Printing money

ashbourne

what would constitute hyperinflation?

Murdina

There is no simple answer to this question - if you put 10 of the world's leading economists in a room they would all give you a different answer.

For example, it's said that printing money = increasing the money supply. But that depends on how you define the money supply (there was much debate about this in the era of Mrs Thatcher). Arguably, what we have all been doing the last few years ie borrowing like mad is also increasing the money supply.

I would stop worrying about it, spread your risk by keeping your savings in a variety of accounts and wait and see. No one has a crystal ball and we are in unknown territory in my view. Hyperinflation is what has happened in Zimbabwe and happened in post First World War Germany. There have been other factors at play in those situations that do not I think apply to the UK now.

(and in answer to your final question, I think the seminal definition was inflation of 50% or more per month. )

Charles1968

ashbourne wrote: »

Hi,

I recently heard that there is a good possibility that the government will start printing extra bank notes and thus making any decent amount of savings worth less.

Is this a likely scenario? If you have fixed savings of a significant amount is there a possibility that it could be worth less soon?

If so, what are signs it is happening and how much less would they be worth?

Also, any way to safeguard against it?

you're right, the government is going to start "printing money" (though not literally), and an increase in the money supply is inflationary and a threat to the value of savings in sterling. But the UK is not going to experience inflation just yet. The consensus among economists is that we're in for a temporary bout of deflation. Deflation is great for savers as your cash increases in real terms even if it earns zero interest. But don't expect this to last. The government is terrified of letting the economy slide into a deflationary spiral, which could prove catastrophic, so it will throw everything including the kitchen sink at the economy to reignite inflation.

Note that the Bank of England's thinking has changed radically in recent weeks. A few months ago, inflation was the problem and interest rates were kept high. Now, inflation is the solution, or at least it would be if the BoE/gov't could make it come back.

Their efforts to re-inflate the economy will eventually work (probably), as there's no limit to the amount of money they can print to fight deflation. But it's almost inevitable that they will get the balance wrong and overcorrect, causing uncontrollable, soaring inflation or even hyperinflation in a couple of years or so (timing on this is wild guesswork).

You need to be in cash during the deflationary stage but move into hard assets or income-bearing assets when inflation kicks in. Getting the timing right will probably be impossible, so my thinking is to start moving out of sterling now. One advantage of doing this is that sterling is going to carry on losing ground against other currencies as the government takes increasingly desperate measures to rescue the UK economy and reveals just how far up the creek our economy truly is.

It's a very difficult time for investors. Best you can do is try and keep your eyes on the ball, and diversify your investments.

nobby24

Don't forget politicians have savings too.

soulsaver

nobby24 wrote: »

Don't forget politicians have savings too.

Yep they have... but they won't tell us when they move them out into another currency... if they haven't already. Not to mention inflationproof pension schemes...:mad:

Charles1968

nobby24 wrote: »

Don't forget politicians have savings too.

and mortgages, which are wiped out by hyperinflation.

I don't think politicians are reinflating the economy in order to line their pockets. It's all about getting re-elected, and the key to doing that is saving the housing market - i.e. turning deflation in house prices back into inflation, which can be done with the same tools used to turn general deflation into inflation (increase in money supply, cheap lending, low taxes etc).

Pound

ashbourne wrote: »

what would constitute hyperinflation?

Anything above 50%

http://en.wikipedia.org/wiki/Hyperinflation

ashbourne

what would be hard assets or income-bearing assets - a house?

buglawton

nobby24 wrote: »

Don't forget politicians have savings too.

And inflation-proofed pensions to go with the savings?

jon3001

ashbourne wrote: »

what would be hard assets or income-bearing assets - a house?

Hard assets are tangible things of financial value. E.g. precious metals (or other fungible commodities), land, property, art and antiques. Depending on how desperate things get it could also be tinned food, cigarettes and alcohol which are either consumed or form the basis of a bartering system.

Sometimes it can refer to a currency if it can be trusted that the government tries to maintain its purchasing power. The Swiss Franc is traditionally seen as a hard currency.

You can derive an income from the rental of land and property. If piece of art or an antique has intellectual property rights attached to it then that can also be a source of income. Other things that generate an income are bonds and stocks. These are seen as paper assets though, rather than hard assets.