What is the possibility of hyperinflation?
What do you think about
http://gonzalolira.blogspot.com/2010/08/how-hyper…
and
http://gonzalolira.blogspot.com/2010/08/hyperinfl…?
Similar posts can be found at http://gonzalolira.blogspot.com/p/directory-of-po…
Hyperinflation is a possibility, but I see a greater potential for 1970s-style post-Vietnam inflation. Inflation in the teens for a number of years and a significant decrease in the dollar's purchasing power, but right now, I don't see the potential for much more than an abysmal economy, $10/gallon gas, and higher taxes.
HAHA!
This is what my post for tomorrow is all about. Wait until you see some of the figures for 2010. On second thought, I'll rearrange the posting schedule so it goes up this afternoon.
Eddie, we forget that the US ran up effectively bigger deficits relative to GDP in the '60s and '70s to pay for Vietnam. The difference was that Nixon and Johnson had the Fed print money to reduce the deficit.
I wouldn't be a buyer of US dollars right now, but I don't think there's going to be a panic any worse than the collapse of Bretton Woods back in the early '70s. Double digit inflation? Sure. Triple-digit inflation and the US turning into Zimbabwe? Probably less likely. Just like today, there were alternatives back in the '70s such as the Yen and the Deusche Mark. In fact, the feds issued DM bonds in the late '70s.
You hit the nail on the head with Nixon/Johnson and Bretton Woods. The cycle we're entering now (or have entered, actually) is a direct result of their folly. Here is a great piece on the subject:
http://dailyreckoning.com/the-past-abandoned-principles-and-misguided-p…
I really don't see it happening. Inflation certainly won't be coming from economic growth and rising productivity/compensation and would therefore be the fruit of running the printing press too much, which we are seemingly doing, but so far the economy and risk assets are soaking it all up. I think QE2 will run its course but will not be repeated because we can't take anymore easy money into commodities without crushing corporates and consumers alike. We're not going to pull a China where FDI pushes inflation up either once the Fed starts raising rates. I suspect/hope the deficit push will gain traction and increases in the fed funds rate will be matched by deficit-reduction measures, softening the blow on real rates.
As much as Tepper's CNBC interview was grating, he's probably right, hyperinflation is pretty unlikely (and gold is due to get crushed, but more on that in an upcoming blog post.)
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