Covid 19 - Will it cause inflation or hyperinflation?

Linton

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 it's a disaster for the economy since people can get a real return by doing nothing with their money.  So no investment and a general disincentive to buy unless absolutely necessary since whatever it is you want will be cheaper next year.  Both lead to a reduction in employment.

It also means that any loans you take out, eg a mortgage, get more difficult to pay off over time.

ProDave

All this last 10 or more years has shown, is that interest rates has been a pretty damned useless tool for controlling the pace of the economy.

womble_87

I'm not doing anything with my savings. I am leaving them in a Marcus account. I was not planning to make any significant financial purchases for at least another four years so I am going to sit it out. The savings will only be touched if I become jobless. The last thing I think people should do is put their savings somewhere where they can't get them. The savings may lose value but what can you do if you don't wish to risk it. And the risk at the moment would appear to be extremely high. Anyone who suggests they know what the market is going to do is talking foolishly. 

I can only guess that there will be another type of great depression or it will all blow over in a couple of months and life will return to almost normal. But I do not claim to know what will happen! There are just too many factors involved. 

Gary1984

I doubt we'll see Zimbabwe style hyperinflation but maybe we could see double digit inflation again for a short period as we had pre Thatcher. Wouldn't be the worst thing for me personally as long as it's reflected in my pay as I've 25 years left on my mortgage. Deflation seems just as likely though. 

Thrugelmir

ProDave said:

All this last 10 or more years has shown, is that interest rates has been a pretty damned useless tool for controlling the pace of the economy.

Read up on the financial crisis of 2006-2008. There's now plenty of well informed books that really get into the nitty gritty of the policy decisions that were made collectively by the Central Banks. The severity of the situation cannot be underestimated. Nor the extent to which the banks were supported unbeknown to the general public to avoid mass panic.  Ten years hasn't been long enough to even start to repair the damage. 

coyrls

Weles100 said:

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?

Money has been pumped into the economy since 2008 and the only significant inflation has been in share, bond and property prices.

Thrugelmir

coyrls said:

Weles100 said:

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?

Money has been pumped into the economy since 2008 and the only significant inflation has been in share, bond and property prices.

Was in. The fragility of the concept has been fully exposed by current events. Investors may not buy in to the same concept for a second time on such a scale. 

coyrls

Thrugelmir said:

coyrls said:

Weles100 said:

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?

Money has been pumped into the economy since 2008 and the only significant inflation has been in share, bond and property prices.

Was in. The fragility of the concept has been fully exposed by current events. Investors may not buy in to the same concept for a second time on such a scale. 

"Has been" is also past tense!

Thrugelmir

coyrls said:

Thrugelmir said:

coyrls said:

Weles100 said:

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?

Money has been pumped into the economy since 2008 and the only significant inflation has been in share, bond and property prices.

Was in. The fragility of the concept has been fully exposed by current events. Investors may not buy in to the same concept for a second time on such a scale. 

"Has been" is also past tense!

All soon be a distant memory. 

tropic_of_Username015

I see the inflation truthers are out in force again.