Covid 19 - Will it cause inflation or hyperinflation?

Weles100

I have 20k in cash savings and 5k in a bond. What can i do to protect this against inflation? and will covid 19 defintely cause inflation?

kuratowski

Deflation is also possible.

Weles100

what is deflation?

kuratowski

Deflation is where inflation goes backwards, i.e. prices start going downwards year on year instead of upwards.  It is associated with a depression (such as the Great Depression) and it is notoriously difficult to escape from deflation once it has started.

Some economic commentators are saying if the governments and central banks don't act decisively and effectively, we could end up with a depression.  On the other hand some other people are forecasting the expected fiscal stimulus will lead to inflation, as you suggested in the original post.  The truth is nobody knows.  COVID-19 won't definitely cause inflation and it won't definitely cause deflation.  It's crystal ball time.

If 25k is all your savings and you absolutely don't want to take any risk with it, you really don't have a lot of choice about inflation.  Luckily inflation is currently very low by historical standards.

EdGasketTheSecond

The deflation occurs before the hyperinflation as people save/store money but don't spend it. When it gets to a tipping point and people feel good enough, they start spending driving prices up because there is so much money injected into the economy. The velocity of the money picks up and the authorities are powerless to stop it; then you get hyperinflation.

If you want to protect yourself, the only option is gold/silver; preferably the physical stuff rather than ETF's or some synthesized derivative which relies on the financial soundness of a counterparty.

If you want to know more check out the velocity of money and take a look at Germany's hyperinflation and how that panned out. Compare how anyone holding gold fared to someone holding fiat currency.

Weles100

what are other people doing with cash savings? is it good to keep it? or should i buy gold?

kuratowski

My advice was intended to dissuade you from making a hasty decision out of panic.

EdGasketTheSecond's advice has the opposite intent.

Choose which you prefer.

ProDave

kuratowski said:

Deflation is where inflation goes backwards, i.e. prices start going downwards year on year instead of upwards.  It is associated with a depression (such as the Great Depression) and it is notoriously difficult to escape from deflation once it has started.

Some economic commentators are saying if the governments and central banks don't act decisively and effectively, we could end up with a depression.  On the other hand some other people are forecasting the expected fiscal stimulus will lead to inflation, as you suggested in the original post.  The truth is nobody knows.  COVID-19 won't definitely cause inflation and it won't definitely cause deflation.  It's crystal ball time.

If 25k is all your savings and you absolutely don't want to take any risk with it, you really don't have a lot of choice about inflation.  Luckily inflation is currently very low by historical standards.

So in a situation of deflation, holding cash is good as each year it will buy more and more.

Weles100

ProDave said:

kuratowski said:

Deflation is where inflation goes backwards, i.e. prices start going downwards year on year instead of upwards.  It is associated with a depression (such as the Great Depression) and it is notoriously difficult to escape from deflation once it has started.

Some economic commentators are saying if the governments and central banks don't act decisively and effectively, we could end up with a depression.  On the other hand some other people are forecasting the expected fiscal stimulus will lead to inflation, as you suggested in the original post.  The truth is nobody knows.  COVID-19 won't definitely cause inflation and it won't definitely cause deflation.  It's crystal ball time.

If 25k is all your savings and you absolutely don't want to take any risk with it, you really don't have a lot of choice about inflation.  Luckily inflation is currently very low by historical standards.

So in a situation of deflation, holding cash is good as each year it will buy more and more.

But the most likely outcome is inflation, i imagine not deflation, as the government is printing lots and lots of money?

Thrugelmir

The oil wars are providing some relief to inflationary pressures

kuratowski

The government is borrowing money, not printing it.  They are doing so to stave off economic collapse and try to stop people from suffering extreme hardship due to an act of god.  And the cost of the government's borrowing is at a record low.  Inflation is always a risk and no one can truthfully say it won't happen.  However, central banks have spent the last 10 years trying everything they can to get a little bit of inflation, entirely unsuccessfully, so I wouldn't say that an increase in inflation is a certain outcome, far from it.