UBS: Risk of hyperinflation highest in US and UK

Graham_Devon

And their reasons as to why they place us next to the US as the highest risk of suffering hyperinflation?

• Hyperinflation is a fiscal phenomenon, resulting from unsustainable deficits. Historically, it occurs after central banks monetize a large amount of debt.
• It's actually more closely related to deflation than inflation "as hyperinflation can be viewed as the result of a failed attempt at printing money to avoid the deflation that would be caused by austerity."
• Currently, it is a concern for the some major currencies because their path is exactly like that described above; large fiscal deficits have forced austerity and deleveraging, and countries are responding with large scale monetary easing.
• The warning signs are here for several economies. UBS research finds that hyperinflation tends to happen when deficits financing more than 20 percent of government expenditure. India, the US, Japan, Spain and the UK all qualify.
• The Eurozone as a whole is below that threshold, Japan is a creditor nation, and India's currency is not hugely vital to markets.
• "We therefore think that the hyperinflation risk to global investors is largest in the US and the UK."

"A significant deterioration of the fiscal situation or a significant expansion of the monetary policy stance in the large-deficit countries could lead us to increase the probability we assign to the risk of hyperinflation," writes Lack.

You may or may not agree with them or their reasons, but at least they have given some!

They do state it won't happen in the next 12m. But it seems the more we print and create, the higher the risk.

http://www.businessinsider.com/hyperinflation-risk-major-currency-2012-7

ILW

Merv's pension is index linked, so no problem.

The_White_Horse

and all this is thanks to the public sector.

ask them what they think of it and their answer will be "more pay, more pensions, more benefits" like the greedy useless automatons they are.

oldvicar

Ironic really. Just as Inflation drops by more than expected (for a month) and the papers are full of erroneous headlines telling savers to REJOICE because they can now get savings rates to beat inflation.

MacMickster

I'm not entirely certain how they think that hyperinflation can occur in Spain, but not the rest of the Eurozone.

Surely the Spaniards would take their hyperinflated wages in Euros then spend those Euros in France or Portugal.

Graham_Devon

MacMickster wrote: »

I'm not entirely certain how they think that hyperinflation can occur in Spain, but not the rest of the Eurozone.

Surely the Spaniards would take their hyperinflated wages in Euros then spend those Euros in France or Portugal.

Actually, the Greeks (I believe) were banned from taking their money out of the country. Banks stopped transactions and borders were set up to check for money leaving the country.

So it could happen. Just look at how determined the Eurocrats are. The above shows how determined they are.

RickRule

ILW wrote: »

Merv's pension is index linked, so no problem.

But his index is quite different from reality.

wotsthat

Graham_Devon wrote: »

They do state it won't happen in the next 12m. But it seems the more we print and create, the higher the risk.

Only if any of that printed money finds it way into the hands of people that can spend it.

Isn't most of the money being used by banks to improve balance sheets. Money supply is actually down and inflation is heading the same way.

Short of money being sent in the post to every household it doesn't look as though this is going to change anytime soon.

Graham_Devon

wotsthat wrote: »

Only if any of that printed money finds it way into the hands of people that can spend it.

Isn't most of the money being used by banks to improve balance sheets. Money supply is actually down and inflation is heading the same way.

Short of money being sent in the post to every household it doesn't look as though this is going to change anytime soon.

To succesfully monetize the debts, don't you need general wage inflation?

Otherwise you just end up in a situation where nobody can afford anything due to inflation?

grizzly1911

The_White_Horse wrote: »

and all this is thanks to the public sector.

ask them what they think of it and their answer will be "more pay, more pensions, more benefits" like the greedy useless automatons they are.

Perhaps not a view shared by every public sector employee.

PCS union ballot only received a 20% response.

No doubt should you ever find yourself in RESUS you may have a different view.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Risk of hyperinflation highest in US and UK

Highest?

Sure....

But at less than a 10% risk, it's not exactly high.

Graham_Devon wrote: »

Actually, the Greeks (I believe) were banned from taking their money out of the country. Banks stopped transactions and borders were set up to check for money leaving the country.

So it could happen. Just look at how determined the Eurocrats are. The above shows how determined they are.

Link?

Proof?

Source?

Graham_Devon wrote: »

To succesfully monetize the debts, don't you need general wage inflation?

Otherwise you just end up in a situation where nobody can afford anything due to inflation?

We have effectively monetized nearly 40% of all outstanding UK national debt through the banks QE purchases of Gilts.

Which means that nearly 40% of all UK national debt interest payments are paid by one arm of the government (The Treasury) to another arm of the government (The BOE).

Yet inflation remains extremely low by historical standards because the money that was printed to buy up all those Gilts has not made it's way into the wider economy, but has instead been used to rebuild bank balance sheets.

In order for even significant inflation, let alone something resembling hyperinflation, to happen those funds would have to somehow make their way out of the banking system and into the wider economy causing a situation where too much money is chasing too few goods and services.

Now that seems pretty unlikely to me.....

Which is no doubt why the IMF says there is a 90% + chance it won't happen.