World hyperinflation

peilthetraveler

peilthetraveler

Price of real estate doubles.

Price of Oil doubles.

Price of gold/silver doubles.

Price of rice/corn/other doubles.



Isnt this just world hyperinflation? I mean it seems like pretty much everything is doubling in price.

What do you all think?
 
Most of the central banks have been money-pumping like mad for a few years... some at even >20% per year (including Bernanke recently).

The world inflation rate is MUCH higher than "official" inflation.
 
Well, in true hyperinflation the nominal price of everything soars. In other words the Dow would hit 50,000, a 2 bed shack in the country would cost $1 mill, the average wage would be $100k per year etc. The *real* returns are normally negative however, for everything except commodities.

Check the price histories in Weimar Germany, 1950s Hungary, current Zimbabwe for examples of true hyperinflation - it looks nothing like the current world economic situation. Right now, hyperfinflation is a term bandied around by people who don't really understand the economics of inflation.

The current situation is more like a milder version of the 1970s. Commodity prices are not being driven up by an increasing money supply alone (although that makes some contribution). Most of the increase is coming from soaring real demand from China, India etc, in the face of long-term structural supply deficits. Due to the 20 year commodity bear market, no new exploration was done in most commodities - so there is little or no extra discretionary supply on tap. At the same time, the last 5-10 years has seen a huge growth in demand from the BRIC countries and Asia post the 1998 crisis. Bring soaring real demand together with inflexible supply, and huge lead times for exploration and production of commodities, and the only way that can be resolved is by soaring prices. None of this has anything to do with inflation or the money supply - even if we had fixed money supply or a gold standard, commodity prices would have soared.

Look at real estate and stock prices - they are currently going down not up. Real estate is an inflation hedge, and stocks are to some degree, so this argues against the idea that price changes are being driven mostly by inflation.

Now in the current low interest rate environment, once the credit crunch passes, you may well then find money supply growth soars, and this will really exacerbate the structural supply/demand imbalance in commodities, leading to true inflationary gains as well as real supply/demand-driven price gains. Then you could get a 1970s scenario. But right now it ain't happening - the credit crunch is outweighing the low interest rates and banks are still reluctant to lend, that's why LIBOR has been above base rates by so much.
 
Quote from peilthetraveler:

Price of real estate doubles.

Price of Oil doubles.

Price of gold/silver doubles.

Price of rice/corn/other doubles.



Isnt this just world hyperinflation? I mean it seems like pretty much everything is doubling in price.

What do you all think?
More...

From 1980 to 1990, the CPI increased 64%, yet commodity prices collapsed.

From 1991-2001, CPI increased 30% yet commodity prices remained stagnant or declines e.g. gold fell to $250, oil hit $10 per barrel.

Commodity prices are not driven by inflation alone. They also respond to real supply & demand. For example in 1997-98 inflation was positive yet commodities got hammered due to the Asia crisis, which killed demand from the developing world. The 2001 recession also hit commodities.

If we take the absolute low of commodities in late 1998, since then the CPI is up 31%, yet the Rogers Commodity Index is up 433%. I.e. inflation from 1998-2008 was half what it was from 1980 to 1990, yet in the former period commodities went up over 5 fold yet in the latter they practically halved.

Another good example is the 1933-1940 period. Despite the world economy being in a deflationary depression, with collapsing bond yields (which hit 1.5% in the early 1940s in the USA) commodites rose significantly during that period. Structural supply/demand factors outweighed the deflation.

This shows that inflation alone does not necessarily correlate with commodities. By far the most important issue is real supply and demand. Other things being equal, inflation is a benefit to commodity prices. But it is not the key factor.

You will not hear this from the inflation alarmists on this board or on CNBC. They would have been bullish on commodities in the 1980s and 1990s, and bearish on them in the 1930s - precisely the wrong positions to have.
 
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