Hyperinflation Vs Hyperdeflation: Take Your Pick

Tyler Durden's picture

The market is now at a very simple crossroads: bonds are pricing in the hyperdeflation that the resumption of the global depression brings in, while gold is pricing in the central planning policy response to that hyperdeflation, which is nothing but print, print, print. Anyone who feels like arbing the spread on the trade (which has a very unpleasant end in either case), should go ahead and do it now.

10 Year - at a record:

Gold - also at a record:

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Thorlyx's picture

The rest of my money is on hyper too. No way that the CBs will allow deflation.

flacon's picture

When priced in gold (money) everything is deflating at parabolic speed and has been since about the year 2000. Priced in the US Dollar (currency) we have price stability because the Ben Bernank said so, and if prices drop he will enforce that price stability because it his mandate. He is going to need leeway to print trillions more dollars to make his imaginary money system appear stable. 


Meanwhile... When priced in gold (money) everything is deflating at parabolic speed and has been since about the year 2000. 

CrashisOptimistic's picture

I got yer inflation right here, rufus.

I watched a 2 Liter bottle of pop at Walmart go from $1.25 in mid July, to $1.38 in late July (that's 10%, sports fans).

This week that same bottle is now $1.58.  

Pepsi, Coke and Dr. Pepper sort of leap frogged each other along that time period.  They are all syncing up now at $1.58, just to avoid confusing the consumer.

Calculated_Risk's picture

I have a picture from 2 years ago of a recyling vendor next door... aluminum $.40 a lb, today $1.00 lb.

malek's picture

Who cares what the regular price is. The lowest sale prices are of interest.

Looking at that I see tendencies in the last few weeks, there are NO more Coke sales at $0.99 and only a few Pepsi / Dr. Pepper at $0.99 here in NorCal.

narnia's picture

fact:  you would be much better off with $1,800 FRNs under your matress than an ounce of gold if hyperdeflation is the outcome.

opinion:  you'd be better off living in a free, safe, energy independent area with no gold or FRNs under your mattress than in a big city with 1,000 ounces of gold or $1,800,000 FRNs under your bed, in the event of either hyperinflation or hyperdeflation.

tmosley's picture

Yeah, same goes for if gravity reverses.

There is no such thing as hyperdeflation in a fiat currency.  PERIOD.

akak's picture

There is no such thing as hyperdeflation in a fiat currency.  PERIOD.

You beat me to it, T.

Anyone who non-facetiously discusses the absurd concept of "hyperdeflation" has just instantly disqualified themselves from being taken seriously.  There is neither any historical nor any theoretical basis to believe that "hyperdeflation" is anything other than a pro-fiat disinformational line and smokescreen to hide the only REAL threat we face, that of ongoing and very likely escalating currency depreciation.

narnia's picture

hyperdeflation is exactly what the market is saying.  all government promises & any enterprise dependent on them are worthless.

hyperinflation is the consequence of central planners trying to make worthless assets unworthless.

hyperinflation is the most likely outcome for political reasons. hyperdeflation is not entirely implausible.


Smiddywesson's picture

Inflation or deflation, gold is real money and people in either situation flee to real money. 

There are other safe currencies, but as all the survivors swarm into those lifeboats they swamp them, causing the SNB to club them over the head and intervene in the swissy.

This will end with only two lifeboats, gold and the USD, and one of them is being debased (guess which one?)

Each debt ceiling increase and easing measure will take us progressively closer to there being only one lifeboat, gold.  In fact, I would say we passed that point a long time ago, but the chickens don't know their heads have been removed yet and they keep running to treasuries for "safety."

This is not an academic argument.  This is money.  Inflation or deflation, gold is the only safe currency, and soon the central bankers will have complete command of the last lifeboat and will begin clubbing the people in the water without gold.

malek's picture

When government promises, i.e. things like pensions and SS, are in the process of becoming worthless, the official currency hyperinflates at the same time.
(Holders of gold will then likely see prices deflating measured in gold.)

So pick if this is then hyperdeflation or hyperinflation to you.

Inspector Bird's picture

Not entirely true.

The fiat currency ITSELF could not deflate.  That is accurate.

But once it is so undermined and devalued as to be worthless, it can only deflate....down to zero, and require a "new" currency.

e_goldstein's picture

I can think of only a couple of scenarios... The first would occur after a period of hyperinflation. At the end of the life cycle of the currency, after everyone has lost faith in the currency during a hyperinflationary bout, then no one would accept the currency for payment. Instantaneous 100% deflation. Not sure if that really meets the technical definition of hyperdeflation (whatever the hell that is) though.

The second would be if the CBs raise interest rates to 99-100%... but that would put them out of business, so I doubt that would ever happen.

malek's picture

Yeah, same goes for if gravity reverses.

ROTFL, you made my day!

Quintus's picture

Gold IS money.  People are running to gold because in deflation or hyperdeflation you want money above everything else.  

You now have a choice.

You can flee to the kind of money that is held for you on a computer in a financial institution that will not survive deflation, and which will lock you out when a Bank Holiday is declared.


You can flee to the kind of 'Traditional' money that you can hold in your hand, will never go bust, will never close its doors and refuse to grant you access, and which can be spent in any country on earth.

That is why both bonds and gold are rising at the monent.  There is no conflict, just people making choices about which type of money they want to shelter in.

aerojet's picture

No, people are running to gold because they are dumb herd animals.  I am resolute that nothing in the financial world is ever cut and dry.  Gold looks promising, so that is where the masters will strike at you from after they drive everyone they can to buy there.  Then the gold bubble will pop, leave all of you wondering what the fuck just happened, and it will be on to something else.  Nothing obvious ever works in the investing world--nothing.  Ever. 

akak's picture

Study history and take a wider perspective, and you will see that the broad moves in monetary matters ARE in fact rather self-evident and obvious --- at least to those who are not brainwashed by the Establishment powers into ignoring them, as the vast majority of those who are forced to suffer the monetary depredations of fiat-issuing governments invariably are.

Smiddywesson's picture

Aerojet, that is a good rule of thumb for trading during the life of a monetary system, but this is the end of the old system.  The central banks are buying, and they sure are not doing so because they expect the gold they have to drop in value.  They are not plowing much needed cash into mere tradition in the middle of a crisis for no reason.  And, they are all doing so, at the same time, all over the world.

The old system is done.  They HAVE fooled most people.  Most people have no gold.  So TPTB have won again.

Spitzer's picture


The Austrian definition of inflation is the expansion of the money supply. If the Fed wrote a check to me and you for 800 billion dollars today, that would be an expansion of the money supply(inflation). The moment we spend or invest the money is when the inflation is noticed. If we slowly bought treasuries over the next 5 years(assuming there is no run), consumer prices and commodities would not go up. There would be minimal realized price increases(realized inflation). If we spent or invested it all on commodities the day we got the money, there would be realized price increases right away. If we wait 2 years and then spend or invest in commodities, there would be realized price increases in 2 years. The fact is, the inflation happened when the check was written.

The inflation in the US already happened. There doesn't need to be any more money printing for hyperinflation to occur. There only needs to be a reallocation of the inflation that already happened. A lose of confidence the inflation that already happend, a loss of confidnce in treasuries.

centerline's picture

You very well could be right on this.  Which is a profoundly scary concept.  Say, all the dollars circulating the world as reserve currency suddenly flood home too quickly.

MachoMan's picture

A single dollar in circulation is enough for there to be hyperinflation of said dollar under this concept.  I think this is the "credibility" FOFOA talks about, which forms the peg or underpinning of the currency...  Once the crediblity is gone, well...  you get the idea.  And, every day, our policy makers trade a little bit of crediblity for another day of existence of the currency.  Just a matter of time.

Koffieshop's picture
I figure the gamble here is that the military strength is perceived as enough to back the currency. 
This is why almost no one is talking about cutting the armed forces expenses.
MachoMan's picture

We've been relying upon military strength to back the currency for quite some time...  this strength is waning and prospective competitors are becoming wiser and bolder.  Ultimately, a sudden move hurts everyone (hence cooperation through this point among the world's central banks), but the wheels have already started turning for slow change, which may give rise to quick change at any time...  Either way, the end result is certain.

Inspector Bird's picture

This IS the problem. Inflation around the world is getting out of hand.....but when those dollars start coming home, OUCH.


Consider this - if part of the attempt is (and I think it is) to make the dollar as cheap as possible to "boost" our manufacturing base (and to some degree this is happening, however small that boost is so far), other nations will begin to buy our stuff.

This will be good for the economy, creating jobs, etc.  But the flood of returning dollars, and the increased demand for goods, will only spark massive inflation.

That is only one of several scenarios in which "dollars come home".  None end very well.  As for the "gold bubble" - everything bubbles at one point or another.  Certainly this IS a bubble.  But only until it pops.  The question is when, and at what level, will it pop?

History says AT LEAST 3,000.  But given the activity, it's worth thinking higher is possible.  But if it's a shell game by Wall Streeters to shift wealth, you never know.  Could be about 2,000.....wait for the support levels to break.  Then worry about that.  Right now, it's game on for gold.

Freewheelin Franklin's picture

According to Palyi, hyperinflation, or "galloping" inflation is a repudiation of the currency.


Spitzer's picture

When loss of confidence hits treasuries and capital flys out and hits anything of perceived value, the buzzword on the street will be hyperinflation.


pods's picture

If that happens in the US then the only buzz you will hear on the street is the bullet that just zipped past you.


Freewheelin Franklin's picture

It is the inflation of the money volume-paper
currency. and bank deposits-that creates the fact
and maintains the expectation of a disproportion
between the total supply of goods for sale and the
total amount of purchasing power people have
and are ready to use. Hence the definition; Moneycreation
· is inflationary when the additional purchasing
power has no counterpart in goods and
services people want to buy-when too much
money chases too few goods.

Spitzer's picture

Treasuries are not assets, they are debt. Debt is the essence of fiat, the debt backs the dollar. Nobody is forced to hold these treasuries and debt. They can sell them for CASH anytime they want.

flacon's picture

CASH is debt too - a NOTE of indebtedness. 

Spitzer's picture

That's right. As debt defaults cash loses value. Look at the value of the Icelandic Krona, it crashed as debt defaulted.

Look at the nations of Thailand, Indonesia and South Korea (300 million people) during the Asian financial crisis. Their currencies fell by for or 60|%, they did not gain.

aerojet's picture

Loss of confidence in the soveriegn that issues the cash, would be my guess. 

TheTmfreak's picture

Right. This is what I was thinking. They what... tripled the money supply already? However it hasn't made its way into actual "circulation."


Spitzer's picture

When you sell a treasury, you get cash. When there is a run on treasuries, there will be a hell of allot of people selling and getting cash.

Chump's picture

This is where I stop under understanding.  The conditions where a run on Treasuries would occur would pretty much preclude actual redemption, no?  Wouldn't cash then become king because, well, no one can get any?

Spitzer's picture

The expansion of the money supply already happened. Treasuris are denominated in dollars, they are dollars already.

Chump's picture

They are denominated in dollars, yes, but they are not actual dollars.  Otherwise the act of redeeming one for cash would be nonsense.  I'm saying that a run on Treasuries would make them essentially irredeemable.  Bennie could print physical dollars to cover of course, but why bother at that point?  The world would be burning already.  I'm probably missing something here though.

aerojet's picture

Treasuries are bonds, a form of debt that pays interest on a schedule.  The act of the government issuing treasury bonds is not inflationary.  What is inflationary is blatant money printing, obviously.  What is also inflationary, and what is really our problem, is that when banks make loans, they don't hold any reserves against that loan but rather "print" money out of thin air.  What the government has been doing through quantitative easing has been to replace that lost private sector money creation with public sector money creation--as in, the Fed buying T's instead of real people.  It's not exactly the same as Zimbabwe-style money printing, however.  It is a subtler form of manipulation.  The side-effect is that all that new money has to seek a return, and since stocks have been so shitty, that money has poured into commodities, giving is $3+ gasoline, expensive food, etc.  None of those price increases are demand driven anymore--in fact, people are consuming less, trying to keep ends meeting in an environment where their savings is earning 0% for them, and their wages are falling or they have lost their jobs completely.

Spitzer's picture

US debt is publicly traded. Nobody is forced to hold it and they wont. Even primary dealers can quit being primary dealers.

Flakmeister's picture

The PDs hands are tied.... in for a penny, in for a pound...

Smiddywesson's picture

Nobody is forced to hold treasuries yet, but a little change to 401k rules could limit what you can hold in those retirement accounts.

shortus cynicus's picture

You are basically right, but...

If we slowly bought treasuries over the next 5 years(assuming there is no run), consumer prices and commodities would not go up.

Big Government would immediately spend that money which increases prices.

Money can be buffered only if someone save it in foreign (not domestic) bank accounts or stores cash in a save. It must be foreign account because domestic banks lend that savings out without permission of the owner causing price increases too, foreign do not.

Run away inflation occurs when foreign savers starts to dump flooding domestic market.

Bastiat's picture

Yep. You can have a lag between monetary inflation and price inflation--that lag is what the author of the The Dying of Money called: "latent inflaiton." The trigger to bring it out of latency is an increase in velocity. You get that when confidence in the currency erodes, then breaks.  I've read that China has committed about 1/2 its UST holdings to pay for resource acquisitions. Think about that volume of money coming out of the ice box, just for starters.  It can't be stopped.

Smiddywesson's picture

I've read that China has committed about 1/2 its UST holdings to pay for resource acquisitions. Think about that volume of money coming out of the ice box, just for starters.  It can't be stopped.

Right, everybody is playing ball but China.  All the central banks are quietly buying gold and keeping thier citizens in the dark.  China is almost forcing their citizens to buy gold or move to gold denominated accounts.  I thing the Fed and EU are going to screw China and China knows it, so it isn't playing by the rules all the other central banks are using.

That cost BearSterns, central bankers have long memories.

falak pema's picture

Whats the cost of a hooker in the Hampton's? I know that is Robotraders speciality. It should be a good indicator, of bi-fellation, stag-deflation, or just an insight into if the WS shills will need some private QEs to quell their market thrills turning into outright terminal chills.

Phillips Capital's picture

Does anybody else feel that whats happening in treasuries right now is after a massive rush to safety, we are now in a short squeeze?? Just saying, i have not heard anybody make this point. but christey, look at the charts!!! they are ridiculous. i think its a short squeeze. 

TheTmfreak's picture

A very neutral, very zerohedge comment. Well played.

I like this article as it brings up such a great observation. So my question to people, is how is this situation going to de-cock itself without either outcome (or some weird combination of both?). I think we all know the answer to that (its not).

centerline's picture

Both is a potential outcome in my opinion. It just depends on perspective. In currency terms we might hyperinflate. In real terms we are going to hyperdeflate.

And yes, it is going to suck.