Hyperinflation

[Peter Gibbons]

I have been thinking about this lately and have changed my view on this somewhat.


There will be inflation - but not hyperinflation - the newly created money will be spread around the world limiting the impact in the US.

While it appears that the worst is over - I don't think we will be "back to usual" any time soon.

Since somebody mentioned in another thread that Bernanke is doing great job - let's wait 5 years or so to really see how this will play out.

[ArnoldW2]

Last week, I asked my dad when the coming hyper-inflation would finally take place.

He answered that it would begin as soon as the massive debt destruction (which includes mortgage defaults) is complete, but not before. We will finish the debt destruction in 2012, and then inflation will take off. The reason is we currently have two monetary forces in play:

The first force - the huge amount of debt destruction - is deflationary. For example, mortgage debt is being destroyed -- largely by defaults. And lets not forget the enormously greater de-leveraging of the investment banks and their mortgage based securities.

The second force - the federal reserve and the treasury bailing like h*** to force money into the economy - is inflationary. They've been pretty successful so far, and will continue to be.

Once the debt bubble is unwound, the deflationary force will be removed, and the inflationary force will succeed -- all too well.


Here's the reasoning for the timing (2012):

The Alt-A and Option-ARM resets will be mostly finished by the middle of 2012 (click the link below to see the graph).
http://consumerist.com/340334/monthly-mortgage-rate-resets-2007+2016?mail2=true

Home owners default an average of about 6 months after the reset, so the mortgage defaults will be finished about 6 months later. And the de-leveraging of the investment banks and their mortgage based securities will be finished about then too.

Remember: All money is LOANED into existence - at interest - by the federal reserve. Any time you borrow money from a bank, you increase the amount of money in circulation. And when you pay the loan back, you reduce the amount of money in circulation. Bankruptcy also destroys loans, so it reduces the money supply too. Finally, let's not forget that investment banks leveraged themselves with borrowed money, so their de-leveraging process reduces debt and the money supply.


One last thing:
Ben Bernanke has assured Congress that the Federal Reserve can prevent hyper-inflation after all the debt is unwound. But I predict that Ben won't slam the brakes on hyper-inflation until after it's too late.

[DG9]

I tend to agree with your dad, the Alt-A and Option-ARM resets are a second wave ready to beat up the economy yet more.  Not getting a lot of press though.  Hard to tell what rabbit the gov is going to pull out of its hat next especially with 2012 being an election year.  Hyperinflation seems hard to avoid in any case.  Oh well, everything cycles...

[David Randolph]

Isn't that when the Mayan Calendar says that everything will end?

[DG9]

[John Masterson]

Arnold,

Of course, Ben Bernake knows all of this, too.

Personally I think he'll do fine, and he won't undershoot the mark. Assuming Obama keeps him on board.


We'll see what happens.

[Slinky]

I tend to agree with your dad, the Alt-A and Option-ARM resets are a second wave ready to beat up the economy yet more. Not getting a lot of press though.   Hard to tell what rabbit the gov is going to pull out of its hat next especially with 2012 being an election year. Hyperinflation seems hard to avoid in any   case. Oh well, everything cycles...

And don't forget commercial properties. Those are starting to see the same thing that residential properties went through.  There are a lot of commercial loans behind. I haven't seen any information on any of them defaulting yet.

[The Gorn]

I tend to agree with your dad, the Alt-A and Option-ARM resets are a second wave ready to beat up the economy yet more. Not getting a lot of press though.     Hard to tell what rabbit the gov is going to pull out of its hat next especially with 2012 being an election year. Hyperinflation seems hard to avoid in     any case. Oh well, everything cycles...

And don't forget commercial properties. Those are starting to see the same thing that residential properties went through. There are a lot   of commercial loans behind. I haven't seen any information on any of them defaulting yet.

I'm rather surprised about that. In my locality, at least 1/3 of the commercial office and retail space is vacant. There are nice whole buildings around me that are up for lease. Whole shopping centers in a "zombie" walking dead state.

So, yeah, that's another hammer waiting to drop.

[DG9]

Guess that means we are not done with employment (or lack thereof) related issues.  The gov may be able to soften the landing somewhat, but how do you go this far in debt (aka printing money in one form or another)  without severly devaluing your currency or causing  hyperinflation?  Wish I knew...

Again, everything cycles.

[Aussie]

The Weimar Republic, now that was hyperinflation.


1 Mark, Paper Money
Would buy ½ Dozen Eggs or a pound of flour.
Bread is 1.20 Mark a loaf.

----------------------------------------------------------------------------------------------------


In early 1922 10,000 Mark would buy over 250 Pounds of Meat.
By the end of the year it would buy only 5 pounds of Meat.
In June bread is 3.50 Mark a loaf.
When first issued in January of 1922 this note was the highest denomination of circulating currency ever issued by the German government. It would soon become small change. The note is sometimes called the "Vampire Note" . If you look carefully, and have a good imagination, you will see a vampire on the neck of the German worker. This was said to represent the French sucking the blood from Germany through the war reparations.

----------------------------------------------------------------------------------------------------


500,000 Mark May 1, 1923 Reichsbanknote
Would buy about 40 pounds of meat.
Bread is 1200 Mark a loaf.

---------------------------------------------------------------------------------------------------------------------


10 Million Mark July 25, 1923 Reichsbanknote
Would buy 12 Pounds of Meat or 7 pounds of butter.
Bread is 100,000 Mark a loaf.
To save printing cost and produce currency faster, the note was printed only on one side.

-------------------------------------------------------------------------------------------------------


10 Million Mark September 2, 1923, German Railroad Note
Would buy about ½ Pound of Meat, 4 eggs or
2 pounds of potatoes.
Bread is 2 Million Mark a loaf.

------------------------------------------------------------------------------------------------------------


1 Billion Mark, October 20, 1923 Reichsbanknote
Would buy ¾ Pound of Meat, 3 eggs or 1/6 Pound of Butter
Bread is 670 Million Mark a loaf.

----------------------------------------------------------------------------------------------------------

100 Billion Mark, Nov. 3 1923 City of Freital
On November 1 100 Billion Mark would buy 3 pounds of meat.
Bread is 3 Billion Mark a loaf.
On November 15 100 Billion Mark would buy 2 glasses of beer
Bread is 80 Billion Mark a loaf.

--------------------------------------------------------------------------------------------------

[The Gorn]

Clearly it hit Germans like a truck. Over the course of a year and a half. And not at internet speed.

Really something to keep in mind.

[Origisaurus]

[TRexx]

The application I support deals with international securities. When we get something priced in a foreign currency, we convert it to dollars and store that amount along with the original currency (Euros, Yen etc).  Because our price field is not precise enough (only 8 decimal places), we had to add a special flag for Zimbabwe securities that indicates the amount was multiplied by 100,000 before we stored it. (The current exchange rate is on the order of 37.4million  Zimbabwe dollars to 1 US dollar)

[The Gorn]

Let us fervently hope that the USD never needs that special flag switched on.  

[TRexx]

Let us fervently hope that the USD never needs that special flag switched on.

We were actually discussing that today and decided we'd need another flag to indicate the USD value was divided by 100,000. Of course then we all realized that if things got that bad, we'd all be unemployed.

But I'm not concerned. Every day we get another broadcast from management telling us that the recession is over and everything (especially raises and bonuses) is back to normal.