A 5th Economic Condition?

[moda0306]

Cheap long-lived aren't bad, necessarily, so much as they represent a significant weakening of the balance sheets of a large portion of Americans.

I would say that cheapening short-lived assets (even if it's machinery) are good because the very nature of the purchases made yesterday by the population and businesses are going to need to be remade soon anyway, and probably weren't made with a whole lot of leverage, and probably are more operational in nature and don't make up a vital permanent part of a company's/household's balance sheet.

The nature of a long-lived asset is quite different.  People usually leverage themselves to obtain them, because the asset will service the debt in one way or another (a factory's production or a homeowner's nonpayment of rent).  People carefully plan these purchases and when their prices drop that indicates that a gross miscalculation of debt-servicability was done, and this can send the nation into a recession because setting the price of a long-lived asset is much more important for the balance sheets of a population.  There's very little turnover, so paying $50 too much for an i-pad is nothing like paying $50k too much for a home or $500k too much for a factory, as those will permanently be a strain on your balance sheet, while your debt levels stay the same as the asset prices drop.

[MediumTex]

I think that if there was a blind spot in Harry Browne's thinking, it was his belief that the government could create inflation if it wanted to.  We are finding that this is more difficult than it sounds when in the midst of a deflationary environment. 

I'll bet that if Harry Browne had come of age in the 1930s instead of the 1970s he would have had a more nuanced understanding of deflation.

I'm surprised that you don't think Browne had a nuanced view on deflation.  The 25% of the portfolio that is in government bonds certainly saved the day in 2008.  (This in spite of Browne never experiencing any serious deflation in his own investing life!)

I was thinking more in terms of gold's performance during periods of deflation.  A secular bull market in gold during an overall deflationary period isn't something Harry Browne seemed to consider.

[doodle]

As the resident "party pooper..worst case scenario" guy. I think that the run up in gold is partly related to future inflation expectations but currently it is more related to the destructive outcomes of deflation which could potentially inspire my new favorite doomsday scenario...the dreaded crack-up boom..which is beyond inflation. It is hyperinflation stemming from currency crisis.

I really, really recommend that people read the below article. It does a wonderful job of describing the Japanese scenario and gives a better insight into deflationary economies. It also helps to understand the specific conditions in Japan that have allowed them to run the debt to GDP ratio up so high.



http://spikejapan.wordpress.com/2011/07 ... scal-mess/

[doodle]

I have to go back and cull through the article again but there were a number of other important factors....extreme home country bias, very high savings rates, trade surplus, and I believe some others.

Anyways, the author seems to be of the opinion that the game is almost up. That there simply isn't enough capital that will continue to flow into the bond market in perpetuity that will allow rates to stay so low.

If interest rates were to rise the ability of the government to service the debt would be impossible. Essentially, game over.

We are reaching the end of a debt supercycle here that should be massively deflationary. If central banks continue to print money the eventual outcome is hyperinflation and currency crisis.

Unless I hear a lot of straight talk out of politicians and see some actual plan that makes sense to move us forward and out of this mess,  then I am afraid we really are stuck on the "crack-up boom" path. If QE3 comes I know that I would start to diversify out of US dollars into hard assets...land etc. The crisis happens when everyone rushes for the door at the same time. Do you think people will continue to listen to the politicians when they are telling everyone that everything is ok?

[moda0306]

If their interest rates do rise, what leniency does their "fed" have to buy bonds?  Or do they print money to make the payments?

Assuming their "fed" can simply print money to fund government, how is this "game over?"  If their debt is 200% of GDP, and their average interest rate is, say, .75% (I have no idea if this is right), and it rises to 2%, that's 2.5% of GDP going to the interest-rate increase.... so money supply growing by 2.5% of their GDP.  If their version of the fed were to simply "print" money to the amount of 2.5% of GDP, how would that be massively inflationary?  If not... how is it "game over?"

Or are we assuming the rates will go far beyond that?

Ok, let's say 5% is the average rate in a year or two.  This will mean that in order to fund their interest without $1 of increased taxes, they'll have to "print" almost 10% of GDP worth of money to pay it without having to cut spending or increase taxes.

Is that supposed to set them into an inflationary spiral that will even further raise rates?

I wish they'd walk through the mechanics of how this game is supposed to end.

[MediumTex]

I wish they'd walk through the mechanics of how this game is supposed to end.

The two things that I see people consistently miss in their analyses of these matters are the following:

1. This stuff can play out over LONG periods of time, making many forecasts worthless.  If the forecast says something will happen in 12 months and it happens 7 years from now, how helpful is that?

2. Sustained upward inflation requires wage growth, even if the wage growth reflects no real wage gains, and even if the wage growth doesn't even keep up with rising prices.  For many years now, U.S. wages have been stagnant.  Will that change soon?  I kind of doubt it, and thus I doubt U.S. inflation will get much sustained traction beyond episodic bouts like we saw in the first half of 2008.

With respect to the second point, I am surprised at the number of people who openly scoff at this point of view, even though it is perfectly consisted with and supported by reality.  When people tell me inflation is about to explode, I ask them what money they will use to pay those exploding prices.  When they say they don't expect to have a lot more money when prices explode I ask if that doesn't suggest that the price increases will simply lead to another recession rather than an upward price spiral, and that prices will fall in response to dramatically weakened demand during the recessionary conditions.  Maybe this perspective is hard for some people to get tuned in to because no one talks about it on TV.

[moda0306]

MT,

Yes... for inflationists, often, you'll hear either,, "we can't print money forever," or "they're going to eventually stop buying our bonds," and there's so much more conversation to be had beneath those comments that I wonder if they even thought about the mechanics of what it would actually look like if "China decides to stop buying our bonds," or "WHY can't the fed continue to print money?"

1) The foreigners have our cash because WE buy stuff from THEM, supporting their workforce with demand.  2) They need somewhere to invest their US dollars, so 3) for foreigners to net-divest themselves of U.S. bonds, they would have to net spend the money in the U.S.  This could very well be inflationary, but try to imagine a world where our trade balance is positive.  1) Is this reasonably conceivable in the short-to-medium-term?  2) If conceivable, is this a bad thing for US prosperity?

The answer to both those questions is "No."  We probably won't have the huge jump in demand for our goods, and if we do, it's not going to be the "20% unemployment with $20 gallon of milk" scenario that some like to imagine.... or at least I can't walk myself through the steps to get to that point barring some outside events that would hinder any economy, regardless of their debt level.

There's a lot to be talked about here... and luckily on this forum we have one of the best groups to learn from... but I have yet to read a logical series of events that leads me to believe either one of those descriptions of our limitations has much merit... much less one or the other alone... so if we're left with China wanting to buy our bonds AND the fed with the ability to print more money, then how will the dollar collapse?

Now for all this debate, I'm still a proponent of holding 10%-25% of ones portfolio in gold, which would absolutely explode (to achieve real PP gains, IMO) if the world's reserve currency collapsed.  That's the best part that lets me sleep at night even if I'm wrong, and that's why I'll NEVER start doubting my long-term treasury bonds.  I don't need to.  

One would do FAR better for themselves to buy more gold than to try to start looking for foreign-denominated bonds to buy to hedge against the relative collapse of the dollar.

[doodle]

Moda, as far as the cases for Japan, I really can't do any better than this article: http://spikejapan.wordpress.com/2011/07 ... scal-mess/

He goes through the various scenarios very well. It is light hearted and well written..but a little dense so I had to take my time when reading it.

Anyways, I agree that nothing is set in stone with regards to the current debt complications. The exact way that they play out is anyones guess. I am a glass half empty kind of guy so I see the negative side of things. I appreciate the optimist point of view because it helps temper my doomsday imagination.

One of the bigger issues that I see down the road is rising interest rates creating rising debt servicing costs. If an economy experiences a recovery, interest rates will have to rise to compete for capital that will want to flow back into stocks or other higher yielding asset classes.

In the case of Japan, if rates were to rise 1% it would essentially double the percentage of tax revenues that they have to use to pay their debt. (Who is going to buy a Japanese bond at 1.3% in an economic recovery?) If rates rise 2% or 3% you eventually get to the point where 50% or more of tax revenues are going to service debt. This becomes a problem.

2. If things go the other direction, the governments will continue to rack up more debt at these low interest rates to cover spending and in an attempt to stimulate the economy. At a certain point you reach astronomical levels of debt that potentially lead to a currency crisis from money printing. Hyperinflation does not stem from rising wages, it stems from a currency crisis.....a crisis of confidence in the government and its money. I would argue that the price of gold indicates that there is already a lack of confidence because current inflation rates would not justify golds price in dollars. I would argue that golds price rise stems from a big fall in demand for paper currency.

What happens if people expect that in the future, the money-supply growth rate will increase to ever-higher rates? In this case, the demand for money would, sooner or later, collapse. Such an expectation would lead (relatively quickly) to a point at which no one would be willing to hold any money — as people would expect money to lose its purchasing power altogether. People would start fleeing out of money entirely. This is what Mises termed a crack-up boom.

If the Fed announces QE3 (which they have already put on the table) it will create a situation that is ripe for a potential crack up boom.

I realize that this problem has a solution....but when you look at our politicians do you really get a sense that anything will happen before a crisis forces their hand?

Maybe it is better that this is all to complicated for us to understand. After all it was Henry Ford who said the following:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

[Gumby]

I wonder if they even thought about the mechanics of what it would actually look like if "China decides to stop buying our bonds,"

And in fact, the New York Times had an article on this very subject today:

NYTimes: China’s Treasury Holdings Make U.S. Woes Its Own

From the article:

But because China has too much foreign money for any other outlet to absorb, the vast majority of its fast-growing reserves continue to be destined for the United States bond market.

"China has no choice but to keep buying," said Zhang Ming, an expert at the Chinese Academy of Social Sciences, a Beijing research group. "After all, U.S. Treasury bonds are still the largest and most liquid investment product in the world."
...

But even now, despite Beijing’s scolding about the debt impasse in Washington, China’s options may be limited.

"There’s really nothing different they can do," said Eswar S. Prasad, a Cornell economics professor and former head of the China division at the International Monetary Fund. "Even if China felt the United States was going off a cliff, there’s no other place for them to put their money."

If you're the kind of person that believes that China can dump our bonds, read this article. It explains how difficult (if not impossible) that would actually be.

[Gumby]

What happens if people expect that in the future, the money-supply growth rate will increase to ever-higher rates? In this case, the demand for money would, sooner or later, collapse. Such an expectation would lead (relatively quickly) to a point at which no one would be willing to hold any money — as people would expect money to lose its purchasing power altogether. People would start fleeing out of money entirely. This is what Mises termed a crack-up boom.

I believe you lifted that quote directly from here. A crack-up boom sure sounds scary, but I'm not sure I understand how we could have hyperinflation if most of the workforce hasn't seen a wage increase in years (and probably won't for the foreseeable future), and the rest of the population is out of work (or aging baby boomers). Sounds more like deflation to me — especially when you consider the overwhelming demographics involved.

With a crack up boom, you're basically talking about an end-of-the world scenario. Not too many people are able to really process that in a realistic manner.

[doodle]

All of the following below is lifted from here:

http://www.marketskeptics.com/2008/12/h ... ation.html

I think it explains the hyperinflation scenario stemming from deflation. Granted...this was published nearly 3 years ago...showing how things can take time. This scenario for inflation however should not be discounted....that is all I am saying.

How Deflation Creates Hyperinflation

I keep reading about the dollar being a “new multi-year bull market”? and that the US is headed for “Japan style deflation”?. Frankly, it is a little tiring. The people making these arguments should know better.

Deflation VS Hyperinflation

Yes, there is debt deflation, and the overall money supply is shrinking as a result. However, those calling for “multi-year bull market”? for the US dollar are insane. These individuals need to review basic monetary theory. The money supply is only one of three factors that determine whether prices rise or fall. The other two are the changes in the velocity of money and the real output of the economy. The danger of hyperinflation lies in a dramatic increase in the velocity of money due to a loss of confidence, not in changes in the money supply.

Confidence and the velocity of money

When confidence in an issuing authority crumbles, money starts flowing through the economy at a feverish pace. For example, in normal, noninflationary times the money supply might be equivalent to three months of output, but in a period of hyperinflation it might drop to two weeks worth of output. Since increases in the velocity of money have the same impact on prices as increases in the money supply, a 1000% increase in the velocity of money (typical in any period of hyperinflation) is equivalent to a 1000% increase in the money supply. Due to its effects on the velocity of money, the ebb and flow of confidence have a much greater impact on the short-term trend of prices then changes in the money supply.

Deflation can create Hyperinflation

It is no accident that many of the worst periods of hyperinflation are preceded by deflation. In fiat currencies with high levels of government debt, severe cases of deflation cause a loss of confidence in the nation’s currency by shrinking the economy and making the government’s debt appear increasingly unsustainable. The loss of confidence then causes the flow of money to speed up as individuals become desperate to exchange cash for real goods as fast as possible, producing hyperinflation.

As an example of deflation leading to hyperinflation, consider the case of the Weimar Republic. In 1920, Germany experienced a deflationary collapse, with the average citizen finding it harder and harder to get enough money for necessities. Banks, short of money, could not honor checks, and businesses were strapped for cash to buy materials and meet payroll. Fearing a collapse that would throw millions of workers out on the street, the German government desperately printed money in an attempt to re-inflate the economy. During this period, despite the government’s money printing, the mark actually gained in value against foreign currencies, so that prices of imported goods fell by some 50%.

Eventually, as a result of the money supply’s rapid expansion, the nation’s massive foreign debt, and the shrinking economy, German citizens lost all confidence in their currency, and the Weimar Republic experienced one of the worst cases of hyperinflation in modern economic history. Billions of hoarded marks came out of hiding and entered the marketplace.




How deflation creates hyperinflation

1) Deflation slows the speed of money to crawl due to fears about the deteriorating economy. The public hoards cash, or, in the case of the US, short term treasuries.

2) The slowing speed of money and debt destruction force the government to create huge quantities of cash to prevent prices and the economy from collapsing. However, because the public is hoarding cash (or short term treasuries), most of the money doesn’t reach the real economy, which leads the central bank to print even more money. In essence, cash hoarding acts as a dam, preventing the enormous quantities of printed money from affecting prices.

3) Deflation weakens economy until it leads to a loss of confidence. With doubts about the government’s solvency growing, the velocity of money quickly picks up speed, and a flood of hoarded cash comes out of hiding, entering the marketplace all at once and creating hyperinflation.

US stands on the verge of hyperinflation

Gold Backwardation signals that the next phase of the economic crisis, a rapid acceleration in the velocity of money, is about to begin. Right now, the flow of money through the economy is basically frozen: everyone is panicking into treasuries due to deflation fears. Negative yields on the 3 month treasuries are a sign of this.

Despite the glacial rate money is moving through the economy, the dollar has started to fall again, and gold has begun to rally. As this continues, investors will begin to questions the safety of treasuries, and sell them off. The money coming out of treasuries will add fuel to gold’s rise and the dollar’s fall. Once the dollar hits new lows and gold breaks convincingly over $1000, Investors expecting deflation will begin to panic, and a flood of money will come out of treasuries. It is then that hyperinflation will begin in earnest.

[Gumby]

With doubts about the government’s solvency growing, the velocity of money quickly picks up speed, and a flood of hoarded cash comes out of hiding, entering the marketplace all at once and creating hyperinflation.

Really? The money just happens to come rushing out of the Fed's ass in one gigantic money fart?

Can the author tell me when exactly this is going to happen? I'd really like to know.

---

In all seriousness, Doodle. You can easily find an argument for just about anything...especially if you Google whatever Doomsday scenario that pops into your head. This will likely cause you to make irrational investment decisions if you continue to make this a habit.

btw, it's worth understanding the real triggers of hyperinflation before you throw all your money into gold:

 Hyperinflation – It's More Than Just A Monetary Phenomenon

A key quote from the article...

What is consistent among cases of hyperinflation is a number of rare exogenous circumstances:

• A ceding of monetary sovereignty (usually in the form of foreign denominated debt, a currency peg, etc).
  Extraordinarily unusual social circumstances (war, regime change, etc.).
• Very low levels of faith in government during regime change (high public mistrust).
• Ineffective government response or rampant corruption.
• Combustible political environment.
• A collapse in the domestic economy.
• A breakdown in the tax system.

The most notable environments involving hyperinflations are war, regime change, government corruption and a ceding of monetary sovereignty.

...

In sum, hyperinflation is not merely high inflation. Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency. While government debts and deficit spending can exacerbate a hyperinflation they have not generally been the cause of hyperinflation, but rather the result of exogenous events. The excessive and incompetent monetary response is generally the result of severe exogenous forces at work such as war, regime change, corruption, or a ceding of monetary sovereignty.

[moda0306]

Gumby,

Great article.  Thanks. 

Doodle, for the reasons mentioned in Gumby's article I usually don't trust any article that tries to compare the US to Weimar & Zimbabwe and rush to sing about fiat currencies causing it.

[doodle]

I am not saying that hyperinflation is a definite outcome. I am simple saying that I think it is a plausible outcome and that it would behoove one to continue to keep a close eye on developments. In the article you linked Gumby, the author states the following. My comments in bold.

Is Hyperinflation Coming to the USA?

While some of these ingredients exist in the modern day United States (to a very minor degree) I would argue that we are a long long way from experiencing the type of environment and downfall that is consistent with past hyperinflations. The most important aspects of currency collapse simply do not exist in the United States today:

We do not rely on the kindness of strangers (no foreign denominated debt). (but we do rely on foreigners holding and purchasing our debt)
We are not experiencing any sort of extraordinarily unusual social circumstances or severe exogenous forces (losing war, regime change, government corruption, etc). (We are losing two wars and facing conflagration in Middle East.....government corruption...I would say "yep")
We are not lacking confidence in the sovereign nation. If there is one thing that Americans are known for it is their resilience and borderline arrogance with regards to the strength of their country. (Talk to most Americans...they will tell you the opposite. They think times ahead look pretty bleak for their children. All you hear about is China this and China that.)
We are not experiencing a collapse in the domestic economy (not yet at least). (Everyday I read new headlines that look pretty bad. Cisco laying off 11,000 people. Borders books closing out...laying off entire workforce...another 11,000 jobs. Unemployment on uptick and more public workers are getting cut back.)

[doodle]

Here is another good argument against hyperinflation from here: http://www.rickackerman.com/2011/04/big ... -argument/ too add to the good one that you posted Gumby.

I am trying to avoid confirmation-bias so I need the different viewpoints.

This is a pretty good argument:

To begin with, we cannot have a Weimar-style hyperinflation for reasons that will be obvious to anyone who has read Adam Fergusson’s classic on the 1921-23 Weimar hyperinflation, When Money Dies.  As Fergusson makes clear, this panic fed off a cash economy, not credit; and it required close collusion between the government and trade unions. In contrast, the U.S. economy is cashless and the unions are widely reviled.  That said, let me cut to the chase:  Hyperinflation occurs when people, fearing their money is about to become worthless, panic out of currency and into physical goods.  This is highly unlikely to happen in the U.S. for several reasons, to wit: 1) Whereas Germany’s hyperinflation took several years to ramp up, today’s financial markets are primed for a catastrophic collapse that could conceivably run its course in a week, if not mere hours; 2) under the circumstances, there would be no shifting of financial assets into hard goods simply because any financial assets one holds at the time of the collapse would become worthless before one could sell them; and, 3) at that point, there would be insufficient currency available to drive a hyperinflation, since mattress money is likely to be scarce and because branch banks keep only about $25,000-$50,000 in cash on hand. All of which implies we will go straight to deflation without the emancipating, hyperinflationary interlude that some mortgage debtors might be hoping for.

Thank God for PP....because I am stumped.

[MediumTex]

Thank God for PP....because I am stumped.

Ah, the beginning of knowledge.

[Tortoise]

Interesting, thanks for that quote, Doodle! I had never seen that particular set of arguments on why hyperinflation in the U.S. is unlikely. It makes a lot of sense. It's not often that one of one's basic assumptions is successfully challenged, but I think today might be one of those days for me.

I really enjoy the discussions on this forum. Such an interesting mix of open-minded people with differing viewpoints and angles.

Thanks for preventing me from atrophying into an ideological zombie, everyone. You're keeping me on my toes, and I appreciate that.

[Lone Wolf]

I don't follow the above argument.  School me.

1) Whereas Germany’s hyperinflation took several years to ramp up, today’s financial markets are primed for a catastrophic collapse that could conceivably run its course in a week, if not mere hours;

This seems to underpin the entire argument, yet I don't understand it.  We're primed for a catastrophic collapse?  In a week?  That would be 2008 on steroids.

2) under the circumstances, there would be no shifting of financial assets into hard goods simply because any financial assets one holds at the time of the collapse would become worthless before one could sell them;

It seems that #2 follows from #1.... ?

3) at that point, there would be insufficient currency available to drive a hyperinflation, since mattress money is likely to be scarce and because branch banks keep only about $25,000-$50,000 in cash on hand. All of which implies we will go straight to deflation without the emancipating, hyperinflationary interlude that some mortgage debtors might be hoping for.

Is the implication that the demand for physical cash wouldn't be honored by the banks?  A dollar in a bank is an obligation to hand you a Federal Reserve Note on demand.  Failing to honor that promise would lead to widespread bank runs.  I see the government taking extraordinary steps to keep that from happening (as it would be the ultimate "broken promise".)  That physical cash is either getting into the system somehow or a LOT of really important promises are going to get broken.

Since hyperinflation would unfold over a period of many months, I don't see how it's very difficult to physically print up as many and as large of a denomination of bills as is required to meet the demand for Federal Reserve Notes.  So the only way for a permanent shortage of cash to occur would be for the government to refuse to convert a dollar into an actual FRN.  (Kinda inconceivable to me, frankly, as it'd drop the value of "electronic" dollars to zero.)

BTW, I find it implausible that a bank branch keeps only $25,000 on hand.  If even 3 people withdrew $9,999 (below the required reporting limit, mind you), the branch would keel over.  Is everyone rolling past the drive-through ATM just withdrawing like 8 bucks?  Does that look right to anyone else?

I really, really don't expect hyperinflation, BTW.  I just don't quite understand this particular argument.

Thank God for PP....because I am stumped.

Feeling stumped?  So is everybody else, even the people whose business it is to look like they have all the answers.  Don't worry about it.  Nobody actually knows when and how "it" will happen... or even what "it" is!

The Permanent Portfolio's greatest "dividend" is freedom from fear.  Be sure not to worry your dividend away.

[doodle]

This "deflation" vs. "hyperinflation" debate can be witnessed by the meteoric rise in both Gold and Long Bonds which seems to run counter to Harry Brownes thesis of gold for inflation and long bonds for deflation. Mr. Market himself is struggling to find the answer.

I am not entirely sure that I buy this argument either:

3) at that point, there would be insufficient currency available to drive a hyperinflation, since mattress money is likely to be scarce and because branch banks keep only about $25,000-$50,000 in cash on hand. All of which implies we will go straight to deflation without the emancipating, hyperinflationary interlude that some mortgage debtors might be hoping for.

Hyperinflation is in some ways the opposite of traditional demand-pull inflation where increasing money supplies chase after fewer and fewer goods. Hyperinflation seems to stem from the decreased demand for a currency being able to purchase less and less goods.

In other words people begin to horde physical goods and not accept dollars as payment because they see the dollar as a baseless currency. This perception can be very fickle and it is the perception that creates the ultimate downfall and hyperinflationary event.

[moda0306]

The Permanent Portfolio's greatest "dividend" is freedom from fear.  Be sure not to worry your dividend away.

Perfect!  MT couldn't have put it better himself.  It seems that most of these debates are just for intellectual curiosity and maybe some VP experiments, which puts us on much more stable footing from which to have a debate free of strong emotions and bias towards our ideology. or at least not strong enough to throw the debate into the intellectual gutter.

When arguing with someone that thinks there's no way to keep his family financially secure without accepting pathetic return, you're bound to run into a very angry person that's not going to want to sit and let himself relax and think, and has let himself stew in an echo chamber of what he thinks is wrong with the world.

It's liberating not only feeling financially secure, but also being able to have these debates without that presence as you'll find nearly everywhere else.

[stone]

Are there two quite distinct types of hyperinflation. The classic Weimar 1920s, Zimbabwe, Serbia 1990s type from a supply collapse and then the quite different "indexed wages" type like in Brazil in the 1990s? The USA and Japan still have a fantastic supply system so there is no shortage of goods so a supply collapse seems hard to envisage. There also seems no prospect of idexed wages. Government bonds seem to create their own means of financing themselves with bond interest getting spent on buying more bonds driving down yields. The increasing government debt is basically just the missing taxation from the reductions in taxing the very well off. That "forgone tax money" just piles up driving down yields.

[Gumby]

I am not saying that hyperinflation is a definite outcome. I am simple saying that I think it is a plausible outcome and that it would behoove one to continue to keep a close eye on developments. In the article you linked Gumby, the author states the following. My comments in bold.

Is Hyperinflation Coming to the USA?

While some of these ingredients exist in the modern day United States (to a very minor degree) I would argue that we are a long long way from experiencing the type of environment and downfall that is consistent with past hyperinflations. The most important aspects of currency collapse simply do not exist in the United States today:

We do not rely on the kindness of strangers (no foreign denominated debt). (but we do rely on foreigners holding and purchasing our debt)
We are not experiencing any sort of extraordinarily unusual social circumstances or severe exogenous forces (losing war, regime change, government corruption, etc). (We are losing two wars and facing conflagration in Middle East.....government corruption...I would say "yep")
We are not lacking confidence in the sovereign nation. If there is one thing that Americans are known for it is their resilience and borderline arrogance with regards to the strength of their country. (Talk to most Americans...they will tell you the opposite. They think times ahead look pretty bleak for their children. All you hear about is China this and China that.)
We are not experiencing a collapse in the domestic economy (not yet at least). (Everyday I read new headlines that look pretty bad. Cisco laying off 11,000 people. Borders books closing out...laying off entire workforce...another 11,000 jobs. Unemployment on uptick and more public workers are getting cut back.)

If you watch a lot of cable news, I'm sure you will worry yourself sick with all of those items you outlined in bold. My recommendation would be to turn off the TV.

Anyway, Doodle. I'm not sure I see the point in this exercise. We may have hyperinflation, or we may not. We may have severe deflation, we may not. We may have deflation followed by high inflation, or we may not. We may have a mild deflation followed by hyperinflation, or we may not. We may have deflation, followed by a short boom and then a longer deflation, or we may not. We may have recessions and booms, followed by more deflation and then hyperinflation, or we may not. The timeline may be 2 years, 5 years, 10 years, 30 years or 50 years. We may even die before these events play out.

Tell me, why exactly does it behoove us to worry about this when we are already using the PP to try and prepare for all of these outcomes at once? I see it as fear mongering over outcomes that almost never play out as expected.

[stone]

Grumby I think you are correct that it is best not to act on any such ponderings but personally I like to know whether when a politician say we "must" cut wages, they are speaking sense. Personally I wonder whether the most likely hyperinflation scenario would be if austerity enthusiasts push inequality to such an extent that a general strike kills supply. Then you could get hyperinflation.

[Gumby]

Grumby I think you are correct that it is best not to act on any such ponderings but personally I like to know whether when a politician say we "must" cut wages, they are speaking sense. Personally I wonder whether the most likely hyperinflation scenario would be if austerity enthusiasts push inequality to such an extent that a general strike kills supply. Then you could get hyperinflation.

Stoner. I'd say that the situation is so complex that you're unlikely to figure it out no matter how much you try to read about it or debate it. More likely you will find resources that allow you to form an opinion that simply confirms your suspicion or bias.

[MediumTex]

Personally I wonder whether the most likely hyperinflation scenario would be if austerity enthusiasts push inequality to such an extent that a general strike kills supply. Then you could get hyperinflation.

No general strike in the U.S.

A general strike requires unions, and unions have pretty much been stomped out of existence here in the U.S.  I think that about 15% of U.S. workers are unionized, and many of them are statutorily prevented from striking.

Given the propensity of today's large corporations to offshore jobs, I think a lot of companies would love to see a general strike in the U.S. becauses it would give them cover to shut down more of their domestic operations and offshore more jobs and blame it on the unions.