Dumb question about hyperinflation ... or maybe not

I agree with your answer. I think the biggest thing to predicting what happens to the economy is what the government decides to do next. If they pass the healthcare plan that could have a HUGE effect on the economy, although its hard to say which direction. If they up and pass another bail out (unlikely but again, this is the government) that would also effect the economy alot. The only reason i'm betting on inflation is because of the amount of money spent on bailouts. A lot of this money was given to the larger companies, and then not tracked as to how it was used. The US spent about 11 trillion dollars in bailouts last year. That's only 1/5 of our total debt 11 trillion dollars thrown into any economy can cause a very large comotion. Inflation occurs when there is more money in the economy than supply and demand ask for. (excuse my poor economic terminology, i've only taken high school econ) If the money supply is greater than the total needed to support the economy, you get inflation. This happens every year (we all know this). Our goal is to try to keep inflation at roughly 1.5-3% each year. A lot of retirement plans have a cost of living adjustment of 1.5% each year to help combat inflation. In my opinion it is not likely that we will see Zimbabwe/Germany-like hyperinflation any time soon, but I'm putting my money on some sort of semi-controlled inflation sometime in the next few years. However, if most of the money for bailouts was actually put in the executives pockets like a lot of people think, we have to worry about deflation. The difference between the 30's and now is $11,000,000,000,000 worth of gov. intervention.
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"Ask 5 economists a question and you'll get 5 answers. 6 if one went to Harvard."

 

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Well, don't know about you guys but with 2012 coming I'm stocking up on canned goods. From what I'm seein' by all the soothsayers, that's gonna be the next hot commodity.......

 

Hi farmer,


Most excellent point. I already responded to another on this thread earlier tonight about the same thing.

The value of gold and silver are pretty much a constant. Their price, however, fluctuates wildly as expressed in variour currencies or other measures.

That silver quarter that bought me a loaf of bread back in the 50's would buy me one today after being converted at 10-12 to 1. They say an ounce of gold would buy a roman a nice toga and sandals, and in the Roaring 20's a nice suit of clothes and today at $1125 would also buy a nice suit of clothes.

The value of the gold and silver never changed but the price did as expressed in dollars or aurei.

peace,

rono

 

Hi bill,

I think you've got it. Rather than stockpiling a pile of AGEs and ASEs, while I'd have some, having a paid for house with a little land you can grow a garden on, getting a freezer and buying food in bulk, canning some tomatos, is all prudent. Being close to places you need to go, having a paid for fuel efficient vehicle. Having no debt. Diversifying your wealth and assets. An emergency fund of 6 months worth of expenses. Having backup alternatives for things that matter like heat, electrical, water.

And I'm NOT talking about some offgrid cabin in the woods. Just some financial common sense. I read this article this past week over at kitco and liked it.


http://www.kitco.com/ind/fulp/jan122010.html


take care,

rono

 

Mark to market is nothing but a scapegoat. It is a reporting standard and that is all it is. When the principals act unethically for immediate gain without regard to the going concern future of a business no accounting reporting standard produces a true measure of value. I started a thread back in March titled “Three Card Monty”. It suggested bank stocks, with large mortgage portfolios, as a good short-term investment. The market should be sophisticated enough to take standardized reported data and extract meaningful information from it.

 

If the movie was right, I'm investing in canned goods, lots of gasoline, and a boat. A very, big, luxurious boat built for the high seas.

 

I enjoy your well-reasoned posts, cloudsweeper, and thank you for them. I think I have a good handle on how to protect myself from inflation ... but how does one protect oneself from deflation? Thanks :hail:

 

I think your information source is incorrect about that. It is grossly overstated.

 

Thanks. I share what I know. It isn't easy to protect against either. When Germany had their hyperinflation, even things like stocks and real estate lost 80-90% of their inflation-adjusted value and did not recover for a very long time.

The classic ways to protect against deflation are to be debt free and invested in secure bonds and cash equivalents. But if the deflation gets severe enough for a national default like Iceland, then even government bond and cash holdings become suspect. Anybody with significant financial assets to protect probably needs to have some of them overseas and denominated in other currencies.

Watch what is happening in Iceland. Although it doesn't make the news, whatever works for people there to protect their assets is probably worth considering here. Someone should write a book about it.

 

Yup

You've got it. The official debt is some $12T, but the Unfunded Liabilities are pushing $70 TRILLION FREAKIN DOLLARS. This is social security, medicare/aid, the various trust funds, service on the debt, etc.
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So since you and I seem to agree that PM's more/less hold their value; do you think that 40 or 50 years hence, currently priced at $1100 Au should have a year 2060- 2070 pricing 6 times as great as at present? Still representing that same value or purchasing power equivalent (new toga and sandals, etc)? That's the way I lean anyhow, just curious if we still see I2I.
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There is no politically viable way that this tab can be covered by any combination of tax increases or benefit reductions - other than outright default and I don't give that much chance. Their only solution is to monetize this sucker and that means paying it with warm dollar bills hot off the presses. I read where they estimate they must devalue the dollar by half in the next 12 years to even get within striking distance.
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No problem. It lost nearly 25% in the last 10. And remember that inflation is exponential, not linear in its growth. Or perhaps a better model is the amount the currency has been devalued. That is negative exponential.
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They will attempt to do with without crashing the dollar or hitting hyper inflation. Will they be successful? WTF do I know? The problem I see it is the elected officials unwilling to do anything but kick the can down the road.
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Maybe because they will be dead by the time anybody wakes up to the fact that they've devoted themselves to self-serving personal interests, rather than the good of all as they were hired to do. And before they die, they will have lived luxuriously upon the wealth of those whom they rule. (us)
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and so it goes,

peace,

rono


QUOTE=Vess1;788440]“The most powerful force in the universe is compound interest”
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And it too is exponential and not linear in its growth. Frankly our species seems to have trouble grasping expo growth. We seem to largely see things as being linear. That they have a nice straight gradual graph.
Compounding, and the next compounding which includes the result of the previous compounding, and the third compounding ....sorry I'm running out of rice to place on each square of my chessboard.
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The very fact that we can carry so much debt only tells us that it hasn't been long enough yet for it to hit the wall! From 1940 through the late 70s, the national debt managed to stay flat and under 500 billion the entire time. This whole time period it was still manageable with little growth.
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But 'they' think it is still manageable because between '40 and '70, gold was $35/oz. Of course that changed ( or began to) in the 70's. But these things aren't like a twig snapping, more like one bending until one day, ah it touches the ground!
But 30 times $35 is $1050. Today's gold price.
And 30 times half-a-trillion (500 billion) is, tah-dah!, 10.5 trillion!
SO once again, that 'archaic relic' seems to have had something to tell us. Perhaps.
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They didn't hit 1 trillion until the early 80s. Now, in 2010 it's up to 12.3 trillion with projected 1 trillion dollar deficits ANNUALLY as far as the eye can see.
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So which way will gold prices ( in American dollars) go? Not minute-by-minute of course, but isn't the eventual, inevitable (uh-oh, danger lurks in that word), many-years-from-now price of gold going to be larger? While still retaining the same value.
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Despite inflation, this is a drastic change in policy that has only been happening for a relatively short period of time. People can't wrap their minds around the figures anymore.
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AMEN!! And that too is what 'they' want. Pat you on your head, smile indulgently, chckle to one another, and reassure you that it's all best left to them, the 'experts'. And hey, "How 'bout them Broncos?"
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You give it another 20-40 years of this and it will not be able to sustain at this rate. At some point, tax revenue will not pay the compounding interest on the liabilities.
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Years ago, we blew the problem off by saying "We only owe it to ourselves". The eocomists, et al who blew that smoke up our fannies lived sumptuously, raised their families and are now long gone.
Today however, we are no longer the ones who hold the notes due and payable. When our companies felt that foreigners owed us, the government helped them collect. ( You've heard of the Cuban Embargo. Fidel nationalised 'our' property. Naughty.)
So, when the piper has to be paid......................
Either we try to nuke'm ( we've got 12000 warheads!) and deny the debt, or ..........we pay up. And since as you point out, it ain't no way, no why, no how possible, we might be forced to hand over the keys to the castle.
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Something has to give. Maybe some new creative math? Who knows. 2010? Sure. We're great. 2040? Nothing would surprise me.

We only got to this point because of a lot of foreign lending that will not be happening anymore.
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Now here we disagree ( respectfully ). I think they ARE gonna keep lending to us. Just as long and as much as they think it's going to take.
Then they're gonna "liberate" us . But even then, a few 1/10 oz American Eagles might get you a favor from a member of the PLA when you need it most!
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So, in other words, you feel that China considers the USA "Too Big To Fail!!"

How ironic is THAT!

Bill

 

The following link is to CNN. It has ALL the info you'll need.
http://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html

 

I see where you are confused. You are mixing up commitments with investments, and many of the investments are merely loan guarantees, not actual spending. The actual spending is a small fraction of the amount you stated.

 

Here's my short answer:
NO, the value of gold WILL NOT proportionately change based on the "value" of the dollar.

 

Remember the late 1960 s &70s

Interest rates were high . Companies that had low debt survived. Those who had low margins had to borrow money at 20% with net of 2-3% from their business. Even good cash flow could not keep you alive.
For the first time that we would call peace time a working mans check would not make ordinary debt service.
The only thing to get productivity, and a household income in line was to put the mothers to work. That was the start of having mom going to work with dad. It was difficult and they were not paid very well. Schools became the custodians of our children. Things changed drastically in America. The costs of taking mom from the home was more then could be calculated in currency. Americans quit doing many things together as family's.
We did not really know what was going on inS.E. Asia .
Until the V/Nam Memorial was built we saw that the first American to die on the wall was 1956, an Air Force individual.
The French were there first. They lost badly in 1954 with 500 million US dollars of support. French Indo China.
We worked in countries spending a lot of money in the late fifties and early sixties. Only those who did Military Recon knew where we were, and what countries we were looking at for bases and possible help. The money kept flowing out with no end in sight. I was surprised that we did not break the bank then.
You need the essentials to keep you going a bed, food, water,some type of barter items, and security if things get really bad.
We have been busy with every thing but taking care of America. We will have to make some choices that will entail," Them or US". Those who have gone to Washington to do our bidding, but did their own need to leave.
We can rebuild, there is 65 to 70% of Americans that are conservative in their thinking. We must take care of what is here. Nothing is more important then this country.
The Constitution is as important as when it was written
Freedom never goes out of favor.
Sorry for the long thoughts.

Pep

 

How far we have strayed and left our roots behind.

 

Another advantage of being wealthy, and this goes into the "duh" category, but once you break that atmosphere of whether you're rich or poor, you don't need to finance anything. You can pay everything in cash, so you don't have to bother knowing that what you want to buy for $15,000 (like a car) won't actually be $19,000 when you're done paying it off.

You don't necessarily need to worry about your credit score. In fact, if I had $25M, I'd just freeze my credit altogether so I don't have to worry about identity theft.

But hey, that's life, not everyone is going to have the good life....