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Old 07-10-2012, 09:40 PM
 
Location: On the edge of the universe
994 posts, read 1,298,226 times
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How can Hyperinflation rage long term? I just can't see how it can go on and on...it's mathematically not viable.

I just can't see how people can continue to buy with less and less money. Sure, you could have your cost of living go up 50% from last year, but if your wages go up 50%, you're even. But for the last 40 years wages haven't kept up with the cost of living. Might we have a problem?

You could make the argument that people will live off loans, but even that eventually will run into a wall. You can borrow $1000 at 5% interest for a year and pay back $1050. The next year, you could borrow $1500 and pay back $1575 at 5% interest, but the interest will eat you up eventually. Sure, you could stretch out the payments, but who wants to pay interest on Walmart/Target trinkets they bought 5 years ago?

Where on earth does the media think this is going to happen?
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Old 07-10-2012, 10:37 PM
 
Location: home state of Myrtle Beach!
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I agree. We can't keep inflating prices without hurting the masses. Inflated housing prices have helped put us where we are today. This inflated income's as it had to keep up to an extent; but really it didn't! This in turn raised the price of everything we buy. Now many can't afford the bare necessities. How do you go backwards and make it work for all Americans?
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Old 07-11-2012, 08:07 AM
 
28,384 posts, read 68,046,709 times
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I was far from the best student in my college economics class but having lived through the inflation of the 1970s and 80s as well as having seen the effects of runaway inflation in MANY other countries it is fairly clear that the prolonged periods of "asset devaluation" are all but impossible to occur except when government intervention distorts traditional financial behavior of consumers, producers and investors.

Inflation that is moderate and driven by the kinds of forces like economic expansion and a wealthier / larger population is not a bad thing, governments actually work to achieve that combination. So long as there is job growth / productivity gains the "masses" are not hurt. In fact that is the path to a higher quality of life.

Believe me anyone that attempts to base their investing strategy on long term "asset devaluation" is setting themselves up to be wiped out. The behavior of all financial markets is such that any position that looks to profit from a decline in value is called a "short position" precisely because it is utterly impossible to profit from such an outlook over the long term.

These principals do not apply to just Americans but ALL countries / economic zones. Incredible basic ideas like "scarcity" that have been proven over CENTURIES show only time asset devaluations occur is when a bubble develops. The very nature of bubbles is such that, without outside intervention, they quickly evaporate and prices level off. The current situation in the US with regard to the broad range of assets is that MOST things have NOT declined in value -- go the gas station, grocery store, mall, car dealer and you are asked to PAY MORE than you were a year ago. Now if you are trying to sell your home that you bought at the PEAK of the bubble created by legislative interference in the lending markets. The degree to which the FHA and the GSEs (Fannie Mae / Freddie Mac) still allow folks that otherwise would be too risky to allow to lend money to largely explains the dysfunctional asset pricing of homes -- sellers want more than buyers can justify...

Really the things I have laid out above are totally non-controversial and any textbook that covers economics in even the most rudimentary way would say the same things. These things were as true 100 years ago as they are today.
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Old 07-11-2012, 08:26 PM
 
11,909 posts, read 14,390,999 times
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I don't believe HYPERdeflation, but deflation in general is a bigger threat. When the money supply takes a big drop you get deflation. The price of gold seems to defy this, but historically gold has been more of a deflation than a inflation hedge. This is because just as gold cannot be printed, neither can it be easily destroyed. The reduction of Scranton PA city workers' pay to minimum wage is the latest manifestation of this.
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Old 07-11-2012, 11:42 PM
 
3,187 posts, read 2,818,467 times
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Quote:
Originally Posted by pvande55 View Post
I don't believe HYPERdeflation, but deflation in general is a bigger threat. When the money supply takes a big drop you get deflation. The price of gold seems to defy this, but historically gold has been more of a deflation than a inflation hedge. This is because just as gold cannot be printed, neither can it be easily destroyed. The reduction of Scranton PA city workers' pay to minimum wage is the latest manifestation of this.
If deflation becomes a problem in a major way (which in America it isn't yet), the FED going into Helicopter Ben mode (aka just printing cash) could solve the problem easily, and improve the government's budget as a nice bonus. Deflation traps stem as much from central bank incompetence (refusing to use all possible monetary options when appropriate) as from economic fundamentals.

Inflation on the other hand is much more difficult to solve. There is no reliable, painless solution to get it under control.

If you had to pick one of inflation or deflation to suffer over a long period, you'd pick inflation because deflation does more harm, but, it's also much more solvable.
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Old 07-12-2012, 06:33 AM
 
Location: Metro Detroit, Michigan
11,920 posts, read 13,273,630 times
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Quote:
Originally Posted by ALackOfCreativity View Post
If deflation becomes a problem in a major way (which in America it isn't yet), the FED going into Helicopter Ben mode (aka just printing cash) could solve the problem easily, and improve the government's budget as a nice bonus. Deflation traps stem as much from central bank incompetence (refusing to use all possible monetary options when appropriate) as from economic fundamentals.

Inflation on the other hand is much more difficult to solve. There is no reliable, painless solution to get it under control.

If you had to pick one of inflation or deflation to suffer over a long period, you'd pick inflation because deflation does more harm, but, it's also much more solvable.
Yes, but they already tried turning on the printing press... Where did the money go? Not in the average American's pocket. Tied up in investment vehicles perhaps? During times like these, those who are getting the money are not interested in spending it like before. They are trying to shore up their financial house.

Printing money simply doesn't work. What the Fed needs is SPENDING of that money. That one is on the consumer. That's how I see it anyways.
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Old 07-12-2012, 07:01 AM
 
Location: Western North Carolina
4,756 posts, read 7,549,839 times
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Quote:
Originally Posted by andywire View Post
Yes, but they already tried turning on the printing press... Where did the money go? Not in the average American's pocket. Tied up in investment vehicles perhaps? During times like these, those who are getting the money are not interested in spending it like before. They are trying to shore up their financial house.

Printing money simply doesn't work. What the Fed needs is SPENDING of that money. That one is on the consumer. That's how I see it anyways.
Exactly. Although, it can't be "on the consumer" until companies realize this and increase hiring and average wages.

Oh, that's right, we can't "compete" if we do this (or so we've been told).
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Old 07-12-2012, 08:32 AM
 
Location: On the edge of the universe
994 posts, read 1,298,226 times
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But I still don't see how hyperinflation or inflation of any sort is able to continue on long term. History has shown that inflation outpaces wages. Even if the cost of living inflates 1% and wages only inflate by .9%, you will eventually have a problem, and that's even if you had those sort of numbers in the real world. In the USA price inflation overall is probably around 5 - 10% annually for the last 30 - 40 years. Total wages on the other hand are maybe less than half of that price inflation rate.
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Old 07-12-2012, 10:59 AM
 
Location: DFW
6,719 posts, read 11,191,439 times
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Quote:
Originally Posted by andywire View Post
Yes, but they already tried turning on the printing press... Where did the money go? Not in the average American's pocket. Tied up in investment vehicles perhaps? During times like these, those who are getting the money are not interested in spending it like before. They are trying to shore up their financial house.

Printing money simply doesn't work. What the Fed needs is SPENDING of that money. That one is on the consumer. That's how I see it anyways.
Another option might be for Helicopter Ben to drop prepaid debit cards rather than cash..

I still don't agree with it but I'd rather see that than printing more money.
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Old 07-12-2012, 11:35 AM
 
28,384 posts, read 68,046,709 times
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Firstly there are no "printing presses" at the Fed. The actual production of paper money is done through the Bureau of Engraving & Printing and the production of coins is done by the US Mint which was made part of the Dept of the Treasury in 1873.

The authority / responsibility of the Federal Reserve Board of governors and the FOMC is to set the monetary policy of the nation by setting the lending rates and cash reserve ratio for member banks. This is pretty effective in make both the cost and quantity of borrowing which is a vital component of the "money supply".

There is currently no mechanism for the FRB/FOMC to directly lend or "gift" money to consumers. The closest that even the US Treasury has done is to rebate taxes. While I don't doubt that the FRB may have done research into the various ways that consumer spending might be spurred it is extremely unlikely that anything so "consumptive" as "gift cards" would have any lasting positive impact on the broad economy of the nation.

The low interest rates that have been in place for an extended period of time have done little to spur investment into either long time personal wealth creation or large expenditures by business on costly capital goods. Most economic researchers and political historians believe this has to do with a lack of confidence on the part of the either consumers that the "wealth creation" processes that traditionally have been available to them are fair AS WELL AS fears of business that the tax policies and tendency to expand promises of expanded entitlements will allow them to operate competitively. These are largely not technically monetary issues but rather those the expose the lack of skill of our current crop of political leaders...
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