Monday, August 30, 2010

How Hyperinflation Will Happen

The fine folks over at Zero Hedge posted this great analysis of how hyperinflation could happen.  It opens up with a "where we are" moment.
Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.

To counter this, the U.S. government has been running massive deficits, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, the same old prescription since donkey’s ears.

But the stimulus, apart from being slow and inefficient, has simply not been enough to offset the fall in consumer spending.
And this great explanation of an important insight:
If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls—then it would seem to be the case that, in our current deflationary economic environment, hyperinflation is not simply a long way off, but flat-out ridiculous.

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.
A tad long, but really worth reading.  I think it's the best presentation of what the voices in my head have been telling me that I've come across.

When?  The author thinks the precipitation incident could happen any time from this fall through (but not later than) the end of 2011.  As I've said, I think the market is going to further deflate this fall, but that's based on technical analysis and this sort of event is more like a "black swan" that doesn't fit the usual predictions. Still, my guess is the deflation/depression gets worse, and then the hyperinflation happens.


  1. yes i think people are just treating this like take a pinch of salt and throw it over your shoulder.

    The guy who was laughed at while all this was happening was right all along. He actually called the market crash and the big run up on gold. What he says now is very interesting.

    Here is his latest cheeky show

  2. Either way it goes, we're screwed.


  3. Anonymous,

    I haven't heard of this commentator, but how impressed I am depends on how far back he predicted all this. This current mess we're in was far from unpredictable; it's more like inevitable.

    I'm fairly sure I read specific predictions from Peter Schiff, Howard Ruff, Richard Daughty (the Mogambo Guru), Clive Maund and a number of other commentators (even Ron Paul (!)) as far back as 2005. I remember first hearing about "sub prime mortgages" back then. I started to warn my friends in '07, and made my own moves to diversify into gold and silver in '03.

    MikeH - There's another way of looking at it. If the crap we have to go through is bad enough, it might well end the reign of the Fed. Hyperinflation could lead to a national reset pulse, not just switching from the Evil Party back to the Stupid Party. We just have to make sure we don't switch to the "Even More Evil" party.