Which will come first, deflation or hyperinflation?

Bewildebeest · Tar Sands Joined: May 25, 2006 Posts: 46

In the setting of imminent peak oil and record levels of debt…

I’m starting to think that deflation may occur first in the U.S. (and world) economy, followed by hyperinflation, rather than the other way around. I wonder if we are already seeing signs of this in the subprime mortgage collapse and unwinding of the yen carry trade. As credit begins to contract and people are forced to deleverage, they will bring all sorts of assets (stocks, bonds, precious metals, real estate) to the table to pay their debts. The immediate result will be a deflation of asset values across the board. Only after this will hyperinflation kick in.

How many of you agree with this? Is cash king?

firestarter · Light Sweet Crude Joined: Mar 19, 2006 Posts: 1110

I pick deflation (the developing credit crunch as the catalyst here), then hyperinflation ( in The Austrian sense of the terms). In fact, the first hyperinflationary helicopter drop will most likely be provided by the federal government to the subprime lenders/ borrowers. Think bailout.

keehah · Last edited by keehah on Wed Mar 14, 2007 6:55 pm; edited 4 times in total

'Deflation' then stagflation IMO

Most deflation has happened with PM backed money, rarely with fiat.

So any deflation will be limited to popping asset bubbles or re-valuation of goods in society -such as lower resale prices for concrete boxes with maintenance fees of $300/month and gas guzzling SUV's (not a 'true deflation in my mind).

Just as recent year's inflation was discounted in the press and wall street by weighing out the costs of things going up in price, I expect deflation will be pumped up in the press by a focus on the prices of things going down in price. Whatever is best for the elites to shake cash out of the middle class.

I expect short-term deflationary crash of all goods (including PM's) is possible when the fiat-orgy first ends, but PMs will be amoung the first assets to recover.

It could be possible that the federal banksters will cut off the cash for a longer period of time, to cause a deflationary bust -but one would need to think about a deeper level of conspiracy, as this would kill the middle class, allow China to buy-up the country, and ultimately rush in a NWO since then there would be no way America could pay its debts.

FoxV

This is basically the idea of Eric Janszen's "Ka-poom" theory.

basically he's come up with a comprimize between the deflation/inflation debate. The theory goes that the fed will try to control an asset bubble by raising rates and the deflation begins (this is where we are today). Then once the fed sees what damage is being done, they'll ramp up the printing press to try to save the government's and banker's asses.

This is pretty much what happend during the tech bubble/bust and is what is happing right now with the housing(credit) bubble/bust.

When PO hits, and commodities skyrocket, the fed will do the same again. And once they realize that high interest rates will not lower commodity prices, they'll print like mad, trying to save their butts.

The only problem with this cyclical approach is that it looks like PO is going to occur before the current boom/bust is over. So when they end up inflating to save US banks, they will get hit with PO. The result is a double inflation whammy and will probably cause things to spiral out of control into hyper inflation (especially when the chinese start taking a "duck and cover" approach to the US dollar collapse)

edit---
I have a lot of respect for Eric Janszen, but he doesn't believe in PO. If he did, then perhaps he would take the subtitle out of his latest book "America's Bubble Economy - Profit when it pops"
_________________
Angry yet?

FoxV

firestarter · Light Sweet Crude Joined: Mar 19, 2006 Posts: 1110

mmasters

seldom_seen · Light Sweet Crude Joined: Apr 12, 2005 Posts: 1976

The MSM does not seem to use the word 'stagflation' much. It doesn't fit in well with their shiny happy prozac coverage of everything.

That is what we have though.

A stagnating economy with high inflation.

The fed can lower rates, raise rates, keep them where they are. Drink the blood of a goat at midnight under a full moon. It doesn't really matter what they do. The economy is fuxored seven ways to sunday if it isn't growing...and that's what peak oil is, the end of growth.

topcat

Count me in on the hyperinflation scenario. TPTB HAVE to continue printing money and monetizing debt. That is what they are best at and do not know any different.

The only deflation we will see are in the same we are seeing now, read the automotive dealer's ads and the real estate ads. Think we are going to wait another couple of months and buy a newer truck for half off.

threadbear · Expert Joined: Jan 22, 2005 Posts: 7498

threadbear · Expert Joined: Jan 22, 2005 Posts: 7498

MonteQuest

I posted on this in Oct of 2004. Seems my prognostications were pretty close. The title speaks for itself.

Deflation and Stagflation; An Ominous Portent
_________________
A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.

kjmclark · Heavy Crude Joined: Dec 09, 2005 Posts: 318

Revi · Fusion Joined: Apr 25, 2005 Posts: 3250 Location: Maine

We have already had inflation. Most things that really matter have gone up in price in the past five years. We have had inflation at around 20% per year. Now maybe it's time for deflation? It'll be interesting to see what happens. It would be a lot nicer if it wasn't happening to us. Like watching Argentina or something, but we're the ones who are trying to cope with what's going on. It won't be fun either way.

DantesPeak

Generally, deflation follows inflation - or hyperinflation - in a fiat money system such as the US dollar based Federal Reserve System.

There is a small chance that war or a natural disaster will take down the physical electronic financial system before reinflation can begin – as has been the pattern in the US since the start of the Federal Reserve. Despite what you may have read in history books about the 1930s depression, the banking crash of the early 1930s was soon followed by a large inflationary devaluation of the US dollar. I don't think we should expect otherwise next time.

The more difficult question is – when will the reinflation begin? And are they going to let whole sectors of the economy fail first – such as the housing industry and the auto industry? Yes the auto industry, whose reach into risky financial products will soon be seen as a possible death sentence for Detroit. But maybe not - it depends on how much money the Government wants to spend to bail industries out, or cover up debt defaults.
_________________
It's already over, now it's just a matter of adjusting.