If Hyper Inflation arrives ........

1echidna

ad9898 wrote: »

The issue is, in the current climate salaries will not increase, people need to prepare to get poorer.

Except of course those with power through industrial action like refinery workers and power station workers who no doubt will hold us all to ransom.

Generali

MyLastFiver wrote: »

Not necessarily. Governments may increase interest rates in order to combat inflation, as it is a way of making money scarcer, and therefore more valuable.

The problem is that in a stagnant economy, ie one that is not growing, raising interest rates would be disastrous as it would damage the economy further as people spend even less, more companies go bust and unemployment rises, tax revenue falls, etc.

This is called "stagflation" - a stagnant economy with an inflation problem. If low interest rates and quantative easing fail to get banks to lend, and people to go out and buy flat-screen tellies and ipods again, then this is where we're headed.

To answer the OP, moderate inflation, if matched by pay increases and not combated by interest rate rises, is good for people who are in debt as the value of their debts fall relative to their wealth.

If hyperinflation occurs then any moderation should be disregarded as a matter of po;icy.

Forget your mortgage when a loaf of bread will cost thrice when you leave work as when you caught the morning train.

I hope it will never come to this and I suspect it won't.

I don't know the truth and nor do you'!

MyLastFiver

Generali wrote: »

If hyperinflation occurs then any moderation should be disregarded as a matter of po;icy.

??? Is this a way of trying to tell me what I wrote is wrong?

Forget your mortgage when a loaf of bread will cost thrice when you leave work as when you caught the morning train.

I was trying to explain the principles of inflation to the OPer, whilst avoiding hyperbole like this.

I don't know the truth and nor do you'!

I never said I did.


It comes to something when you try to write a moderate and helpful post and you end up getting flak like this.

kennyboy66_2

mitchaa wrote: »

But your mortgage amounts become worthless? No??

I cant see how the above is true unless you are comparing it to Zimbabwes situation of which i can pretty much put my house on this country would not allow to happen.

If we see inflation at 20% and salaries rise in line then anyone with a fixed rate mortgage will gain substantially, as their debt although still ''£100k'' is a lot more affordable with a lot more surplus left over.

A good thing (For those on fixed rates with mortgages anyway, and i suspect for those with a savings nest egg)

Admittedly i know very little about the financial industry and looking at Zimbabwe i would not like the same to happen, but perhaps you can enlighten me as to why it would be bad for all?

In a high inflation environment, interest would normally be high as well. Some peoples pay keeps up with inflation and some doesn't. So there could be some winners amid the sea of losers. I always felt that the growth of supermarkets was helped by highish inflation (they don't hold much stock, pay their suppliers on 60 days, and get cash in each day).
In a hyper inflation environment the only winners would be people who could keep there savings in foreign currency or gold.
For the vast majority of people feeding themselves would be as big a worry as their mortgage.

Savers or people with a "nest egg" tend to do disasterously during high inflation.
What normally happens is that if inflation is 20%, then the spread between bank interest for savers and borrowers widens. So you may get 15% on your savings, but pay 25% on your mortgage.

For a saver this means they are suffering a 5% real fall in the value of their savings each year (worse if you are paying tax on your savings).



There really isn't an upside to high / hyper inflation.

Cannon_Fodder

mitchaa wrote: »

If we see inflation at 20% and salaries rise in line then...

That is one assumption that is not a given...

i.e. if there is high unemployment across the country, as inflation hits, workers are going to be reticent about seeking high wage rises, as a job is better than none, to many.

You just have to look at Jaguar etc taking pay cuts and 4-day weeks...


http://tutor2u.net/economics/revision-notes/a2-macro-causes-of-inflation.html

The danger of higher taxation and the increased cost of imported raw materials jump out of the 'cost-push' inflation explanation.

piggeh

How would public welfare work in such an environment? ie if the £60.50 JSA suddenly halved in it's worth, would the Government increase the amount being paid out, or keep it as it is? After alll this is supposedly the minimum people need to live on.

What would they do in a hhyperinflationary situation?

Would we maybe see the end of the benefits system as it stands currently? Maybe this would be a good thing.

Rochdale_Pioneers

Why are we even discussing this? We might as well be discussing what would happen if the world turned out to be flat

BlondeHeadOn

Rochdale_Pioneers wrote: »

Why are we even discussing this? We might as well be discussing what would happen if the world turned out to be flat

You mean it isn't?



When did that happen??

lostinrates

Rochdale_Pioneers wrote: »

Why are we even discussing this? We might as well be discussing what would happen if the world turned out to be flat

Not really...we've seen the world isn't flat, we haven't seen the future.

I hope and believe hyperinflation isn't in it, but if people want to discuss it I think its a valid discussion point.

My comparison might be more of a religious/after life one.......we won't know till its all over, and, er not then if there is nothing!:D

bendix

Hyperinflation, my a**e. It isnt going to happen. Inflation will inevitably rise and interest rates will follow suit, but not to the levels people are getting hysterical here about.

10% perhaps. No more. It's hardly the end of the world.