
10-16-2008, 01:28 PM
I just listen to people who predicted this would happen. They are far smarter than I am. They (Peter Schiff and Jim Rogers) are saying we should see massive inflation.

wgadget
10-16-2008, 02:44 PM
Apparently, the banks right now are NOT lending out all that fresh, new money...But when they do...Is that the time we will start feeling the effects of inflation? Because while it's being hoarded away, even though it exists, it's not really in a position to affect the econmy...right?

StilesBC
10-16-2008, 11:07 PM
I'm thinking deflation for another 18 months or so before the markets naturally correct some of the problems. I had a reader of my website ask a similar question today, and here was my response:


It is partly a psychological issue and deflation is being forced upon us by structural changes that are out of the Fed's control. One such issue is the retiring boomer generation. They all need to sell their assets over the next 20 years to fund their retirement, this will create lasting downward pressure on real estate and equity assets. The younger generations have terrible balance sheets and those need to be repaired before they can even think about making major purchases or investments. This could take quite a few years.

As has been discussed, much of the credit creation by the Fed and the expansion of the government balance sheet is not making it's way into the economy. It is all being pushed on financial institutions to keep them solvent. But credit is being destroyed at the same pace. Events like Lehman's bankruptcy caused $400 Billion in CDS obligations that most could not pay. The ripple effects on the derivative markets are enormous. There are $1 quadrillion (thousand trillion) in notional derivatives and counterparties to some of this are disappearing, meaning insurance that a lot of companies may have had against falling asset prices are now non-existant. Banks are still not in a position to be lending money. Not until they can hedge their risks properly in a functioning market for derivatives.

The assumption is that once the credit markets heal and banks are able to lend, there will be lineups by consumers and businesses to borrow money. This is a dangerously flawed assumption. Asset prices are rising nowhere in the world. There is absolutely zero motiviation for anyone to borrow money for expansion at this time. In other words, the engine for the velocity of money is broken. Why buy something now, when you can almost assuredly buy it later for less?

In a normal market, prices would be falling much faster right now and 'later' would arrive with quite a bit of pain, but in a short period of time. There is still quite a large pool of capital waiting to be deployed, but it is waiting for a price that accurately reflects a realistic economic environment in the next 5-10 years. So yes, in a normal market we should expect to see buyers come back to the market and pick up bargains. This would cause the inflationary pressures and if borrowing costs were left too low for too long, hyperinflation would be a realistic expectation.

But this is not a normal market. Government is actively intervening to ensure 'later' doesn't arrive for those who are waiting with their savings. So the savers will wait. We also have economists, analysts and pundits spewing rediculously rosy expectations about the near future. Analyst expectations estimates have been missed by the widest margin ever. It's only until the last week that a recession has been priced in to markets for the rest of '08. Analyst expectations still need to be slashed considerably for '09 and '10. continue reading... (http://futronomics.blogspot.com/2008/10/opportunity-still-plentiful-regardless.html)

StilesBC
10-17-2008, 08:33 AM
bump

ShannonOBrien
10-17-2008, 11:00 AM
Deflation initially and then inflation forever. Just like in the great depression. Only I heard Ben Bernanke criticize that the Fed didn't inflate the currency fast enough during the Great Depression and Ben Bernanke DID inflate the currency at the first sign of deflation. So instead of letting the bubble deflate all the way like in the great depression and then inflating, we will probably have deflation for a little bit, and then inflation for the rest of our days. The only thing is that I have no idea when the inflation will kick in from the bailout. I was thinking maybe in 2 more months because we are experiencing so much deflation now because the last 4 months he didn't cut interest rates. So I assume it takes 3 months to take effect all though I have no idea. Also, it is unclear just how much inflation we will get. During the Great Depression they inflated something like $7 trillion in todays dollars and now we are inflating "only" $700 billion so maybe it won't be so bad that there is hyperinflation. Who knows?

Ozwest
10-17-2008, 11:06 AM
Stagflation.

StilesBC
10-17-2008, 01:52 PM
Deflation initially and then inflation forever. Just like in the great depression. Only I heard Ben Bernanke criticize that the Fed didn't inflate the currency fast enough during the Great Depression and Ben Bernanke DID inflate the currency at the first sign of deflation. So instead of letting the bubble deflate all the way like in the great depression and then inflating, we will probably have deflation for a little bit, and then inflation for the rest of our days. The only thing is that I have no idea when the inflation will kick in from the bailout. I was thinking maybe in 2 more months because we are experiencing so much deflation now because the last 4 months he didn't cut interest rates. So I assume it takes 3 months to take effect all though I have no idea. Also, it is unclear just how much inflation we will get. During the Great Depression they inflated something like $7 trillion in todays dollars and now we are inflating "only" $700 billion so maybe it won't be so bad that there is hyperinflation. Who knows?

Monetary policy typically requires 9 months to 1 year before it shows up in the economy. It needs to be made available, then lent out, then spent, and finally many months later it is recorded as growth. But the money is not being lent out yet, and definately not being spent yet, so there is a long time to go.

And keep in mind, they created the equivelant of $7 trillion in the 30's yet the result was still deflation until WWII came along. That should tell us something.