Hyper inflation

[eusdaiki]

Quote from deviltrader:

Deflation in an economy with so much debt, such as the US, is bad. Deflation hurts borrowers, who'd need to repay debt with more expensive dollars. How many trillions in debt do Americans have? (businesses, individuals, governments) Deflation lasting more than a few years would likely cause a lot of bankruptcies, as people would be unable to pay off their debt.

You are thinking of deflation merely from the point of view of falling prices for milk and eggs. Deflation is more than just that

But at the same time it encourages people to save, as their dollars are worth more everyday. So those who are not in debt benefit from deflation, creating a higher marginal saving. This in turn creates an incentive for interest rates to go down naturally and the inflationary cycle begins again...

Deflation is just half of the business cycle, in a healthy economy the cycle alternates between inflation and deflation giving incentives to both borrowers and lenders. The problem with an Keynesian inflationary economy, like the one we have now, is that it won't allow the normal deflationary corrections... so they accumulate and end up hitting all at once.

Kind of like when you see a stock going up too much, too perfectly, without pulling back... you know it's in for a nasty drop you just don't know exactly when.

 

[Avid_Consumer]

why privilege borrowers or lenders, likewise why punish savers or spenders, exaggerating the cycle in the process? is there a good reason not to target zero inflation and zero deflation... stable fair money. most of all inflation seems to be a free gift to spendthrift politicians and their corporate supporters - and look what we have, a national debt that's doubled almost in one presidency, record wealth stratification, and a pattern of highly deceptive government economic reporting to keep the liquidity pump burning unsustainably hot with most americans mistaking a notional bull market for a real one

bush spent us into a crippling exponential burden from a point where it was likely reversible.

i wonder how many ordinary republicans realize that the whole anti-tax mantra is shameless bullshit in the context of today's inflation... it's an enormous hidden tax on most americans

 

[eusdaiki]

Quote from Avid_Consumer:

why privilege borrowers or lenders, likewise why punish savers or spenders, exaggerating the cycle in the process? is there a good reason not to target zero inflation and zero deflation... stable fair money.

The only way to achieve this is by controlling the price of absolutely anything that is produced in an economy... there where two such experiments in the 20th century, USSR and Nazi Germany... they both failed miserably. A central planer simply can't assign resources where they are needed, you have cities where the food rots for lack of demand and you have cities where people starve for lack of that same food... the market is much more efficient at assigning resources, it is also more efficient at controlling the monetary supply. When you take the central bank and government intervention , eliminating fiat currencies, and basing them on commodities you achieve price stability.
Price stability is not achieved by having that prices never move, but by having prices that oscilate in a free market.

 

[thriftybob]

They can't allow deflation. Just imagine trying to pay off 9 trillion worth of debt, let alone plus interest, let alone if it were worth more, not less, than today. Inflation is the plan, Stan. They absolutely must devalue the dollar (but only include a portion of it in CPI) to be able to pay the entitlements and push us all into higher tax brackets. They are doing their level best to keep it to a reasonable roar without putting everyone out of work, but the problem is that so much of what they print goes overseas on the first or second spend via China*Mart and Citgo, etc, that very little remains here except what is lent back.

The Pound Sterling. What an example. Did you know that the "Pound Sterling" was once a Pound of Sterling Silver? Now look at it. You couldn't buy a pound of sterling for less than 100 Pounds today. It used to e the world's reserve currency like the dollar still is. I don't kno the detail of its decline, but I know that in the 1920's they still had Gold Sovereigns, and by the end of WWII, their money was as worthless as paper.

Remember the Italian Lire? How it had so many stupid digits? So many that the computer programs couldn't handle it? It didn't always.

The list goes on and every paper currency eventually gets there. My guess for us is about 2011 or 2012. I'm not sure that a 50% drop would be considered "hyper-inflation", but that''s the kind of number I'd expect. It has to be painful enough to absorb all the dollars currently being used as money and reserves in other countries, and beyond that end the trade deficit and budget deficit. All that at the same time as the baby boom retires. It really just means a lower standard of living for America, that's all.

 

[TM1]

Quote from thriftybob:The Pound Sterling. What an example. Did you know that the "Pound Sterling" was once a Pound of Sterling Silver? Now look at it. You couldn't buy a pound of sterling for less than 100 Pounds today. It used to e the world's reserve currency like the dollar still is. I don't kno the detail of its decline, but I know that in the 1920's they still had Gold Sovereigns, and by the end of WWII, their money was as worthless as paper.

I'm not sure I'm following you here, are you only referring to the huge depreciation after both World Wars? You're not saying that is still the case today are you?

 

[thriftybob]

What happened after Vietnam? Its the cost of the wars, trying to give people both guns AND butter, and by printing money to import and borrow to do it that caused the inflation and a subsequent 50% devaluation of the dollar that followed. Sadly, Mr Bush's job creation war in Iraq is much more expensive than even Vietnam, even if adjusted for inflation. Hell, they even admitted to LOSING 360 TONS (thats 14 C130 Cargo plane loads) of US $100 bills in Iraq. Its no problem, they can just print some more. Think about that.

What happens if this time the dollar doesn't survive as the worlds reserve currency?

Unfortunately, I don't trust Euro's long term, either. They have the same "printing problem" we have, and depend on us to buy their exports to survive. The currencies work quite well as mediums of exchange, but are terrible stores of value or wealth. That's why hard asset prices are going nuts lately.

 

[Avid_Consumer]

good comments guys

i agree eusdaiki. price controls are not the way and free markets distribute resources best. thanks for focusing the question. 'targeting' and central planning in general are a primary enabler of our accelerating debt problem, and it's not so much an imposed target i'd like to see as an end to our system of the executive and fed collaboratively abusing inflation as a debt enabling mechanism.

it's definitely idealistic given our current position thriftybob. something has seriously rubbed me the wrong way with a president who can jawbone fiscal responsibility but spend so wrecklessly at the same time. do circumstances that minimize the paper debt matter in a situation where the presidency is spending us into insolvency like it's an agenda?

the iraq war was a priority before 911 happened. what the heck is going on here

 

[TM1]

Quote from thriftybob:

What happened after Vietnam? Its the cost of the wars, trying to give people both guns AND butter, and by printing money to import and borrow to do it that caused the inflation and a subsequent 50% devaluation of the dollar that followed. Sadly, Mr Bush's job creation war in Iraq is much more expensive than even Vietnam, even if adjusted for inflation. Hell, they even admitted to LOSING 360 TONS (thats 14 C130 Cargo plane loads) of US $100 bills in Iraq. Its no problem, they can just print some more. Think about that.

What happens if this time the dollar doesn't survive as the worlds reserve currency?

Unfortunately, I don't trust Euro's long term, either. They have the same "printing problem" we have, and depend on us to buy their exports to survive. The currencies work quite well as mediums of exchange, but are terrible stores of value or wealth. That's why hard asset prices are going nuts lately.

I think we've misunderstood each other; I fully agree with the devaluations after the wars, heavy debt in the case of the UK with loans from the US. I just thought you were referring to the pound being worthless today, which seemed odd given their strength against all currencies and the recent rise in interest rates keeping the currency strong and inflation contained.

 

[ammo]

money is just a piece of paper,the price of fish hooks and whale blubber fluctuates with the catch,in a tight market ,20 fish hooks might represent a pound of whale blubber,with a rise in metals,10 fish hooks might be a pound of blubber,with a tough season ,shortage of whales,40 fishooks ,pound of blubber,because we are not economists,accountants,nor does anyone have a grasp on the concept of a world value of exchange,the different countries and markets will manipulate each other and the market.

 

[Hydroblunt]

Quote from eusdaiki:

But at the same time it encourages people to save, as their dollars are worth more everyday. So those who are not in debt benefit from deflation, creating a higher marginal saving. This in turn creates an incentive for interest rates to go down naturally and the inflationary cycle begins again...

Deflation is just half of the business cycle, in a healthy economy the cycle alternates between inflation and deflation giving incentives to both borrowers and lenders. The problem with an Keynesian inflationary economy, like the one we have now, is that it won't allow the normal deflationary corrections... so they accumulate and end up hitting all at once.

That's some funny stuff. Sorry, but it's all just money supply manipulations, nothing more. Inflation & deflation have an almost direct relationship with money supply growth. I say almost, cause nowdays a lot of the new money can be hidden away in assets & derivatives. And the population's sentiment can be off rhythm.

Whats the last time USA experienced any real deflation? And what's the last time USA experienced a real contraction in the money supply? Dig up on it.

This game of money is hundreds if not thousands of years old. It's the same old scheme. But it may be different this time, who knows. Keep inflating away into a banana republic slowly instead of a drastic transformation into feudalism.