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

harryhound

Why are we concentrating solely on the money supply.

The uk's self evident deficit spending and balance of payments deficit (plus the loss of natural resources with self evident unsustainable position in the "carbon economy") means we are looking like a bad bet in the currency value stakes.

Meanwhile the recession is decimating (reducing by 1/10th) the world's ability to create goods and services.

Shortage of goods creates as much inflation as too much money.

I'm with Sir Philip Green (who runs Bhs and Arcadia, ...) once the discount prices being charged by retailers trying (and failing) to avoid bankruptcy are over and the time to restock comes, then all this talk of zero inflation will be replaced by talk of 10% stagflation.

We will have to face up to our impoverished state. It is at this point the government, in an attempt to get re-elected might bottle out and continue printing or taking on more debt. International hot money may say "no thanks" when offered more UK deficit paper and the spiral downwards could start.

Harry.

kt63_2

I'm beginning to suspect that we will be experiencing higher levels of inflation in the next few years than we have been used to in recent history. There is a lot of political pressure for "green shoots" to appear before the next election and the BoE doesn't appear to be as independent as it used to be. For this reason I suspect that the Quantative Easing might get over done a bit, leading to inflation.

On a related topic, I'd be interested in how those posters who believe in the inflationary threat plan to hedge against it. Obviously there is gold, but it provides no income and there is always the risk that it might fall back in value if the inflation fails to materialise. One idea that I had was to but index linked national savings certificates (see http://www.nsandi.com/products/ilsc/index.jsp ) . Obviously if there turns out to be deflation they won't be a very good buy, but as the interest rates on them probably can't go negative (I'd need to check on this) they seem to be a bit of a one-way bet at the moment - i.e. if inflation goes up they offer a good deal, if inflation goes down I wouldn't lose much as interest rates on other products won't be very attractive as the BoE base rate will remain low in a deflationary environment.

sabretoothtigger

We'll see 'normal' inflation like in the 70's but not hyper imo just because we arent as extreme as countries where things like this occur:

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[FONT=verdana,arial,helvetica,sans-serif]Full Story http://news.sky.com/skynews/Home/World-News/Morgan-Tsvangirai-Zimbabwe-Prime-Ministers-Wife-Susan-Dies-In-Car-Accident/Article/200903115236327?f=rss[/FONT]

I think the government would be out peacefully before hyper became reality

piggeh

bigheadxx wrote: »

Hyper-inflation is a real threat and it would actually be in the governments interest for it to happen. The best way and maybe the only way of reducing the national debt as a proportion of income would be to allow inflation to rise significantly for a period of time. This would, over time see heavily indebted householders see the value of that debt fall in relation to their income.

One point missing. House prices. If there is high inflation, then people's property prices in real terms may keep falling, but in 'market value' terms they will stay the same or increase. So all those emotive complaints about people's house prices falling/negative equity etc will suddenly disappear as the majority now see their house prices 'shooting up'. All will be well within the housing market once again.. :T

harryhound

Exactly, that is why a government desperate to get re-elected is playing fast and loose with the money system.
It is the least worse option at the moment but I doubt that who ever gets elected they will have the back bone to turn on the electors and tell them the truth: "We have to balance the budget somehow! This is what we are going to do.........................".
Just keep issuing more money while we try to face up to reality: ..... mañana....mañana
Remember the "rule of 72"
Argentina here we come.

Harry

Divide the rate of inflation into 72 and that gives you the number of years it takes to halve the value of money eg 12% means 6 years = a year longer than one government = 'normal' inflation like in the 70's.
So far the banking system, debt addicted citizens & a government asleep at the wheel have devalued our money by 30%, and our investments by 50%. That should get a mention in the history books.

harryhound

kt63 wrote: »

I'm beginning to suspect that we will be experiencing higher levels of inflation in the next few years than we have been used to in recent history. There is a lot of political pressure for "green shoots" to appear before the next election and the BoE doesn't appear to be as independent as it used to be. For this reason I suspect that the Quantative Easing might get over done a bit, leading to inflation.

On a related topic, I'd be interested in how those posters who believe in the inflationary threat plan to hedge against it. Obviously there is gold, but it provides no income and there is always the risk that it might fall back in value if the inflation fails to materialise. One idea that I had was to but index linked national savings certificates (see http://www.nsandi.com/products/ilsc/index.jsp ) . Obviously if there turns out to be deflation they won't be a very good buy, but as the interest rates on them probably can't go negative (I'd need to check on this) they seem to be a bit of a one-way bet at the moment - i.e. if inflation goes up they offer a good deal, if inflation goes down I wouldn't lose much as interest rates on other products won't be very attractive as the BoE base rate will remain low in a deflationary environment.

In theory they are better than gold, whoever wrote the rules did not think of the possibility of "deflationary" months, so they always go up over 3 or 5 years.
However if the money goes to hell by the time the repayment cheque arrives and clears you could be in negative territory.(ironic smilie I hope:rotfl:)

kt63_2

However if the money goes to hell by the time the repayment cheque arrives and clears you could be in negative territory.

Sadly, I can't rule out such a situation. However in my more sane moments, I'm thinking we are looking at high inflation (say, 10-15%), but not runaway hyperinflation, so the index linked certificates look like a reasonable bet.

bendix

Generali wrote: »

When was the last time destruction of wealth happened on the same scale as now, internationally would you say?

It's a pretty casual use of words.

What wealth? There wasnt any wealth Generali. It was smoke and mirrors, mere paper wealth based on a asset price bubble. People felt wealthy but it was like building a castle on sand.

bendix

MrFonzerelli wrote: »

T

Good businesses are going to the wall too.
Economics teaches us that gradual growth in an economy is preferable to boom and bust.

That statement is tautological.

If there were good businesses, they would not be going to the wall. If they were good businesses, they would have been managed effectively to deal with a wide range of realities, including this downturn.

If businesses are going under it is either because they were producing things that people don't want, or they were badly run. Ergo, they are bad businesses, and are disappearing when problems arrive.

You can't have it both ways . . . .

tomterm8

lukekelly wrote: »

Inflation reduces debts and reduces savings.

Only when the repayments are fixed. Where a debt is on a variable rate, the rate will inevitably be increased if inflation increases. Generally the interest rate increases faster than salary.