It appears that we are in an actual global deflationary situation with all commodities tanking. Is the next step global hyperinflation to kill off nation's currency, pay off debt in those currencies and start a new world currency? granted this might not happen exactly this way. I would like to discuss the odds of a hyperinflation stage next. So what do you think?
Deflation to Hyperinflation
- Thread starter theFNG
- Start date
I've been following the 'Deflation Precedes Hyperinflation-Long Answer' topic at Kitco golf forums for a long time,
Deflation does seem to precede hyperinflation, here is Argentina for example;
Source:
Deflation and hyperinflation are very similar in terms of economic collapse, people loose jobs, companies shut down. The difference appears to be how money is treated. In the great depression money was tied to gold and so treated as scarce, today money is fiat and is treated differently. The following article on Venezuela is very telling on the cause of the switch from a deflationary economic collapse switching to a hyper-inflationary economic collapse.
"Venezuela's 30 million people can't seem to get cash fast enough, said
Steve H. Hanke, an expert on troubled currencies at Johns Hopkins
University. "People want cash because they want to get rid of it as
fast as they can," he said."
. . . .
""Big bills do not cause inflation. Big bills are the result of
inflation," said Owen W. Linzmayer, a San Francisco-based bank-note
expert and author who catalogs world currencies."
http://www.wsj.com/articles/inflati...orders-bank-notes-by-the-planeload-1454538101
I don't know when the cycle will turn from deflate to hyper-inflate, but I do know we will collectively make it happen since this is how we treat money today.
Deflation does seem to precede hyperinflation, here is Argentina for example;
Source:
Deflation and hyperinflation are very similar in terms of economic collapse, people loose jobs, companies shut down. The difference appears to be how money is treated. In the great depression money was tied to gold and so treated as scarce, today money is fiat and is treated differently. The following article on Venezuela is very telling on the cause of the switch from a deflationary economic collapse switching to a hyper-inflationary economic collapse.
"Venezuela's 30 million people can't seem to get cash fast enough, said
Steve H. Hanke, an expert on troubled currencies at Johns Hopkins
University. "People want cash because they want to get rid of it as
fast as they can," he said."
. . . .
""Big bills do not cause inflation. Big bills are the result of
inflation," said Owen W. Linzmayer, a San Francisco-based bank-note
expert and author who catalogs world currencies."
http://www.wsj.com/articles/inflati...orders-bank-notes-by-the-planeload-1454538101
I don't know when the cycle will turn from deflate to hyper-inflate, but I do know we will collectively make it happen since this is how we treat money today.
Very interested in this topic. The only way the current debt problems get solved in my opinion is via hyperinflation or default. Believe it or not, hyperinflation is the lesser of the evils so I'd expect that's what we're playing for.
Very important to play the transition correctly if it happens. Your entire life savings depends on it.
Very important to play the transition correctly if it happens. Your entire life savings depends on it.
I remember here in the States back like 1999 gasoline was $.90 a gallon. The SHTF and the market tumbled downward. Then the FED started dropping interest rate. Home prices started increasing, the market rebounded. Then crash again. At that point interest rates were nearly zero. So the FED did QE. This reinflated the stock market but did little for the working class. To me the 1999 era was a point of deflationary cycle. Then we had inflation and not so much commodity deflation in 2007. Then of course inflation until now. So here we are in a commodities deflationary cycle. Their choices are more QE, helicopter money to the consumer, a raise in wages, a change in tax rates, or something else. What am I missing. I am not sure what NIRP will do in this cycle. Any thoughts?
theFNG said:
I don't know exactly. I believe it's because the turning point is a psychological phenomenon, a loss of confidence that occurs in people minds. These psychological shifts happen all the time in groups of people and entire countries, the media reflects the changes in mood and people on the street talk about how hard it's been recently to make a buck. In a healthy economy these shifts are abated by people weathering the hard times, getting back to work and doing what they can, central control lowing interest rates, government leadership or policy changes, or random events like that country winning a sporting event and people feeling confident again.
theFNG said:
Sounds like you have made a good analysis there, the economy is very unbalanced in the U.S. and globally. Every major psychological shift over the past 15+ years has been abated by more extreme situations and now we are heading into weird and unprecedented NIRPs. Maybe we are now switching back into a confident mood, maybe we will be ok for the next three years and new green shoots will appear soon.
But the global economy has been unwell for a while and has been getting worse and if just one of the many many coming psychological shifts gets out of hand maybe because NIRP is not enough or NIRP is too much or something else completely there will be a turning point. People will just loose confidence, enough to say 'I'll give you a few extra dollars for your stuff, I now want stuff more than dollars' or simply 'get your dollars away from my stuff' or 'if you give me some extra dollars you can have some of my stuff and it's then worth it for me to make the effort to immediately get rid of these extra dollars for more stuff which is what I really want'. Prices rise and once people are thinking like this that's when the turning point becomes visible in the rear view mirror. It's usually too late to plan ahead by then as store shelves are emptying already.
Source: Wikipedia; Shortages in Venezuela
Anyone here in a country where NIRP is being used already? I suppose they could use NIRP as a helicopter. As long as you borrow money the banks will give you a little extra as a "bonus". You get $120,000 for a $100,000 loan in other words. This seems ridiculous. Is it plausible or am I thinking about negative rates incorrectly?
I did find this article:
https://blogs.cfainstitute.org/inve...-interest-rates-change-the-rules-of-the-game/
But would like info from a non-pm pushing site too.
https://blogs.cfainstitute.org/inve...-interest-rates-change-the-rules-of-the-game/
But would like info from a non-pm pushing site too.
theFNG said:
The official intention of NIRP is to get banks to stop parking their reserves at the central bank and to instead take a chance and lend that money out.
Your thinking is on track but it's more like you borrow $120,000 and you get to pay back less then $120,000 to clear the debt. That sort of lending could one day get 'helicopter money' into people's hands but there must me more efficient ways to do that. For example the Australian Government simply gave every tax payer $1000 to spend on whatever.
The only mention I've seen of NIRP on individual loans has had minimal impact and mentioned here;
"In Denmark You Are Now Paid To Take Out A Mortgage"
http://www.zerohedge.com/news/2015-01-30/denmark-you-are-now-paid-take-out-mortgage
NIRP is an experiment and yes, there has been much commentary from pm advocates. I did ask an economist friend of mine that doesn't like me having any gold and he wrote back the following, "Japan will pay you to borrow! Maybe a good time to have your money in some other form. It's not all that different to the US just printing cash". I asked a university economics professor and received a similar answer, to paraphrase 'NIRP is a good experiment that we should be very excited about and sell your gold now'. I'm gathering that economists see NIRP as causing banks to lend which stimulates the economy and will one day cause growth to pick up which will even later on cause rates to rise back into positive.
QE was also an experiment, the result of that experiment is NIRP. The NIRP is an experiment in progress now, I also wonder what the result of this new experiment will be.