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Debt Deflation vs. Hyper-Inflation?

mshan

Diamond Member
Nov 16, 2004
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Been reading this interesting blog from a former European central banker and started to try and figure out exactly what debt deflation is, and how that meshes with others claims for hyper-inflation.

Acknowledging that we are where we are, which is more likely, and over what time frame?

What would be typically recommended "fix" for each, and what would happen if that wasn't successful? (e. g. given current conditions and anticipated remedies, is debt deflation expected in the near term, but hyper-inflation later on?)


 

SleepWalkerX

Platinum Member
Jun 29, 2004
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It all really depends, I guess. First is definitely deflation. We're experiencing it right now. Retail stores are closing, malls aren't swamped with buyers anymore, oil is dropping, home prices are crashing, banks are trying to hoard capital because they are insolvent, the savings rate is soaring, etc. Cash is king and people are learning to stretch the dollar. This deflation is the result of the malinvestment that was created from the inflation of 2001-2003.

The deflation needs to happen. Its the free market purging the system of the malinvestment. This is the free market "fixing" the situation that these big banks created.

For right now worry about the dollar evaporating. Live frugally, pay off all your debts, and start saving. If you do that, you'll be fine. Hyperinflation will only happen if the market is flooded with dollars. This will happen if A) the banks or the government decide to throw cash out from helicopters or B) if the dollar stops becoming the world reserve currency. A is not going to happen during deflation and B is unlikely to happen during deflation. It might happen afterwards though.
 

mshan

Diamond Member
Nov 16, 2004
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I read in same blog (blog or comments, I forgot) that basically our creditors, the Japanese, Chinese, Russians, and Gulf Oil stakes, would basically be buying up U. S. assets through opaque private equity funds so that they don't dump U. S. dollars (?):

"The Federal Reserve will support the plan by relaxing the definition of ?control stake? in US banks and bank holding companies to allow secretive cabals to hold through private equity and offshore hedge funds. No one knows the beneficial owners of these ill-transparent private equity investors, and so it is the ideal way to reward loyal and helpful insiders, legislators and officials ? as well as cede further ownership of American assets to foreign stakeholders who would be politically unacceptable if publicly acknowledged. Many foreign creditors are irate at the losses their funds, banks and pensioners have sustained from investments in the United States, and this plan provides a secret way to buy them off and keep them lending and investing as their own economies are roiled by the deflation to come."
http://londonbanker.blogspot.c...-paulson-plan-for.html

Don't know if it is good or bad for our country (not good for tax payers, because same blog says Treasury is going to buy slightly below market, repackage, and then sell at significant loss to banks and other entities who will reap all of profits), but hopefully it does take hyper-inflation off the table down the road.

 

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