Hyperinflation or Deflation? - Page 2

[ARCHIVED THREAD] - Hyperinflation or Deflation? (Page 2 of 3)

Posted: 5/1/2011 7:11:31 AM EDT

[#1]

Quoted:

Quoted:

Something yall are missing is that Hyperinflation is not a government policy. It is caused by a loss of confidence in currency.

So the fed can continue this inflationary policy, but not cause Hyperinflation. However if the people lose faith in currency and the velocity of money increases. This forces prices higher.

This causes a couple of thngs.

The velocity of the money increases the supply of money thus raising prices.

The increase of money velocity causes government to have to spend more for the same services.

Banks need more cash money to keep up with the velocity

The rapid massive printing of money is not the cause of hyperinflation, however it does cause an accelerating upward spiral.

I agree that inflation will probably come soon and in a BAD way.........but..........you asked how this debt crisis will end.

I am, in no way, discounting the possibility of deflation in the end.

The banks, big money people do not want deflation and congress is unwilling to put up with it.

With Hyperinflation the moneyed people can settle debts in cash and the ones clossest to the printing press are the ones that benefit. A Hyperinflation could settle it all in 6 months. A deflation with mass austerity and sinking dollar would mean that debts take decades to settle with long drawn out pain.

Posted: 5/1/2011 7:13:28 AM EDT

[#2]

Quoted:

Quoted:
Neither, IMO.

I think it very likely that we WILL get some inflation - beyond "normal" levels (i.e. what we've had for the past couple of decades) over the next several years. But, I'd be very surprised if it reached as high as 10%.

My initial concern (back in 2008) was that the U.S. would end up with a "lost decade" like Japan, with stagnation and some possible deflation, but the risk of that seems to be dwindling. Now, as the various manipulations to the economy and the financial sector play out, a moderate degree of inflation seems likey (but, certainly not guaranteed).

DK.......the OP asked how this debt crisis will end.

How can it end without inflation and/or deflation?

Or, do you see this as not being a debt crisis in the first place?

And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

Man, I love your optimism, wish I could share it.

I see the game of chicken ending with a head on collision, everybody loses.

Hope for the best, and prepare for the worst.

Posted: 5/1/2011 7:15:55 AM EDT

[#3]

Deflation.

Hyperinflation requires the wholesale literal printing/creation of money. We aren't doing that... we're monetizing debt. Worst case, we can't service that debt and default on it, the resulting destruction of credit is a deflationary event, not inflationary.

The Fed can create money, but cannot force it into circulation. That's why QE I/II/III isn't doing much... the newly-created money is there, but nobody is borrowing and spending it. And we've already shown that "dropping money from helicopters" cannot cure a deflation cycle.

We've been trying to inflate a balloon with a hole in it. When we stop huffing and puffing, the balloon will contract, not expand and explode.

Posted: 5/1/2011 7:16:26 AM EDT

[#4]

Quoted:

neither

We will have inflation. But I think it probably, barring a QE3, won't get to 1981 levels. If we have a QE3 we could see 10-20% inflation again.

I'm one of those kooks that has been stocking up at Wal-Mart and my observations don't agree with you.

Posted: 5/1/2011 7:19:08 AM EDT

[#5]

Quoted:
Inflation is good for you when you owe money, whether it is a mortgage for 100K or trillions of dollars.

Its not good when wages don't go up, like now, or when the fed holds interest rates at 0%, like now. This just fucks all of us hard and deep.

Posted: 5/1/2011 7:19:58 AM EDT

[#6]

Quoted:

Quoted:

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

This is what I mean by making the wrong preperation for this coming currency collapse. Bonds are not the winning stratedgy in Hyperinflation.

Something that FOFOA(his blog) points out is that in Hyperinflation is that surviving Hyperinflation is like a bear attack. You dont have to outrun the bear, you have to outrun the other guy.

Cash, Savers, Bond Holders will all be killed.

So what do you suggest?

Precious Metals, beans and bullets, or a combination of both?

I do not see how bullets and guns are a wise investment. There is a mass oversupply of weapons in North America and people will surely part with them for food and essentials. Hyperinflation does not mean we will have road warrior. A lot of people say, buy lead, but that is simply not a good investment, if your looking at it as good store of wealth.

Hyperinflation means a mass transfer of wealth out of cash to real stores of value; gold is a world accepted currency and certainly the best store of wealth; as for silver, it is my hope and somes believe that it will also act the same and hold your wealth.

A hyperinflation and end of a fiat currency almost surely will mean a new currency backed by Gold in some fashion. You cant restore faith in currency by replacing one fiat with another paper fiat.

Posted: 5/1/2011 7:24:11 AM EDT

[#7]

Quoted:And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

It is against human nature and history. Politicans will always avoid immediate pain, even if it means worse in the long run.

Posted: 5/1/2011 7:28:58 AM EDT

[#8]

Quoted:

Quoted:
blah blah blah

Man, I love your optimism, wish I could share it.

I see the game of chicken ending with a head on collision, everybody loses.

Hope for the best, and prepare for the worst.

My wife would laugh so hard she'd probably crack a rib if she heard someone describe me as an "optimist"

I am extremely pragmatic and pessimistic in life, and ALWAYS try to prepare for the worst. But, I also try to stay fairly informed on economics, finance and politics. I have a lot of colleagues and friends with PhDs in economics and finance, and I actually know a bunch of people who are quite involved in the thick of things (over the past month, I've had dinner with the head economist of a very large government agency, as well as one of the top economists at the SEC - just as an example). So I really don't see my view on things as being crazy optimistic, but rather fairly informed and pragmatic.

Plus, I'm not sure how increased taxes and military cuts translate to "optimism"

I don't like that at all, but think it's the sad reality of the compromises that will be necessary.

But, don't get me wrong - you'll note that my opinion is based on the assumption that the idiot politicians will eventually get their act together and make the tough decisions that need to be made ot solve/avert the debt crisis. While I think it is unlikely, it is ENTIRELY POSSIBLE that the idiots will continue to grandstand and play party politics (the analogy would be fiddling while Rome burns, I guess) and refuse to actually tackle the problem - and obviously that COULD put the whole mess into the ditch. So I am not saying it cannot go to shit - of course it can - I just find it highly unlikely.

Posted: 5/1/2011 7:29:50 AM EDT

[#9]

Quoted:

Deflation.

Hyperinflation requires the wholesale literal printing/creation of money. We aren't doing that... we're monetizing debt. Worst case, we can't service that debt and default on it, the resulting destruction of credit is a deflationary event, not inflationary.

The Fed can create money, but cannot force it into circulation. That's why QE I/II/III isn't doing much... the newly-created money is there, but nobody is borrowing and spending it. And we've already shown that "dropping money from helicopters" cannot cure a deflation cycle.

We've been trying to inflate a balloon with a hole in it. When we stop huffing and puffing, the balloon will contract, not expand and explode.

It doesnt, the velocity of money(caused by lack of confidence in currency) causes hyperinflation, money printing is what follows as government must do it to finance itself. A short deflation can end in Hyperinflation.

A deflationary headfake before hyperinflation Argintina

Posted: 5/1/2011 7:33:35 AM EDT

[#10]

I wouldn't be surprised for deflation since everybody and their grandmother is already priced into the Inflation camp.

I think that 2008 will soon happen all over again, only there are no more bubbles left to inflate. China/Australia/Brazil/Canada/Commodities looks like a Glock that has some custom reloaded bubba ammo in the chamber.

It will depend on whether Bernanke goes full retard after the double dip occurs. There is already strong feelings against his policies that have been a complete failure, I doubt we could get full-retard printing. Remember, Bernanke isn't printing money, He's printing debt which has to be paid back plus interest. If it's not invested into wealth-producing enterprises (which honestly, most of it hasn't) it will eventually lead to deflation.

Posted: 5/1/2011 7:34:28 AM EDT

[#11]

Quoted:

Quoted:And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

It is against human nature and history. Politicans will always avoid immediate pain, even if it means worse in the long run.

I agree completely. We've seen it over and over again.

But, what we've also seen is that they almost always get thier shit together and make the tough choices BEFORE going over the edge. The politicians already KNOW what needs to be done, they are just avoiding it as long as they can.

I guess the difference in opinion is that I think they'll get they'll act before it's too late, and you think the idiots will delay too long and put us in the ditch.

Both are possible, but I think I'm relying on the cold pragmatism and survival instincts of the politicians. They are not doing anything now before the average american is not pissed off enough. But, once people realize how bad the debt crisis is and DEMAND cuts, then the politicians will do it, because they can claim they were just doing what the people asked. My argument/analogy is that the politicians already KNOW that the "patient" needs and agressive and unpleasant "treatment" like chemo - but since it's such an unpleasant treatment and people will complain about how much it hurts, the politicians are going to wait until the people DEMAND it, before they prescribe it.

Posted: 5/1/2011 7:41:24 AM EDT

[#12]

Quoted:

Quoted:And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

It is against human nature and history. Politicans will always avoid immediate pain, even if it means worse in the long run.

I agree completely. We've seen it over and over again.

But, what we've also seen is that they almost always get thier shit together and make the tough choices BEFORE going over the edge. The politicians already KNOW what needs to be done, they are just avoiding it as long as they can.

I guess the difference in opinion is that I think they'll get they'll act before it's too late, and you think the idiots will delay too long and put us in the ditch.

Both are possible, but I think I'm relying on the cold pragmatism and survival instincts of the politicians. They are not doing anything now before the average american is not pissed off enough. But, once people realize how bad the debt crisis is and DEMAND cuts, then the politicians will do it, because they can claim they were just doing what the people asked. My argument/analogy is that the politicians already KNOW that the "patient" needs and agressive and unpleasant "treatment" like chemo - but since it's such an unpleasant treatment and people will complain about how much it hurts, the politicians are going to wait until the people DEMAND it, before they prescribe it.

I would like to see historical examples of what you are saying?

Btw, as I have said, hyperinflation is already baked in the cake, the mass amount of inflation that has happened for 30 years of easy credit is being held in (foreign banks), (Savings), (world Holdings) etc is as FOFOA says in his blog, the musket is loaded and ready to fire. All it takes is a loss of confidence in the dollar and the increase of velocity and Hyperinflation will follow. There is in fact nothing the fed or government could do to stop it outside of default and will actually make it worse as they try to keep government alive, which will require money printing.

Fiat money always dies, its just a matter of how long it takes.

Posted: 5/1/2011 7:42:02 AM EDT

[#13]

Quoted:

Quoted:
Deflation.

Hyperinflation requires the wholesale literal printing/creation of money. We aren't doing that... we're monetizing debt. Worst case, we can't service that debt and default on it, the resulting destruction of credit is a deflationary event, not inflationary.

The Fed can create money, but cannot force it into circulation. That's why QE I/II/III isn't doing much... the newly-created money is there, but nobody is borrowing and spending it. And we've already shown that "dropping money from helicopters" cannot cure a deflation cycle.

We've been trying to inflate a balloon with a hole in it. When we stop huffing and puffing, the balloon will contract, not expand and explode.

It doesnt, the velocity of money(caused by lack of confidence in currency) causes hyperinflation, money printing is what follows as government must do it to finance itself. A short deflation can end in Hyperinflation.

A deflationary headfake before hyperinflation Argintina
http://3.bp.blogspot.com/_cvdgPlEKW9k/TIhGsEuA35I/AAAAAAAABY8/LUoiXk7rwCA/s1600/HeadFake.jpg

You cannot have "hyperinflation" without lots of new money creation. Monetary inflation is a surge in the supply of money against demand. I suppose it's possible to have hyper price inflation with a relatively healthy money supply, but it's really hard to see how that doesn't choke itself off very quickly. A fire cannot burn without fuel.

A deflationary outlook can lead to inflation / hyperinflation when authorities resort to fighting it with monetary policy (which they far too commonly do, as, at first glance, it's the easiest, most painless way of dealing with the immediate symptoms of deflation).

It gets hard to keep causality straight in economic events, because economics is such a human science... it isn't like physics where there are a few immutable laws that govern everything. It becomes very easy to view the symptom as the problem and to not recognize the underlying cause of the symptom.

Posted: 5/1/2011 7:43:09 AM EDT

[#14]

Quoted:

Quoted:And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

It is against human nature and history. Politicans will always avoid immediate pain, even if it means worse in the long run.

I agree completely. We've seen it over and over again.

But, what we've also seen is that they almost always get thier shit together and make the tough choices BEFORE going over the edge. The politicians already KNOW what needs to be done, they are just avoiding it as long as they can.

I guess the difference in opinion is that I think they'll get they'll act before it's too late, and you think the idiots will delay too long and put us in the ditch.

Both are possible, but I think I'm relying on the cold pragmatism and survival instincts of the politicians. They are not doing anything now before the average american is not pissed off enough. But, once people realize how bad the debt crisis is and DEMAND cuts, then the politicians will do it, because they can claim they were just doing what the people asked. My argument/analogy is that the politicians already KNOW that the "patient" needs and agressive and unpleasant "treatment" like chemo - but since it's such an unpleasant treatment and people will complain about how much it hurts, the politicians are going to wait until the people DEMAND it, before they prescribe it.

I think you're assuming they don't want us to go over the edge, which I don't believe to be the case.

Posted: 5/1/2011 7:44:44 AM EDT

[#15]

Quoted:

Quoted:
Deflation.

Hyperinflation requires the wholesale literal printing/creation of money. We aren't doing that... we're monetizing debt. Worst case, we can't service that debt and default on it, the resulting destruction of credit is a deflationary event, not inflationary.

The Fed can create money, but cannot force it into circulation. That's why QE I/II/III isn't doing much... the newly-created money is there, but nobody is borrowing and spending it. And we've already shown that "dropping money from helicopters" cannot cure a deflation cycle.

We've been trying to inflate a balloon with a hole in it. When we stop huffing and puffing, the balloon will contract, not expand and explode.

It doesnt, the velocity of money(caused by lack of confidence in currency) causes hyperinflation, money printing is what follows as government must do it to finance itself. A short deflation can end in Hyperinflation.

A deflationary headfake before hyperinflation Argintina
http://3.bp.blogspot.com/_cvdgPlEKW9k/TIhGsEuA35I/AAAAAAAABY8/LUoiXk7rwCA/s1600/HeadFake.jpg

There is a difference between the US and Argentina though. The 2000 Bankruptcy isn't the first time Argentina has had major financial problems, they've had multiple bouts of hyperinflation and currency crises among other problems. Argentina has been a basket case for 60 years.

Posted: 5/1/2011 7:46:22 AM EDT

[#16]

Quoted:

neither
We will have inflation. But I think it probably, barring a QE3, won't get to 1981 levels. If we have a QE3 we could see 10-20% inflation again.

Stagflation FTMFW.

High unemployment, decline in prices of things you don't need (houses), inflation in things you need (food, gas).

Posted: 5/1/2011 7:47:37 AM EDT

[#17]

Quoted:

Quoted:

Deflation.

Hyperinflation requires the wholesale literal printing/creation of money. We aren't doing that... we're monetizing debt. Worst case, we can't service that debt and default on it, the resulting destruction of credit is a deflationary event, not inflationary.

The Fed can create money, but cannot force it into circulation. That's why QE I/II/III isn't doing much... the newly-created money is there, but nobody is borrowing and spending it. And we've already shown that "dropping money from helicopters" cannot cure a deflation cycle.

We've been trying to inflate a balloon with a hole in it. When we stop huffing and puffing, the balloon will contract, not expand and explode.

It doesnt, the velocity of money(caused by lack of confidence in currency) causes hyperinflation, money printing is what follows as government must do it to finance itself. A short deflation can end in Hyperinflation.

A deflationary headfake before hyperinflation Argintina

http://3.bp.blogspot.com/_cvdgPlEKW9k/TIhGsEuA35I/AAAAAAAABY8/LUoiXk7rwCA/s1600/HeadFake.jpg

You cannot have "hyperinflation" without lots of new money creation. Monetary inflation is a surge in the supply of money against demand. I suppose it's possible to have hyper price inflation with a relatively healthy money supply, but it's really hard to see how that doesn't choke itself off very quickly. A fire cannot burn without fuel.

A deflationary outlook can lead to inflation / hyperinflation when authorities resort to fighting it with monetary policy (which they far too commonly do, as, at first glance, it's the easiest, most painless way of dealing with the immediate symptoms of deflation).

It gets hard to keep causality straight in economic events, because economics is such a human science... it isn't like physics where there are a few immutable laws that govern everything. It becomes very easy to view the symptom as the problem and to not recognize the underlying cause of the symptom.

The money supply is already out there, the fuel is stored all over the world, in peoples savings, banks etc and an increase in the velocity = more money.

When you take a dollar and save it, you take it out of the money supply. When you take a dollar and spend it you add it to the money supply.

If you take the same dollar and spend it over and over and over within a short time, you are inflating the money supply.

the rapid velocity of money = hyperinflation.

If the velocity of money increase 100% its like adding 100% more money to the money supply.

government must print to keep up, the printing is a result of hyperinflation and it continues the spiral updard.
What I am saying is that the massive money printing is not hyperinflation, it is a symptom of it.

Posted: 5/1/2011 7:48:17 AM EDT

[#18]

Quoted:

Quoted:
Neither, IMO.

I think it very likely that we WILL get some inflation - beyond "normal" levels (i.e. what we've had for the past couple of decades) over the next several years. But, I'd be very surprised if it reached as high as 10%.

My initial concern (back in 2008) was that the U.S. would end up with a "lost decade" like Japan, with stagnation and some possible deflation, but the risk of that seems to be dwindling. Now, as the various manipulations to the economy and the financial sector play out, a moderate degree of inflation seems likey (but, certainly not guaranteed).

DK.......the OP asked how this debt crisis will end.

How can it end without inflation and/or deflation?

Or, do you see this as not being a debt crisis in the first place?

And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

I hope you are right.

I am sorry to say that I think you are wrong because, I take it for granted that politicians will TOTALLY FAIL to do the hard things necessary.

It will take outside forces like hyperinflation or deflation.

But, I really do hope you are correct.

I mean, during this crisis, these idiots PASS OBAMACARE!!??

Posted: 5/1/2011 7:48:57 AM EDT

[#19]

Quoted:

But, what we've also seen is that they almost always get thier shit together and make the tough choices BEFORE going over the edge. The politicians already KNOW what needs to be done, they are just avoiding it as long as they can.

When have the ever done that?

Our government has not addressed the real, underlying problems in decades. They've treated the symptoms. Up until now, more borrowing, more debt, and more spending has been a cheap and easy way to "fix the economy" while airily waving their hands and insisting that the future would somehow solve the real problems. Well, the future has arrived... we are very close to the point of simply not being able to borrow any more. Most of our borrowing at this point is not from hard currency reserves, but from the Fed. And the Fed's mounting balance sheet isn't something that can grow ad infinitum.

In the past, a 'tough choice" has been, "How much more should we borrow to paper this over?" Now, we're getting to the REAL "tough choice" of, "What precious, sacrosanct, third-rail programs get axed, and which get cut by how much?" Politicians are going to have to chose the manner of their own death... get thrown out of office for real reform, or getting thrown out of office for not instituting real reform. Because, no matter how many Americans say they want the rise in debt to be restrained, we all have some pet program that should be exempt. Defense, the elderly, the sick, education, the children, whatever... we all have something that should absolutely not be cut, and we'll react angrily if it is.

Posted: 5/1/2011 7:50:37 AM EDT

[#20]

Quoted:

neither

We will have inflation. But I think it probably, barring a QE3, won't get to 1981 levels. If we have a QE3 we could see 10-20% inflation again.

Stagflation FTMFW.

High unemployment, decline in prices of things you don't need (houses), inflation in things you need (food, gas).

They've coined a term for that, it's called "Biflation"

Posted: 5/1/2011 7:52:11 AM EDT

[#21]

Quoted:

Quoted:
Deflation.

Hyperinflation requires the wholesale literal printing/creation of money. We aren't doing that... we're monetizing debt. Worst case, we can't service that debt and default on it, the resulting destruction of credit is a deflationary event, not inflationary.

The Fed can create money, but cannot force it into circulation. That's why QE I/II/III isn't doing much... the newly-created money is there, but nobody is borrowing and spending it. And we've already shown that "dropping money from helicopters" cannot cure a deflation cycle.

We've been trying to inflate a balloon with a hole in it. When we stop huffing and puffing, the balloon will contract, not expand and explode.

It doesnt, the velocity of money(caused by lack of confidence in currency) causes hyperinflation, money printing is what follows as government must do it to finance itself. A short deflation can end in Hyperinflation.

A deflationary headfake before hyperinflation Argintina
http://3.bp.blogspot.com/_cvdgPlEKW9k/TIhGsEuA35I/AAAAAAAABY8/LUoiXk7rwCA/s1600/HeadFake.jpg

You cannot have "hyperinflation" without lots of new money creation. Monetary inflation is a surge in the supply of money against demand. I suppose it's possible to have hyper price inflation with a relatively healthy money supply, but it's really hard to see how that doesn't choke itself off very quickly. A fire cannot burn without fuel.

A deflationary outlook can lead to inflation / hyperinflation when authorities resort to fighting it with monetary policy (which they far too commonly do, as, at first glance, it's the easiest, most painless way of dealing with the immediate symptoms of deflation).

It gets hard to keep causality straight in economic events, because economics is such a human science... it isn't like physics where there are a few immutable laws that govern everything. It becomes very easy to view the symptom as the problem and to not recognize the underlying cause of the symptom.

The money supply is already out there, the fuel is stored all over the world, in peoples savings, banks etc and an increase in the velocity = more money.

When you take a dollar and save it, you take it out of the money supply. When you take a dollar and spend it you add it to the money supply.

If you take the same dollar and spend it over and over and over within a short time, you are inflating the money supply.

the rapid velocity of money = hyperinflation.

If the velocity of money increase 100% its like adding 100% more money to the money supply.

government must print to keep up, the printing is a result of hyperinflation and it continues the spiral updard.

What I am saying is that the massive money printing is not hyperinflation, it is a symptom of it.

China and the Euro-Zone actually now have M2 supplies larger than ours, dispite having smaller economies IIRC... The US economy is almost as large as the Euro Zone and China combined.

Posted: 5/1/2011 7:52:56 AM EDT

[#22]

Quoted:

Prechter is your man for Deflation, haven't read anything of his in some time.

I'm with you, there's no incentive for anyone to allow a deflationary spiral of cross-default.

They will print whatever is necessary, the global consequences will be horrendous.

Bernanke just announced QE isn't going to end, he used a lot of weasel words so I'm not surprised some of us don't get it, QE3 is irrelevent because QE as needed is now the policy.

What I think some people are missing is that QE doesn't just inflate the money supply, leading to predictable inflation rates, it destroys the market. It's the moral hazard and malinvestment created by destroying the fundamental pricing mechanisms of the marketplace that really fuels the dislocation.

Ben also has very specifically said that there will be a QE 2.5 in effect.

They will roll the interest and maturing assets they have back into buying government debt. They have to, the Japanese, Chinese, and American consumer won't buy all the debt we need to keep the government funded. If they don't, the interest rates will explode, thus killing the consumer debt markets (housing). Residential investment is no where near what is needed for a real recovery.

Posted: 5/1/2011 7:54:35 AM EDT

[#23]

Quoted:

Quoted:
Something yall are missing is that Hyperinflation is not a government policy. It is caused by a loss of confidence in currency.

So the fed can continue this inflationary policy, but not cause Hyperinflation. However if the people lose faith in currency and the velocity of money increases. This forces prices higher.

This causes a couple of thngs.

The velocity of the money increases the supply of money thus raising prices.
The increase of money velocity causes government to have to spend more for the same services.
Banks need more cash money to keep up with the velocity

The rapid massive printing of money is not the cause of hyperinflation, however it does cause an accelerating upward spiral.

I agree that inflation will probably come soon and in a BAD way.........but..........you asked how this debt crisis will end.

I am, in no way, discounting the possibility of deflation in the end.

The banks, big money people do not want deflation and congress is unwilling to put up with it.

With Hyperinflation the moneyed people can settle debts in cash and the ones clossest to the printing press are the ones that benefit. A Hyperinflation could settle it all in 6 months. A deflation with mass austerity and sinking dollar would mean that debts take decades to settle with long drawn out pain.

I understand but these idiots running the Senate and White House are totally unwilling to reduce ANYTHING.

Sorry, it will be deflation in the end...............unless..........some drastic changes are made in the make up of the Senate and White House IMHO.

Posted: 5/1/2011 7:57:06 AM EDT

[#24]

Quoted:

Quoted:

But, what we've also seen is that they almost always get thier shit together and make the tough choices BEFORE going over the edge. The politicians already KNOW what needs to be done, they are just avoiding it as long as they can.

When have the ever done that?

Our government has not addressed the real, underlying problems in decades. They've treated the symptoms. Up until now, more borrowing, more debt, and more spending has been a cheap and easy way to "fix the economy" while airily waving their hands and insisting that the future would somehow solve the real problems. Well, the future has arrived... we are very close to the point of simply not being able to borrow any more. Most of our borrowing at this point is not from hard currency reserves, but from the Fed. And the Fed's mounting balance sheet isn't something that can grow ad infinitum.

In the past, a 'tough choice" has been, "How much more should we borrow to paper this over?" Now, we're getting to the REAL "tough choice" of, "What precious, sacrosanct, third-rail programs get axed, and which get cut by how much?" Politicians are going to have to chose the manner of their own death... get thrown out of office for real reform, or getting thrown out of office for not instituting real reform. Because, no matter how many Americans say they want the rise in debt to be restrained, we all have some pet program that should be exempt. Defense, the elderly, the sick, education, the children, whatever... we all have something that should absolutely not be cut, and we'll react angrily if it is.

Look at this.. I see a future where the congress and fed will explain to us how hard they tried to save our governnent and our currency with similar words as the below.

Gideon Gono, the governor of Zimbabwe's central bank and he still has his job

"I've been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren't in the textbooks…

"There are certain things, policies with the benefit of hindsight, where we could've managed our affairs better… We are [only] human…

"Only a fool does not change course when it is necessary. Because economics is not an exact science, you want to be able to be relevant. The only constant is change and adaptation…

"It's a free market, a business which must be allowed to succeed or fail…

"What keeps me bright and looking forward to every day is that it can't be any worse. And those who have studied the history of economies know that we are down, but that the only thing that can happen is we will move up. That is a certainty…

"I am modestly credited with the survival strategy of my country. The issue is if you want to break Zimbabwe and want it to fall, just deal with one man. You deal with Gideon Gono…

"I'm a normal guy: I miss going to the supermarket. One would like more freedom…

"If you raise the interest rate you'll be friends of people who have access to money. If you lower the interest rate, you'll be the darling of borrowers, but pensioners will curse you to hell. It's never about popularity. At all times you are definitely hurting some people in the economy…

"It's impossible to be directing the course of an entire economy and divorce yourself from politics. Politics are important because the turnaround of the economy hinges on political stability, but I can't tell when that will happen…

"I have been in the trenches during every moment of survival for my country. Any central bank governor is of necessity. When things go bad, we governors are the fall guys. No other governor in the world has had to deal with the kind of inflation levels that I deal with, no other governor has to come up with the gymnastics and strategy for the survival of his country. But let me say that in my bank resides the cutting edge of the country. I'm privileged to be the leader of that team."

Posted: 5/1/2011 8:08:26 AM EDT

[#25]

Quoted:

Quoted:

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

This is what I mean by making the wrong preperation for this coming currency collapse. Bonds are not the winning stratedgy in Hyperinflation.

Something that FOFOA(his blog) points out is that in Hyperinflation is that surviving Hyperinflation is like a bear attack. You dont have to outrun the bear, you have to outrun the other guy.

Cash, Savers, Bond Holders will all be killed.

So what do you suggest?

Precious Metals, beans and bullets, or a combination of both?

I do not see how bullets and guns are a wise investment. There is a mass oversupply of weapons in North America and people will surely part with them for food and essentials. Hyperinflation does not mean we will have road warrior. A lot of people say, buy lead, but that is simply not a good investment, if your looking at it as good store of wealth.

Hyperinflation means a mass transfer of wealth out of cash to real stores of value; gold is a world accepted currency and certainly the best store of wealth; as for silver, it is my hope and somes believe that it will also act the same and hold your wealth.

A hyperinflation and end of a fiat currency almost surely will mean a new currency backed by Gold in some fashion. You cant restore faith in currency by replacing one fiat with another paper fiat.

FDR banned private ownership of gold bullion. You think Obama and friends won't ban gold AND silver, since it would be "Vital to the financial security of our great nation"?

Posted: 5/1/2011 8:14:43 AM EDT

[#26]

Everytime I read a thread like this I realize that as prepared as I think I am, I'm not prepared enough.

Posted: 5/1/2011 8:15:17 AM EDT

[#27]

Quoted:

Quoted:And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

It is against human nature and history. Politicans will always avoid immediate pain, even if it means worse in the long run.

I agree completely. We've seen it over and over again.

But, what we've also seen is that they almost always get thier shit together and make the tough choices BEFORE going over the edge. The politicians already KNOW what needs to be done, they are just avoiding it as long as they can.

I guess the difference in opinion is that I think they'll get they'll act before it's too late, and you think the idiots will delay too long and put us in the ditch.

Both are possible, but I think I'm relying on the cold pragmatism and survival instincts of the politicians. They are not doing anything now before the average american is not pissed off enough. But, once people realize how bad the debt crisis is and DEMAND cuts, then the politicians will do it, because they can claim they were just doing what the people asked. My argument/analogy is that the politicians already KNOW that the "patient" needs and agressive and unpleasant "treatment" like chemo - but since it's such an unpleasant treatment and people will complain about how much it hurts, the politicians are going to wait until the people DEMAND it, before they prescribe it.

I think you are 100% correct here in both your perspective of future potentialities and your diagnosis of what needs to be done.

However, when I add my scepticism that there is a concerted effort by the leftists in this country to make sure we do end up in the ditch, plus the fact that more and more are following the Marxist party line, that leaves me with only one conclusion. Ditch, here we come.

The "tea party" movement with its conservative allies do not have the numbers politically nor the sustained power influentially, to defeat those Marxists who are intent in "fundamentally changing" our society. Many Marxist philosophers have said that in order to bring about progress and usher in a new paradigm, the old one must be done away with (i.e. made to collapse).

Not only is their power and influence is growing at the speed of light, but they have a substantial and sustainable support and supply line behind it.

The "tea party" movement is a flash in the pan with no deep support and supply mechanism.

Those are factors I include in my evaluation of the current situation. Maybe you do as well and come to a different conclusion. Time will tell.

-3D

Posted: 5/1/2011 8:16:26 AM EDT

[#28]

Quoted:
Everytime I read a thread like this I realize that as prepared as I think I am, I'm not prepared enough.

Yup, just think to youself that, during this debt crisis, our wonderful and intelligent congress critters decided to pass one of the largest entitlement programs in American history.

Sorry to make you feel worse but those are the facts.

Posted: 5/1/2011 8:16:37 AM EDT

[#29]

No nation in history has ever failed because of deflation. It is a Keynsian manufactured bogeyman and a Dave_A masturbatory fantasy.

Posted: 5/1/2011 8:17:50 AM EDT

[#30]

Quoted:
No nation in history has ever failed because of deflation. It is a Keynsian manufactured bogeyman and a Dave_A masturbatory fantasy.

You may have to rewrite the book on that one.

Posted: 5/1/2011 8:20:04 AM EDT

[#31]

Quoted:

Quoted:
No nation in history has ever failed because of deflation. It is a Keynsian manufactured bogeyman and a Dave_A masturbatory fantasy.

You may have to rewrite the book on that one.

LOL. Sometimes you can weight the odds of an event happening based on who the loudest proponents are.

Posted: 5/1/2011 8:22:53 AM EDT

[#32]

Quoted:

Quoted:
No nation in history has ever failed because of deflation. It is a Keynsian manufactured bogeyman and a Dave_A masturbatory fantasy.

You may have to rewrite the book on that one.

LOL. Sometimes you can weight the odds of an event happening based on who the loudest proponents are.

Posted: 5/1/2011 8:34:38 AM EDT

[#33]

Quoted:

Quoted:

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

This is what I mean by making the wrong preperation for this coming currency collapse. Bonds are not the winning stratedgy in Hyperinflation.

Something that FOFOA(his blog) points out is that in Hyperinflation is that surviving Hyperinflation is like a bear attack. You dont have to outrun the bear, you have to outrun the other guy.

Cash, Savers, Bond Holders will all be killed.

So what do you suggest?

Precious Metals, beans and bullets, or a combination of both?

Of course he does. These "coming collapse" threads are as dumb s the OP.

Inflation is happening and will continue, but "hyperinflation" (nice Alex Jones catchword)... Not happening. We aren't and we will never be the Weimar Republik.

Posted: 5/1/2011 8:42:06 AM EDT

[#34]

Quoted:

Quoted:

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

This is what I mean by making the wrong preperation for this coming currency collapse. Bonds are not the winning stratedgy in Hyperinflation.

Something that FOFOA(his blog) points out is that in Hyperinflation is that surviving Hyperinflation is like a bear attack. You dont have to outrun the bear, you have to outrun the other guy.

Cash, Savers, Bond Holders will all be killed.

So what do you suggest?

Precious Metals, beans and bullets, or a combination of both?

Of course he does. These "coming collapse" threads are as dumb s the OP.

Inflation is happening and will continue, but "hyperinflation" (nice Alex Jones catchword)... Not happening. We aren't and we will never be the Weimar Republik.

So I guess you think everything is going to be fine.

Me, I hope for the best, and prepare for the worst.

Are you?

Posted: 5/1/2011 8:44:52 AM EDT

[#35]

Quoted:

Quoted:

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

This is what I mean by making the wrong preperation for this coming currency collapse. Bonds are not the winning stratedgy in Hyperinflation.

Something that FOFOA(his blog) points out is that in Hyperinflation is that surviving Hyperinflation is like a bear attack. You dont have to outrun the bear, you have to outrun the other guy.

Cash, Savers, Bond Holders will all be killed.

So what do you suggest?

Precious Metals, beans and bullets, or a combination of both?

Of course he does. These "coming collapse" threads are as dumb s the OP.

Inflation is happening and will continue, but "hyperinflation" (nice Alex Jones catchword)... Not happening. We aren't and we will never be the Weimar Republik.

Well, I don't know if we'll ever be the Weimar Republik either.........but these idiots are spending more money than a drunken sailor. You gotta admit that.

And they PASSED one of the LARGEST entitltment programs in American history during the midst of this crisis.

Posted: 5/1/2011 9:27:01 AM EDT

[#36]

Quoted:

Quoted:

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

This is what I mean by making the wrong preperation for this coming currency collapse. Bonds are not the winning stratedgy in Hyperinflation.

Something that FOFOA(his blog) points out is that in Hyperinflation is that surviving Hyperinflation is like a bear attack. You dont have to outrun the bear, you have to outrun the other guy.

Cash, Savers, Bond Holders will all be killed.

So what do you suggest?

Precious Metals, beans and bullets, or a combination of both?

I do not see how bullets and guns are a wise investment. There is a mass oversupply of weapons in North America and people will surely part with them for food and essentials. Hyperinflation does not mean we will have road warrior. A lot of people say, buy lead, but that is simply not a good investment, if your looking at it as good store of wealth.

Hyperinflation means a mass transfer of wealth out of cash to real stores of value; gold is a world accepted currency and certainly the best store of wealth; as for silver, it is my hope and somes believe that it will also act the same and hold your wealth.

A hyperinflation and end of a fiat currency almost surely will mean a new currency backed by Gold in some fashion. You cant restore faith in currency by replacing one fiat with another paper fiat.

FDR banned private ownership of gold bullion. You think Obama and friends won't ban gold AND silver, since it would be "Vital to the financial security of our great nation"?

No one knows. I am hoping no, as Oligarchs will already have a boatload of Gold, but they probably would have it overseas. I also believe that they will not be able to get away with it. its one thing to change from metal to fiat, but if the fiat fails and then to take away metal. I can only hope that they wont. We can gurantuee if they do, no one will be turning it in.

Only 22% turned in their gold and no one was ever prosecuted the first time around.

Posted: 5/1/2011 9:29:02 AM EDT

[#37]

Quoted:

Quoted:

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

This is what I mean by making the wrong preperation for this coming currency collapse. Bonds are not the winning stratedgy in Hyperinflation.

Something that FOFOA(his blog) points out is that in Hyperinflation is that surviving Hyperinflation is like a bear attack. You dont have to outrun the bear, you have to outrun the other guy.

Cash, Savers, Bond Holders will all be killed.

So what do you suggest?

Precious Metals, beans and bullets, or a combination of both?

Of course he does. These "coming collapse" threads are as dumb s the OP.

Inflation is happening and will continue, but "hyperinflation" (nice Alex Jones catchword)... Not happening. We aren't and we will never be the Weimar Republik.

WTF and your calling me dumb?

Posted: 5/1/2011 9:34:53 AM EDT

[#38]

Quoted:

...I would like to see historical examples of what you are saying?

I think you don't have to look further than various E.U countries over the past couple of years.

Greek, Portuguese (as well as Irish, Icelandic and others) governments spent like drunken sailors, not only running up big debt burdens, high debt/GDP ratios, and huge deficits - but often also cooking the books - but when they could no longer sustain the charade, they DID start to substantially tighten their belts, cut entitlements, reduce spending, etc.. The politicians in these countries did so despite protests, demonstrations and even massive riots (in places like Greece) - because they finally had to face up to the cold reality that the ride was over. They still haven't done enough, but they have demonstrated (in my opinion) that when their backs are against the wall, the politicians will do what they need to - even if they delay and squirm as long as they can.

Similar (but milder) examples exist in a number of European economies in the 1980s, including Britain and much of Western Europe. In Denmark in the mid 1980s, the debt and entitlements had gotten out of control - as a result of people conituning to vote for socialist politicians and governments that promised (and delivered) lots of entitlements and goodies. BUT, the result was not a downward spiral and never-ending debt and interest payments - the result was the election of a more conservative government that basically told the population that we had bitten off too much, and now it was time to tighten the belts and reduce spending (their economic plan was actually called the "Potato diet"

) - and while not everyone LIKED the "diet" most people recognized that it was necessary, and it was successful.

Again - I am not saying I KNOW what's going to happen. (Anyone that says they know what's going to happen is usually trying to sell you something, or over-estimates their understanding of ecnomics, IMO).

I am just saying what I think the most likely outcome is - but I'm not danying that of course, much worse scenarios CAN occur.

Posted: 5/1/2011 9:40:16 AM EDT

[#39]

past hyperinflations

BelarusBelarus 1994-2002.

BoliviaBolivia 1984 and 1986.

Bosnia and HerzegovinaBosnia in 1993

BrazilFrom 1986-1994,

BulgariaIn 1996,

ChinaAs the first user of fiat currency, China has had an early history of troubles caused by hyperinflation. The Yuan Dynasty printed huge amounts of fiat paper money to fund their wars, and the resulting hyperinflation, coupled with other factors, led to its demise at the hands of a revolution.

The Republic of China 1948-49.

Free City of Danzig 1923.

Georgia 1994.

Germany 1923.

Greece 1944

Hungary, 1922-1924

Hungary 1945 and July 1946

Israel 1983 and1984

KrajinaKrajina 1993

MexicoIn 1982

Nicaragua 1987-1990

Peru 1988-1990

Philippines 1944

Poland, 1921-1924

Poland, 1989-1991

Republika Srpska 1993.

Romania 1990s.

Russian FederationBetween 1921 and 1922

USSR 1992

Taiwan 1940s

Ukrainian 1992 and 1996

United States During the Revolutionary War,

United States During the U.S. Civil War, between January 1861 and April 1865

Yugoslav 1993 to 1994

Zaire 1989 and 1996

Zimbabwe 2008 peak

there are a lot more examples ofcourse including currency revaluations not included here

but ofcourse per our brilliant poster SecurityForceMember Alex Jones coined the term.

Posted: 5/1/2011 9:42:59 AM EDT

[#40]

Quoted:

neither
We will have inflation. But I think it probably, barring a QE3, won't get to 1981 levels. If we have a QE3 we could see 10-20% inflation again.

Its not good, but if that happens people will be able to make millions of dollars easily with certain kinds of investments. 30ish years ago there were short periods of time where government bonds were paying locked in 30% interest rates. People who knew what they were doing sold everything of value they could and worked their asses off to earn more money so they could buy as many government bonds as possible. They made millions.

US Treasury Bonds Rates Maturity Yield Yesterday Last Week Last Month

3 Month 0.02 0.01 0.03 0.07

6 Month 0.08 0.08 0.09 0.15

2 Year 0.60 0.62 0.65 0.75

3 Year 0.99 1.02 1.15 1.25

5 Year 1.97 2.00 2.11 2.17

10 Year 3.29 3.31 3.40 3.44

30 Year 4.40 4.41 4.47 4.50

Not this time

Not now, but its likely that it'll happen again in our lifetimes at least once or twice. Especially with the kind of people we have running our nation and banking system.

How will the federal government service 20+ Trillion dollars of debt at even 5%.

We have a good chance of ending up in the situation Greece is in.

If the government saddles itself with enough debt, they'll be desperate for money. Usually the more risky and desperate a bond issuer is the more they'll pay in interest. Its why back in the 70s government bonds were paying people a locked in interest rate of 30% interest. The people who bought 30 year bonds at that rate made a killing.

Posted: 5/1/2011 9:43:39 AM EDT

[#41]

Quoted:

Quoted:

...I would like to see historical examples of what you are saying?

I think you don't have to look further than various E.U countries over the past couple of years.

Greek, Portuguese (as well as Irish, Icelandic and others) governments spent like drunken sailors, not only running up big debt burdens, high debt/GDP ratios, and huge deficits - but often also cooking the books - but when they could no longer sustain the charade, they DID start to substantially tighten their belts, cut entitlements, reduce spending, etc.. The politicians in these countries did so despite protests, demonstrations and even massive riots (in places like Greece) - because they finally had to face up to the cold reality that the ride was over. They still haven't done enough, but they have demonstrated (in my opinion) that when their backs are against the wall, the politicians will do what they need to - even if they delay and squirm as long as they can.

Similar (but milder) examples exist in a number of European economies in the 1980s, including Britain and much of Western Europe. In Denmark in the mid 1980s, the debt and entitlements had gotten out of control - as a result of people conituning to vote for socialist politicians and governments that promised (and delivered) lots of entitlements and goodies. BUT, the result was not a downward spiral and never-ending debt and interest payments - the result was the election of a more conservative government that basically told the population that we had bitten off too much, and now it was time to tighten the belts and reduce spending (their economic plan was actually called the "Potato diet"

) - and while not everyone LIKED the "diet" most people recognized that it was necessary, and it was successful.

Again - I am not saying I KNOW what's going to happen. (Anyone that says they know what's going to happen is usually trying to sell you something, or over-estimates their understanding of ecnomics, IMO).

I am just saying what I think the most likely outcome is - but I'm not danying that of course, much worse scenarios CAN occur.

Sweden's economy had low growth and high unemployment until it basically blew up in the early 90s... Then free market reforms restored growth and inflation fell from 9% to about 1%. Finland also had a bad time in the early 90s.

Posted: 5/1/2011 9:44:46 AM EDT

[#42]

Quoted:If the government saddles itself with enough debt, they'll be desperate for money. Usually the more risky and desperate a bond issuer is the more they'll pay in interest. Its why back in the 70s government bonds were paying people a locked in interest rate of 30% interest. The people who bought 30 year bonds at that rate made a killing.

This is why deflationists suggest you have your money in cash, so you can scoop up these bonds. Ofcourse if we have Hyperinflation you will be killed

Posted: 5/1/2011 9:45:12 AM EDT

[#43]

Lowjack: I don't think you are Alex Jones for worrying about hyperinflation...............breathe deeply, exhale, breathe deeply, exhale............

Posted: 5/1/2011 9:45:44 AM EDT

[#44]

Quoted:
The printing press is running at warp speed, and the dilitium crystals are no where near depleted.

Hyperinflation for the win.

Yep.

Posted: 5/1/2011 9:46:09 AM EDT

[#45]

Quoted:

Neither, IMO.

I think it very likely that we WILL get some inflation - beyond "normal" levels (i.e. what we've had for the past couple of decades) over the next several years. But, I'd be very surprised if it reached as high as 10%.
My initial concern (back in 2008) was that the U.S. would end up with a "lost decade" like Japan, with stagnation and some possible deflation, but the risk of that seems to be dwindling. Now, as the various manipulations to the economy and the financial sector play out, a moderate degree of inflation seems likey (but, certainly not guaranteed).

Inflation beyond normal levels is basically what I think'll happen. Its not quite full retard hyperinflation and it sure as heck isn't the same old same old.

Posted: 5/1/2011 9:47:51 AM EDT

[#46]

Quoted:
You can't have deflation if you keep printing money.

+1

Pretty much impossible at this point.

Posted: 5/1/2011 10:41:28 AM EDT

[#47]

Quoted:

Quoted:And my answer is that it will end with NEITHER.

The debt/deficit crisis is not some insurmountable problem that cannot be solved. It can be solved quite easily, once the politicians decide they WANT TO make the politically unpleasant choices. Of course, they don't want to do that - and both parties are hoping that the OTHER party will committ political suicide by proposing huge entitlement cuts, higher retirement age, and posisbly some tax increases (as a political compromise) to the American public. It's a game of chicken, and both parties are hoping the other will flinch first.

The likelihood that anyone will do anything serious or substantial before the 2012 election is slim to none, IMO.

However, once politicians can no longer avoid the issue and get down to the politican horse-trading and hard choices, the debt crisis can be handled. But, it REQUIRES substantial cuts of entitlements, as well as raising the Social Security retirement age, cuts in other public programmes, as well as substantial defense cuts. I also think that (unfortunately) some tax increases are inevtiable.

The politicians are going to try to avoid having to do this, but it is ultimately inevitable - and they will eventually do it. Once such cuts are in place, the projections for the debt will decrease and the percentage of GDP (currently around 90% IIRC) will drop to manageable levels. This will retain the AAA rating that American government bonds have, and will prevent EITHER of the scenarios in the OP's post (the deflationary crash or the hyperinflation).

It is against human nature and history. Politicans will always avoid immediate pain, even if it means worse in the long run.

I agree completely. We've seen it over and over again.

But, what we've also seen is that they almost always get thier shit together and make the tough choices BEFORE going over the edge. The politicians already KNOW what needs to be done, they are just avoiding it as long as they can.

I guess the difference in opinion is that I think they'll get they'll act before it's too late, and you think the idiots will delay too long and put us in the ditch.

Both are possible, but I think I'm relying on the cold pragmatism and survival instincts of the politicians. They are not doing anything now before the average american is not pissed off enough. But, once people realize how bad the debt crisis is and DEMAND cuts, then the politicians will do it, because they can claim they were just doing what the people asked. My argument/analogy is that the politicians already KNOW that the "patient" needs and agressive and unpleasant "treatment" like chemo - but since it's such an unpleasant treatment and people will complain about how much it hurts, the politicians are going to wait until the people DEMAND it, before they prescribe it.

You have more faith in the ideologues than me.

Posted: 5/1/2011 12:29:09 PM EDT

[#48]

Quoted:
The Fed can create money, but cannot force it into circulation. That's why QE I/II/III isn't doing much... the newly-created money is there, but nobody is borrowing and spending it.

Really?

Are you aware of what the Fed is doing with the newly created money? Mainly it's buying government bonds.
Do you think the Federal government is selling the bonds and then depositing the money in a savings account instead of spending it?

Posted: 5/1/2011 8:21:06 PM EDT

[#49]

Quoted:
Inflation is good for you when you owe money, whether it is a mortgage for 100K or trillions of dollars.

Yes, it's the reset button for the irresponsible people.

But you still get fucked when the cost of food & fuel outpaces the raises you are getting at work.

Posted: 5/2/2011 12:38:45 PM EDT

[#50]

Quoted:

Quoted:

blah blah blah

Man, I love your optimism, wish I could share it.

I see the game of chicken ending with a head on collision, everybody loses.

Hope for the best, and prepare for the worst.

My wife would laugh so hard she'd probably crack a rib if she heard someone describe me as an "optimist"

I am extremely pragmatic and pessimistic in life, and ALWAYS try to prepare for the worst. But, I also try to stay fairly informed on economics, finance and politics. I have a lot of colleagues and friends with PhDs in economics and finance, and I actually know a bunch of people who are quite involved in the thick of things (over the past month, I've had dinner with the head economist of a very large government agency, as well as one of the top economists at the SEC - just as an example). So I really don't see my view on things as being crazy optimistic, but rather fairly informed and pragmatic.

Plus, I'm not sure how increased taxes and military cuts translate to "optimism"

I don't like that at all, but think it's the sad reality of the compromises that will be necessary.

But, don't get me wrong - you'll note that my opinion is based on the assumption that the idiot politicians will eventually get their act together and make the tough decisions that need to be made ot solve/avert the debt crisis. While I think it is unlikely, it is ENTIRELY POSSIBLE that the idiots will continue to grandstand and play party politics (the analogy would be fiddling while Rome burns, I guess) and refuse to actually tackle the problem - and obviously that COULD put the whole mess into the ditch. So I am not saying it cannot go to shit - of course it can - I just find it highly unlikely.

From the standpoint of an American born in the 60's. your opinion of our political system does sound fantastically optimistic.

Meaningful spending cuts would require a quantum change in attitude, in every class and culture of our Nation. I can't picture a scenario that would allow Republicans the political power to tackle the Third Rail, and I don't see the Democrats as having the will to make tough financial or political choices.

Granted, the idea of GB and Cuba firing Government workers is pretty far-fetched as well.

Maybe the oligarchs will get scared enough that they will engineer a complete reversal. Here's to hoping you're right.

[ARCHIVED THREAD] - Hyperinflation or Deflation? (Page 2 of 3)

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