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Hyperinflation Cannot Be Prevented By Debt/Deflation
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Hyperinflation Cannot Be Prevented By Debt/Deflation
Written by Jeff Nielson (Click For Original)
A repetitive flaw continues to circulate throughout much of the media – mainstream and Alternative, alike. This flawed analysis contends that we are heading for a deflationary crash, and reflects a fundamental misunderstanding of economic dynamics.
This fundamental (and unforgivable) error comes from a failure to recognize the definition of deflation: it is when the currency in which a particular jurisdiction is denominated rises in value. It is with this basic fact in mind that we can now view a simple hypothetical example, which resolves the phony “inflation/deflation debate” once-and-for-all.
Imagine two economies which are identical in every way, except for one, important difference. They have the same GDP, the same sized population, and a similar set of identical, economic parameters (except for that one difference). Both economies recklessly decide to hyperinflate their currencies, as represented in the “hypothetical” chart above.
This is not a chart of a potential hyperinflation. Rather, it is a chart of a currency which has already been hyperinflated (past tense). For readers who can’t “see” this already, just imagine a chart even more ridiculously extreme requiring a much larger page.
Both Economy A and Economy B have hyperinflated their currencies (i.e. driven the value of those currencies down to zero). Now we come to the key difference between the two economies – and the obvious folly of the Deflationists: Economy A is totally solvent, without a single penny of debt, while Economy B has a $50 trillion national debt, and is obviously bankrupt.
According to the nonsense of the Deflationists, the currency of Economy A which has ‘only’ hyperinflated its currency will fall to zero, while the currency for Economy B which has hyperinflated and bankrupted itself will rise in value – due to the “deflationary crash” about which the Deflationists are continually jabbering.
We thus arrive at the Idiot Principle of Deflation. A nation which only hyperinflates itself will see the value of its currency fall to zero, but a nation which hyperinflates and bankrupts itself will cause that currency to rise in value. The bankruptcy supposedly does more than merely “cancel out” the hyperinflation, it completely overwhelms it.
By now, it should be patently obvious to anyone with two synapses to rub together that the Idiot Principle of Deflation is utter gibberish, and cannot possibly add up, when one simply views the economic dynamics (and definitions) in their proper context. But the mind-numbing idiocy of the Deflationists becomes even more obvious when we add some empirical evidence from the real world.
What makes the hypothetical example above totally unrealistic? Economy A, the solvent economy, would have absolutely no reason to engage in the recklessness and suicide of hyperinflation. Solvent nations never hyperinflate their currencies. Thus every one of the (numerous) regimes throughout history whose currencies exploded into hyperinflation was also already insolvent/bankrupt. It is only such insolvency which creates the extreme desperation necessary for a government to invoke such economic suicide(hyperinflation).
According to the Idiot Principle of Deflation, this is impossible. Because these nations went bankrupt, their currency should have risen in value, rather than collapsed to zero. But there is another principle of idiocy at work here.
As has been pointed out to readers, but apparently ignored by the Deflationists, until our governments embarked upon the even more-reckless fraud of “quantitative easing” (monetizing debt), our governments literally borrowed every unit of currency into existence. This means that these units of currency are/were literally the IOU’s of our governments – our bankrupt governments.
What is the value of an IOU issued by a bankrupt Deadbeat? Zero. The currency of Economy B was already worthless, even before it began it began its hyperinflationary money-printing. The currency of Economy A only became worthless as a result of the money-printing. The currency of Economy A is worthless. The currency of Economy B is doubly worthless.
However, according to the Idiot Principle of Deflation, when you render a currency doubly worthless, it rises in value.
Sadly, this infantile error in logic/arithmetic of which all the Deflationists are guilty cannot be attributed to mere ignorance. It is (has been) nothing less than abject stupidity. The reason why such a harsh verdict is absolutely warranted can be summarized in two words (and one name): John Williams.
It is now a full decade since the esteemed Mr. Williams (of Shadowstats.com) first published his brilliant essay (and analysis) “The Hyperinflationary Depression” (updated on numerous occasions), where he explained why bankruptcy does not (and would not) prevent the value of a currency from falling to zero if that governments pursues a hyperinflationary monetary policy (i.e. hyperinflationary money-printing).
Put simply, a government can destroy the value of its currency and implode into bankruptcy, simultaneously. Empirically, this is precisely what we have seen with every hyperinflationary episode in history. The deflationary crash of bankruptcy occurs (more or less) simultaneously with the hyperinflationary plunge-in-value of the currency. The former never “cancels out” the latter.
This is the true “principle” at work with these dynamics, and it is one which the Deflationists have either ignored (for ten years) or simply lack the capacity to grasp. Individual facets/sectors within an economy can implode in a “deflationary crash” (within that niche). Not only does this fail to negate any overall hyperinflation at work, it must accelerate it. Obviously a nation whose currency is “doubly worthless” should/must plunge to zero even more rapidly than the currency of a nation which is ‘merely’ worthless.
To repeat, every nation in history which has engaged in the suicidal monetary policy of hyperinflation had already succumbed to the fiscal folly of insolvency. Not only is it “possible” to simultaneously have a nation hyperinflate its currency to zero and have a so-called “deflationary” debt-default crash, it is the onlymanner in which hyperinflation ever occurs.
The Deflationists don’t understand economics. They have ignored all of our economic history (where not a single nation has ever “warded off” hyperinflation by going bankrupt). And (apparently) they have never even heard of “John Williams”. They can be, and should be, totally ignored.
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A few points to consider
1. Electronically created money from a keyboard can be directed, focused and controlled. Disseminated to the public in the form of public aid and other giveaways.
2. Money created the old fashioned way, Fractional lending from a job/production cannot be directed, focused or controlled because anyone could buy anything, raising prices and wages (The first signs of inflation).
3. Leverage is based on reserves and has not even been printed into existence yet. Leverage is a promise too pay just like insurance.
5. If you have deflation in asset prices you have an increase in leverage ratios.
I agree with the author, deflationary crashed will be followed by massive money printing which will take that currency to zero. Simultaneously, the act of deflation, default, and lack of growth makes the IOU's of a country ( dollars ) less valuable. Inflation and deflation can be one and the same.
I vote for biflation. Already see it happening. USA national and personal debt is about 40 Trillion Dollars.
If eveyone in the country takes on a second job and pitches in, the debt may be paid back in about 20,000 years.
The scene is beyond rediculous.
Just some thought here.
If all the QE and the 15+ trillion that made its way into foreign banks were for the purchasing of MBS and other assets are just 1's and 0's in a computer the its not currency per se correct?
Now if everything crashes and the banks wont be bailed out this next time then wouldnt that mean that their assets would go on a fire sa meaning lower prices/deflation?
And if the assets, other than real money such as gold, silver, go down in prices but our currency may have a backing in some form or another of gold, that would mean inflation of the value of those actual commodities , but of something that has value based on supply related to real dollars and not those created by entries on a computer yes?
If the banks, not the CB's but the ones who have the assets on their books as it relates to loans from collateral, go tits up, the deflation will happen because they have to sell with very few to buy them and the currency possibly being backed by gold/oil/silver/land would then give us a combination of inflation and deflation just of different types correct.
Then if all debt is repudiated by all countries and we go back to zero then hyperinflation wouldnt happen because the digitized currency essentially evaporates while the physical currency in existence would the. Have the relative equal value to commodities that underly them as the prices of auch assets and commodities deflated and it could be a wash.
Does this sound plausible?
Also it all depends on who holds the gold and how much!
There is no helicopter ben. It's helicopter janet. Where have you been in a cave.
While I generally agree that hyperinflation is more likely than deflation, I'm not sure the Author understands how currency is created.
On the Fed Balance Sheet a T-bill goes on the Assets column. A sum of dollars of equal value go on the liability column. In fact the Fed accepts now other financial debt instruments as assets...balanced by dollar creation on the other side.
This leads to two separate conclusions:
1) Debt must always expand in order to add to the asset column...or past debts will become unpayable (because the Fed's Assets bear an interest rate, while its liabilities do not.)
2) If confidence in this system drove down the value of those assets below par...a similar number of dollars MUST be extinguished. The mechanism is a default of the underlying security, which then destroys its alter-ego in currency.
According to the nonsense of the Deflationists, the currency of Economy A which has ‘only’ hyperinflated its currency will fall to zero, while the currency for Economy B which has hyperinflated and bankrupted itself will rise in value – due to the “deflationary crash” about which the Deflationists are continually jabbering.
Here's another flaw in his reasoning. The USSA government cannot go bankrupt for as long as the Federal Reserve exists. It can match every IOU dollar for dollar. That buys a lot of trust in dollar assets when smaller governments are defaulting on their debts. This bears out in the low interest rates of treasuries. State and local governments are another story.
The Deflationists don’t understand economics.
Or maybe Nielson doesn't know what he thinks he knows. The quantity theory of money he espouses comes with a lot of exceptions because of the fickle nature of human values. Austrian Theory explains business cycles very well. But up to the time Austrian Theory was developed, there was never a time when one national currency became the de facto standard for the whole world. We will experience deflation for as long as the rest of the world perceives the dollar as a safe haven.
This is where Martin Armstrong picks up where Mises left off. Somehere on the order of 90% of money in the world is parked somewhere, leaving 10% for trade. So the question becomes where do the 90% park their money. Not that the dollar is so great, but that the alternatives worse. It's going to take a massive amount of dollar losses before the world economy loses confidence in dollar. Hyperdeflation first. THEN hyperinflation and the death of the dollar.
Until this hyperdeflation cycle exhausts itself, hyperinflation is nowhere on the horizon. IMO, prices would have to go somewhere below 1950 levels.
remember when the bulls said $50 oil? the economy will take off like a rocket ship. a few years ago when China threatened to dump those bonds the Treasury printed a trillion dollars to call their bluff. i would say they arent bluffing this time, and its a matter of what the fed isnt telling you. a trillion of new currency just about matches the existing dollar float, so thats a double. now it takes more of those foreign dollars to buy US goods, inflation is too much money chasing too few goods (too few US goods anyway), and that $1 trillion China sold is only about a 1/3 of their bond holdings. th e fed wants 2% inflation an d fortunately printing a trillion US dollars is a slower way to go about it, those dollars take a long time to spead out through the system which is why they are keeping their mouths shut about this.
i dont necessarily believe gold is an inflation play, i see gold as a strong economy play. if you buy long dated TIP notes like the wise guys have been doing it may be all blue skie and unicorns a few years down the road. the fed will lie and they will deceive, and when theyre balance sheet is broken they will try to hand their mistake back to the treasury. thats where president trump steps in.
Agree the US is in a different place as everyone perceivces us as "safe" (suckers). Other countries that have went through what he describes weren't world reserve status. As things go to scheisse the deflationary envoronment will catch hold in the US....for awhile. All the ZIRP around the world will only hasten it. Central banks are creating the exact environment they want to avoid.
Relative prices - to be more correct I think. The net outcome is deflation - from a money flow standpoint like you mention. And also because of bloated government coupled with a problem in cramming more debt down the throats of economic mules (us). However, the backdrop is rising prices in things we need (energy, food, water, etc.) which gives the impression of inflation.
Of all the people I have read (a lot) over the last few years, Armstrong appears to be the one with more solid and complete thesis. Hard for some people to swallow because of his almost religious adherence to his cycle theory which admittedly at best is like monkeys looking up at the stars.
Funny. The article just before this one points to a RISING USD after a multi-year secular collapse. Guess there are always two sides to the debate. If this thesis is legit, what's up with the USD???
Hyperinflation cannot happen unless wages, salaries and other FRN compensation for the proles, 160,000,000 of them, does a 180.
And I don't see that happening in my lifetime.
Allow me to simplify;
That which cannot be sustained, WON'T BE.
Sorry but all you useless paper-pushing fucks will have to work for a living again. Always looking for more sharecroppers...
Careful what you ask for. There are more of them than there are positions for people to actually do something for a living other than selling bullshit to each other for a living. And most aren't capable for one reason or another (too fat, too lazy, too arrogant, too stupid, ...).
Again, it doesn't matter as that which cannot be sustained, won't be, period.
Idea of being overrun by idiots ought to be a concern! What is being sustained is life support for morons. When that is cut off, they might just go feral in large numbers.
Just differentiating. What you need is hard working good folks who already know the value of what you offer, what it means, and are likewise willing to defend it tooth and nail. They will know and respect the offer from the get-go.
in the 90s the BOJ routinely parked fiat currency in money market accounts, and then routinely sweep it up as was needed. bernanke has a more byzantine policy, of reverse repo for money markets. such policies are there to create collateral, so that they can prevent a demand surge for cash, which is hyperinflationary. why would the fed choose deflation? at this moment there is a very good chance that the trillion or so in treasury bonds that the Chinese sold were bought by the federal reserve. in theory at least those bonds could be repatrioted for cash, but such a move would destroy the same currency, the dollar with the chinese are buying. in short owning treasury bonds or dollars doesnt make much difference. neither one is particularily liquid. (you can exchange fiat for what?) if the fed did buy a trillion in US treasury that is deflationary, and it is their policy, (QE allows for them to buy any security, domestic QE applied to the US banks, it could just as well apply to the PBOC, their charter allows for it. why would the fed talk inflation while they carry out a policy of deflation? the purpose of collateral is to provide new spending after a recession, but the balance of debt to (real) collateral is much higher than it ever was. phantom collateral has the same quality as debt, it can be swept up as they say. it also crowds out real collateral. no one is buying the feds mantra that phantom collateral is the hedonic equivalent. now the fed has to monetize that trillion in bonds, and that money enters the global currency float, and that is very hyperinflationary. this is a test of bernankes sterlization policy on currency exchange. in the end the value of the dollar collapses, by the weight of a trillion new dollars in the system, while it seems that it would be hyperinflationary, it is truly deflationary.
I don't think they purposefully try for deflation. What they do only goes so far (not very) and then will reserve itself and become deflationary. They don't try for deflation, things like ZIRP will get you there, they just don't have any idea what they are doing. They are experimenting, frantically searching textbooks and keysians papers, while they blow up the world economy.
now the fed has to monetize that trillion in bonds, and that money enters the global currency float, and that is very hyperinflationary.
Normally thisis true but if this is the beginning of the unwind of the dollar carry trade (or a more advanced anifestation of it), that trillion in monetized bonds could go into closing leveraged positions. In the case of China the Fed at least has Treasury and agency collaterla to buy back. Should it come to the whole 9 Trillion in EM $-loans being unwound, the collateral would not be of the same quality and that would be a real test of the Fed's resolve in avoiding a deflationary tsunami. My own take is that given the Fed has increased its balance sheet by some 3+ Trillion (officially), it would be myopic not to expect more attempts at resisiting deflation.
All the EM currencies dropping like a rock makes it much much harder to pay back their dollar denominated debt, if not impossible. By itself would be ugly, add it to the other many bubbles and things look downright scary.
Fundamentals 101:
Most of the "economy" sits in the form of overpriced financial and commodities valuations (Stocks, ABS, CDOs, MBS, actual Real estate, Gold, Copper, oil etc). This is not cash and are all dependent directly or indirectly on speculation.
When everyone tries to take out that "money", the value of said assets adjust downwards. This blunts inflationary pressure. And until that digital wealth is withdrawn into real spending/cash there is no effect whatsoever.
All that these Western CB manipulations (ZIRP, QE) and targeted Stock purchases by the PBOC actually do is digitally create a sense of "recovery" in stock prices thus convincing investors to halt their panic selling.
The financial markets can NEVER translate into significant inflation because actual value is pegged to the willingness of holders to HOLD. When people spook and start to sell (or have to sell for retirement) then, and only then, does the real value reveal itself.
As everyone here at knows, the game is about buying cheap and selling high and not being the last person holding the bag when the chips are cashed in.
Real inflation will only occur when the real economy picks up/wages rise and vise versa.
To have hyperinflation of prices you only need people to do what Central Bankers have been telling them to do... "Don't save dollars, SPEND them!!!!"
For every seller of Dollars there must be a buyer. But they need not be on equal terms (supply and demand) if there are more dollars on the market for 'stuff' than there is 'stuff' on the market for dollars, the value of the currency must drop.
So, no, there are a lot of ways to get to hyperinflation.
Those dollars are safely locked away from the economy in reserves or foreign banks.
7 years later and still the same fire or ice debate.
:((((((((((((((((((((((((((((((((((((
Some say the world will end in fire, Some say in ice. From what I’ve tasted of desire I hold with those who favor fire. But if it had to perish twice, I think I know enough of hate To say that for destruction ice Is also great And would suffice.Pure poetry.
Jeff..I guess you found the "crystal ball" we have all been looking for...I guess that makes you so smart..here is the future...give me a break..
Along with money supply, there is velocity, which has hit an amazing low of precisely 1.5: https://research.stlouisfed.org/fred2/series/M2V/
More people are feeling impoverished and/or worried and are not looking for excuses to spend or invest at such low returns. Companies are effectively decapitalizing and taking on more debt by buying back stock. I also think money, being increasingly captured by the <1% is being hoarded and off-shored.
I invest with Sprott, and believe that PM investment is a good idea no matter how the inflation-deflation tug-o'-war plays out (due to counter-party risk).
I won't EVER invest with someone that recommends storing your PMs in some far off facility. Good luck collecting when the time comes. Are you asking to be taken advantage of?
OK, hear me out here. If all M4 currency has been loaned into existence, repayment of debt destroys the asset side of the ledger. Like my loan repayments eventually take the principal out of circulation, effectively. If that is the case, then declaration of bankrupcy will not only effectively destroy any face value of the M4 currency asset, but will also prevent replenishment of the currency stock in circulation.
Which leaves any remaining currency (M1, PMs, whatever) in a position of scarcity. Would that not equal a rise in value of the currency? Honest question.
I have two major problems with this post.
Number one is the tone. Your self-assurance and arrogance really undermine the article. Very Krugman-esque actually. I might point out that hyperinflationists have been screaming hyperinflation at least back to Nixon closing the gold window. They have also been consistently wrong. To call deflationists idiots is also a cheap ad hominem attack. This is not a simple black and white topic. The dynamics of QE are a new phenomenon and to pretend that understanding how it wil unwind is as simple as looking at a chart of the monetary base is very naive.
I have been struggling with the inflation/deflation question since before joining ZH. I don't pretend to know what will happen exactly, and I certainly don't heap scorn on people who contradict whichever narrative I find myself supporting.
Which brings me to the second problem with your post. It is not convincing. I'm not saying it's wrong, but I don't think it deals with a specific problem in the hyperinflationist case.
To that end, I would like to provide you my own hypothetical Country A and Country B. As in your example, they are identical, except this time they both have crushing debt. Country A choose to print $1 trillion dollars in fiat notes and distribute them to the populace. Country B choose to create $1 trillion in very cheap lending capability and offers it to the populace. In both cases, the populace snap up a trillion dollars and spend it in an orgy of consumption and malinvestment. The difference is that when all is said and done, the populace of Country B has a $1 trillion debt millstone around its neck, and the populace of Country A does not.
Most of the textbook cases of hyperinflation involve countries similar to Country A. A government literally prints money and passes it out to the populace. It is simple fiat paper. More currency against an unchanged set of resources leads to inflation. The government responds with more fiat, and the cycle eventually leads to a crisis of confidence in the currency and hyperinflation.
But that is not what has happened in the U.S. The government did not distribute fiat paper. It created lending facilities, much closer to the example of Country B. Student loans, car loans, etc. More currency against a fixed set of resources creates inflation (see college and auto prices). But when the consumption is finished, unlike Country A, the debt continues to exist, pulling against future production. The economy begins to contract, so the government creates a new round of cheaper financing, setting off a new round of consumption and a new level of debt.
So how does this cycle end? You end up with a pile of debt that can no longer be serviced even at near zero rates. At some point, another round of cheaper financing does not goose the economy enough to overcome the weight of the debt pile even over a short time horizon. When that debt begins to be defaulted upon, you quickly enter a cycle of deflation, as assets are sold to get whatever recovery is possible.
This is why I don't see hyperinflation as an obvious outcome. It requires the government to take an extra step beyond its current QE mechanisms. It requires Bernanke's helicopter, dropping cash directly into the hands and checking accounts of the populace. Cash without attached debt. If that happens or something similar (e.g. fiat printed to support a war effort), I can get on the hyperinflation bandwagon, but if the country continues the QE mechanism, I still don't see how that ever creates hyperinflation.
I would love for a supporter of the hyperinflationist narrative to teach me here. Am I missing something in the above analysis?
Good reply by gammboy. Agree right up to your deflation as assets are purged in a race to pay down debt and faux deflation is the result. Asset supply is up, demand is down. Regardless of currency "printing," assets will cost less and it will "feel" like deflation.
Now assets are gone. The wealth misallocations pendulum swings to the complete opposite side.
This is when government directly inflates currency in order to pay down its own debt, goose velocity for the sake of taxation, and indirectly defaults on government debt/liability by paying with diluted currency. This is when the lessons of Weimar Germany come in. The government could avoid this dismal ending by moving towards sound money, but it won't. The government won't back its currency because there is no perceived bank profit in doing so, and banks run the government. The empire will have to kill itself first before the republic can be reborn.
Great response gammab0y; I signed in just to upvote it. I was thinking of posting something similar, but there's no need now.
There is a big difference between the hypothetical example given by the author and the current situation, hence hyperinflation is possible (depending on how CBs respond to the coming crisis), but not inevitable.
And I agree that the tone is inappropriate. The author may well be wrong. And people who believe in a deflationary crash or an inflationary crash are often on the same side--the side against central banking. We don't want to fight amongst each other.
Thanks gammab0y, a good thoughtful post.
For my two cents, we already have a great deal of inflation. Not hyperinflation, yet, but inflation in asset prices (real estate, stocks, commodities) because there is no price discovery anymore.
Another source of hidden inflation is foreign made goods. We pay low (though not so low anymore) prices for stuff made in China. Consider what those same items would cost if still made in the US, and you will see that inflation has been masked by the import of so many manufactured goods, and at a cost to jobs and the economy.
Also, a huge percentage of the student loan debt (US government's single biggest asset on the books) will probably never be repaid. So if you print money to make a loan which won't be repaid, how is that any different than simply printing money to hand out to the populace? Same thing with subprime mortgages which are still being issued.
IMO, we can end up with a deflationary crash from here or a hyperinflationary one. But I expect prices to rise for essentials and fall for non-essentials, which is what happens when you have price inflation in an economic depression, which can happen together.
"But I expect prices to rise for essentials and fall for non-essentials, which is what happens when you have price inflation in an economic depression, which can happen together."
Agreed, that is a strong possibility.
This is sort of my thinking. I would expect in the near future to see a rise in price for items consumable or typically not purchased by debt (food, fuel, etc.) and a drop in price for those currently purchased with debt (cars, houses, etc.).
I agree with you 100%. It's the helicopter money that breeds hyperinflation. But I wouldn't discount the chances for precisely that if the SHTF when the QE stops working, and we are arguably approaching that point. As the collapsing EMs liquidate their eurodollar holdings, that acts like a reverse QE. I can't think of anything else the PTB will do insuch a case but helicopter money (or "QE for the people" as the socialists are calling it).
I suggest you have more problems with context and grammar. In every case of the word idiot, it used as a pronoun to the word principle.
Thus no personal attack here. Only criticism of a principle ..
And if you think your acumen superior to the likes of Williams, Faber, Casey, et al, go right ahead and make our day ..
(You must work for Shedlock)
Actually it does appear to be first deflation (especially in the energy sector), and will end in hypeinflationary depression. Gold will be at a minimum, 50k / oz., and will cost about the same in USD/FRN to buy a loaf of bread (if eating refined grains is good for the human body at all) ..
I'm a bit disappointed in myself for being dragged into this, but you are doubly wrong.
The use of the world Idiot as an adjective can only mean that someone who is such an idiot would defend the principe. And secondly, he did personalize it:
"But the mind-numbing idiocy of the Deflationists becomes even more obvious..."
As for the luminaries you offer, I respect them all for trying to bring some clarity to the opacity of our bankerlords. I am certain all of your names struggle with the same inflation/deflation/hyperinflation quandary that we are discussing here. And to echo another poster, we should not be fighting among ourselves. We will need all hands to eventually tear down the walls of 33 Liberty.
"...
When that debt begins to be defaulted upon, you quickly enter a cycle of deflation, as assets are sold to get whatever recovery is possible.
..."
don't forget that there is a buyer for every seller.
some buyers can / will buy an asset declining in value:
- they might believe that they have a bargain
- they might not worry about timing bottoms
- they might be exploiting incentives more valuable that apparent losses expected
- they might have "irriational" (non-financial) reasons for purchase (zio-newspaers?)
whatever the reasons, the exchange of a wheelbarrow of marks or Z$s for a sheet of toilet paper makes sense at a particular time and place.
price discovery never stops
"price discovery never stops" -- well, unless a producer refuses to sell in the first place. Unless of course your life is the price.
Scarcity is a real phenomena too. Depending on the time and place it can last for a long time too. If I have the means to defend the resources required for survival, I sure as hell will.
I think the missing piece of your puzzle as how you get hyperinflation from deflation is that it is a process with the key final step being the complete collapse in government confidence. Many governments have created deflationary environments but only in rare cases did they create actual hyperinflation afterwards. In both your examples (A&B) neither will create hyperinflation when applied to the context of the US because the US is the world's reserve currency at this point in time. This is also why despite what many feel was massive QE (should be inflationary right?) but there were 2 problems with this creating inflation. First the QE was not given to the citizens, therefore there was no way for them to direct where the benefit went (most of it actually went overseas). Second the government contnues to chase taxes relentlessly thereby creating a massively deflationary environment where money flows are dropping like a stone (ie deflationary forces are much stronger than inflationary forces). You are correct in that both asset prices (everythng from oil to college educations) and debt are headed for a downward spiral. The key here is whether or not the world finally loses all faith in the US government's ability to pay back it's debts regardless of any restructuring (ie sorry bond holders, you get nothing, thanks for playing). Once that trigger happens then that's when you get hyperinflation. The extent of the loss of confidence dictates how severe the hyperinflation event typically will be but there are other factors as well. There are plenty of examples of this dating way back influding the wheat economy of ancient Egypt and rice economy of feudal Japan.........both had to switch to commodities to replace currency since fiath in government would not allow for currency to be circulated. This is the same idea that people feeling that we need to go back to gold standards are resonating towards but again this will not be possible until you have complete loss of faith and we are definitely not there yet by any means.
Please YOU are "the government", what you mean to say is "faith in fiat money".
Let's be honest, so long as there are 7+ billion people on this rock, deflation in anything that is required for a higher standard of living is a fucking myth.
Define higher standard of living.
I would love a Ferrari. I can't afford one. Based on where we came from 20 or 30 years ago and my education, position, age, etc. I should be able to. But I can't. That era was an illusion anyhow.
Demand for essentials (food, water, etc.) wont go away. Demand for most everything else can if money is not circulating. If people think that tomorrow is going to be worse than today, they will not spend. Confidence can collapse in other ways than everyone running to unload fiat. Heck, even gold is based on confidence. It is being hoarded right now. In Japan long ago the monetary system devolved to rice (food).
The process is a vicous cycle because as we all know the system is build on the premise of perpetual growth. When organic growth failed, it was replaced with synthetic growth. When that fails (soon), who knows what comes next. But, one thing is for certain, the human population is not going to keep growing at breakneck pace. Chances are the birth-death ratio is going to flip hard.
I went through an IPO and had huge amounts of money on some Spreadsheet. It was locked up and the dot com crash occurred and all I got was a huge tax bill.
Of course the founders were able to sell their shares so they got their Ferrari and I did not get my Ferrari. So Ferrari economics is situational..... And we are all mushrooms...
"Define higher standard of living. " -- not living in a cave and having a dependable, healthy food source.
FYI, you cannot drive my Ferrari either.
I dunno. I have seen some cool caves. Food on the other hand... yeah...
How about a ride in the Ferrari? I am easily pacified. Especially with food.
You can't be serious.........why exactly would anyone believe fiat has any value at all? What does that fiat represent? Why aren't Bitcoins at $0 even though they have nothing backing them at all?
It all has to do with people's confidence and trust, once that get's shaken look out below.
+1. If the end is a default by cancellation of a currency or outright collapse of a government, one can say that hyperinflation was instantaneous. Just playing with the semantics here of course.
What we are facing is a collapse in government. A failure of modern social engineering. All riding on the back of constraints (complexity, resources, etc.) which are hitting real limits. Ultimately, a neo-Malthusian nightmare. Deflation is what will be real. It is what we have been feeling since the 70's - it's acceleration now becoming clearly noticeable and beyond the powers of central banks to continue sweeping under the rug.
And we haven't even scratched the surface of how geopolitics, bankers, etc. all play parts. Clearly the balance of power in the world is at stake. Short-term actions aren't always for the local economy and god only knows who is playing who and how or why. Money and power owes no allegiance to any nation.
" It is what we have been feeling since the 70's" -- really? what was the price of an education in the 70's, a visit to the doctor, a gallon of gas...?
Deflation is a fucking myth when it comes to anything reuired for a high standard of living.