Hyperinflation Question

Discussion in 'Economy' started by Mick01, Oct 21, 2012.

  1. Mick01
    Offline

    Mick01 Rookie

    Joined:
    Oct 21, 2012
    Messages:
    8
    Thanks Received:
    3
    Trophy Points:
    1
    Ratings:
    +3
    Many people believe we will see hyperinflation at some point due to all the printing Ben's doing, but I recently read an economist who stated it will take very long due to a few reasons.

    1)The amount of cash printed represents only 2-3% of overall US dollars on the world market and therefore Ben could print like this for a decade before the US sees hyperinflation.


    2)Hyperinflation requires a major trigger like a serious war, not the conflicts the US has been in for a decade. Without this, hyperinflation is very unlikely.


    Can anyone disprove these, or further prove them?
     
  2. Joe Steel
    Offline

    Joe Steel Class Warrior

    Joined:
    Dec 11, 2009
    Messages:
    1,052
    Thanks Received:
    96
    Trophy Points:
    83
    Location:
    St. Louis, MO
    Ratings:
    +119
    As the money supply increases and prices begin to rise, producers will enter the market to sell their goods and services. This will force down prices. Hyperinflation can occur only at or near the productive capacity of the economy when increases in the money supply can't attract more production.
     
  3. Norman
    Offline

    Norman Gold Member

    Joined:
    Sep 24, 2010
    Messages:
    6,493
    Thanks Received:
    983
    Trophy Points:
    280
    Ratings:
    +5,972
    Well, the plan is to add 40 billion a month to the money supply. That's actually that's ONLY the mortgage program though. Keeping interest rates at 0% + operation twist etc. add to that.

    Base money is currently around 3 Trillion.

    40 billion x 12 = 520 billion a year.


    That is way more than 2-3%. However I think they are comparing the base money supply to the overall money supply. The overall money supply is IIRC around 10 trillion. (depending how you count).

    Ben has taken the money supply from 700 billion to around 3 Trillion already. But a lot of bank credit has busted. So that's why you haven't got hyperinflation even though he has already tripled the money supply.


    The real threat exists however. Because ben's printing in part has aided the govt to take a lot of debt. The interest rates rates are going to raise and... Then what? That's more of a concern.

    A other concern is the trade balance of US. If china for example thinks that US is inflating they may dump their dollars. Exchanging all those dollars for products means more demand, less supply = could be a disaster. I don't know what the exact balance of payments is but I am pretty sure that central bank of china has some dollars stock piled. If they sense danger they will start selling those, also dumping the bonds which could contribute to the interest rate problem.

    Certainly, everything has been thrown at the problem. Hyper inflation is possible but I don't think it will happen. High inflation is more likely though.
     
    • Thank You! Thank You! x 1
    Last edited: Oct 21, 2012
  4. Mick01
    Offline

    Mick01 Rookie

    Joined:
    Oct 21, 2012
    Messages:
    8
    Thanks Received:
    3
    Trophy Points:
    1
    Ratings:
    +3




    This answer seems logical when dealing with a manufacturing driven economy, which the US no longer is. Would you then include the entire manufacturing of the world, which can easily ship into this economy to fill the need?

    Seems to break down when we consider how easily other manufacturing countries could fill the need.
     
  5. Joe Steel
    Offline

    Joe Steel Class Warrior

    Joined:
    Dec 11, 2009
    Messages:
    1,052
    Thanks Received:
    96
    Trophy Points:
    83
    Location:
    St. Louis, MO
    Ratings:
    +119
    I think it would be applicable to services, too. We have 23 million unemployed and underemployed workers. Some could be enticed to change occupations (perhaps by retraining) to those attracting increased spending.

    Imports would fill the demand. Of course, the relatively long trip from factory to consumer might make the effect less timely.

    The analysis, however, also is complicated by the use of American dollars as the de facto world currency. As the supply of dollars increases, the dollars might find their way into foreign markets where they will increase production which never enters the US.
     
  6. EdwardBaiamonte
    Offline

    EdwardBaiamonte Gold Member

    Joined:
    Nov 23, 2011
    Messages:
    27,605
    Thanks Received:
    1,132
    Trophy Points:
    205
    Ratings:
    +3,065
    The Fed expanded its Balance sheet perhaps $2-3 trillion depending on how you count all the emergency measures they have taken. In a $14 trillion economy that might produce 5-10% inflation in the worse case.

    The TIPS market which predicts inflation through the prices of treasury securities indicates very little inflation is anticipated. THey take Bernanke at his word, namely, inflation will be held to 2% or so.
     
  7. Paulie
    Offline

    Paulie Platinum Member

    Joined:
    May 19, 2007
    Messages:
    31,577
    Thanks Received:
    4,856
    Trophy Points:
    1,130
    Ratings:
    +15,424
    Yeah we should definitely be considering the so-called TIPS indicator over the gold and silver indicator :rolleyes:
     
  8. Mick01
    Offline

    Mick01 Rookie

    Joined:
    Oct 21, 2012
    Messages:
    8
    Thanks Received:
    3
    Trophy Points:
    1
    Ratings:
    +3



    You really think we should take the word of a guy who calls himself an expert economist but couldn't see the crash of 2008 coming?

    Has Bernanke ever been right? Don't think so. His word isn't worth much IMO
     
  9. oldfart
    Offline

    oldfart Older than dirt

    Joined:
    Nov 5, 2009
    Messages:
    2,354
    Thanks Received:
    462
    Trophy Points:
    140
    Location:
    Redneck Riviera
    Ratings:
    +527
    First hyperinflation is an exceeding rare event, having occured three times in modern history. Only one of those episodes involved a major economy (Germany, 1923) with the other two being Hungary in 1945 and Zimbabwe currently. The first two resulted from economic dislocations following major wars and the last a nation that had experienced a prolonged internal struggle. I think this supports the second rationale you gave.

    Monetarists believe that increases in the monetary base inevitably cause proportional changes in price levels. This was broadly true under the gold standard, but has not been true since about 1920. Keynes introduction of the liquidity trap theory directly contradicted the monetarist predictions. In the last five years we have conducted an economic experiment that quadrupled the monetary base. Following this action, for the next three years we had deflation rather than hyperinflation. Every economically advanced nation on earth had similar experience. The anti-Keynesians lost the debate; inflation remains low five years out and there is no hint of hyperinflation despite constant warnings that it is just around the corner. People in the investment sector who bet on hyperinflation have lost hundreds of billions of dollars.

    One more note: the rise in gold prices does not validate the monetarist theory. Gold prices are very strongly inversely related to real (inflation-adjusted) interest rates. Gold prices rose consistently before and after the expansion of the monetary base in response to changes in the real rate of interest.
     
  10. Kevin_Kennedy
    Offline

    Kevin_Kennedy Defend Liberty

    Joined:
    Aug 27, 2008
    Messages:
    17,590
    Thanks Received:
    1,581
    Trophy Points:
    205
    Location:
    Ohio
    Ratings:
    +2,027
    What major war was Zimbabwe engaged in before their hyperinflation hit?
     

Share This Page