I get the feeling here that most people who are talking about hyperinflation just mean something like bad inflation. The reasons for getting bad inflation are that the govt is busily expanding the money supply trying to combat economic problems that are not really amenable to this solution. The fear is that gov’ts (not just the US) get into this doctrinaire cycle where economic contraction causes them to increase the money supply despite its non-effect on the contracting economy. In a hyperinflationary economy, the govt almost always tries to increase the money supply in clandestine ways first and there are signs that at least the US gov’t is doing a little of that (where is that M3 thing? Is that $700B bailout really something that has no effect on the money supply or inflation? It’s an investment? What about all that “collateralized lending” by the Fed and what happens if they default and the Fed has to sell that collateral?) Hyperinflation is a terrible, devastating thing. Inflation is bad, deflation is worse, and hyperinflation is the worst (I guess hyperdeflation would be worse - like there is only $1 in the world to buy something so there is global war over the $1, but this has never happened to my knowledge). I think that what people are really worried about is the combined effect of freezing economic activity (deflation) combined with a debasement of the currency (inflationary). I think what this does is not exactly inflation/deflation/stagflation but something more like price dislocations and strange incentives everywhere. Everyone looks to govt for a quick fix and when they thrash around, it only causes instability.
When things look ugly people think of the worse, and I think many are referring to hyperinflaion, the Zimbabwian way or even worse. What’s the probability of that “black swan” happening? Never say never.
i’m trying to wrap my head around gold today - something is going on TIP is down TYX is trending down dxz8 still up at 88 IRX is 1 bps SPY is in crash mode deflation is the theme here. so why gold? what the heck is gold trying to say? all i can think of is flight to safety, and for some segment that thinks USD is not safe, gold is their choice instrument because lurking in the background is a massive hyperinflation fear after we get through this phase. which of you are buying gold right now, and why are you buying it?
Yeah, hyperinflation destroys the ability to plan for the future. It’s truly amazing to get to the point where stores have to update their prices several times per day (if not per hour), and you realize that what you are able to accomplish depends entirely on how quickly you are able to accomplish it and what unexpected things come up. I also think that true hyperinflation probably isn’t likely, but bad inflation (like 1970s) is a possible outcome from trying to stimulate by handing out money like crazy. Since bad inflation is better than deflation (in Joey’s ranking, which I’d agree with), it still makes sense to do it, but it’s gonna be unpleasant. However, there is a high correlation between crony government and the appearance of hyperinflation. This is generally when the government starts to run the printing presses to pay for its own consumption or foreign debts (this is what got Weimar Germany in trouble if I recall correctly). The monetary and fiscal stimuli will almost certainly debase the US currency and make both imports more expensive (remember all that stuff we get from China?) and drive interest rates up. The interest rates would normally be good at containing inflation if the problem is an overheated economy and too much employment, but more likely it will just make businesses harder to finance. The one thing that might be good is that it will be somewhat more profitable to produce here, because you pay laborers in dollars that effectively cost less because they’ve been devalued.
rohufish, to your questions, I did buy a few shars of GLD at around $72.5 on Wednesday, and my only reason is that I felt gold was acting too tamed for this kind of an environment.