What is the Likelihood of Hyperinflation in 2010, 2011 or 2012?

The treasury predict inflation is stubornly high at 3% at the moment, but will fall to 1.9% in 2012.  How did they arrive at this with all the money sloshing around the economy?

I think a hyperinflation scenario in the UK / US is extremely unlikely. I do expect interest rates to rise though.


The treasury predict inflation is stubornly high at 3% at the moment, but will fall to 1.9% in 2012.

Do you have a link to that? That is one of dumbest things I've heard in a while.

It's safe to assume interest rates will rise (in the UK and the US). If the rise is extreme, it could lead to a UK house price crash, with many unable to afford mortgage repayments. Very little emphasis is placed on the fact that house prices are directly linked to affordability, which in turn is largerly determined by the availability of (cheap) credit.

0, minsicule, very slightly larger than miniscule

there are only ten days left in 2010 menelaus. there were eleven when i posted. many of which are bank holidays.  insufficient time for us to go into hyperinflation by almost any accepted definition. you can trust me on that

There is no chance.

QE is not seeing the billions of pounds of new money getting into the hands of people that are going to spend it . It is simply plugging holes in the banks balance sheets , and enablingt them to make larger profits.

If the USD fails (or to be more accurate, if CONFIDENCE in the USD is lost), then everything goes down with it like a badly stacked up tower of jenga blocks.

why?

it's all very well believing this might/could happen Menelaus, but how would you price up the likelihood?

thanks for replying Menelaus.
What could cause bond holders "to run for the exits in a disorderly fashion"?
As you point out, all the significant players - China, the Arabs etc have too much to lose if the USD goes belly up?

The odds are about the same of Labour getting an overall majority at the next election & that's no coincidence.

If they do not start hiking rates next year it will mean the poorest people in society who spend most of their income on energy, food and the basics in life will continue to effectively subsidise those who spend a large proportion of their income paying off their mortgages (along with the bankers and their shareholders).

Wow that was a long sentence.

Anyway, how is that fair?

Thanks for clearing that up Menelaus.

Labour are now just a front for the Unions.  The capital flight from the country will send the pound into a tailspin. Labour will tax whatever capital remains & run the printing presses to make up the difference.

So the odds of hyperinflation are 1 in 3 which is the same price as Labour getting a majority at the next election, which could come as soon as next Autumn as the past few weeks have shown that the Liberals just haven't got the balls to be in Government.

The technical definition of hyperinflation is a 100% increase in prices over 3 years.  We are not going down the same path as Zimbabwe.  No need to stockpile beans.

chances of hyperinflation are virtually blot.Stop worrying about it.

1. the USD is the world's reserve currency and whether you know it or not charlatan, YOUR bank, wherever it may be, holds most of it's reserves in USDs and with those reserves collapsing your bank(s) and currency wherever you are, collapses with it

i think you mean my banks . i suspect in some cases (although obviously not the american one) this is incorrect.

if all of our banks collapse why is this inflationary and not deflationary? surely it depends upon the response (who takes the hit/who gets bailed out). presumably some countries are less exposed than others to a dollar collapse and so their currencies should appreciate relative to the other currencies. meanwhile if commodities were all still priced in dollars it would make more sense to shift reserves to another currency.

2. ALL faith in fiat currencies, backed only by "faith in a promise",  collapses the minute the USD collapses

but it takes a lot more than a minute for the dollar to collapse.

3. the global financial system and FIRE economy collapses in an instant amid chaos

why is this inflationary and not deflationary? the shocks to the global financial system and real estate slumps in recent years have been deflationary.

4. OIL is priced in USD's therefore you won't be able to obtain OIL trading USDs or any other "paper" any more
5. all other commodities are priced in USD's therefore commodities trading collapses

why would those active in the oil and other commodity markets not push for it to be traded in a more stable currency before the dollar reaches a hyperinflationary stage?

never lose sight of what hyperinflation is. It's a loss of faith in a fiat currency, not "huge inflation".

granted but such a loss of faith rarely occurs overnight. indeed there seems to have been a gradual erosion of faith in the dollar in recent years yet your arguments seem bound to a notion of sudden collapse coming out of the blue.

you can't trust me. i don't give advice. you already fell into one trap though

no politician so far has demonstrated the resolve to support cuts

try
NC_Lc7GeEzQ
on youtube

by its very nature faith is something which can't lost be gradually or suddenly by an individual. assymetric information alone means we can't all lose faith suddenly in the same thing at the same time though. a quick look at zimbabwean hyperinflation on wikipedia pulls up a graph which demonstrates that your blanket assertion above is nonsense. if you just look up hyperinflation on wikipedia you'll find a similar graph for the weimar republic. so the two most mooted examples of hyperinflation turn out to be counterexamples to your claim.

clearly you have no answer to the questions which i have asked out of mere curiosity, you've 100% guaranteed inflation at a level you aren't willing to define beyond describing it as a tsunami (presumably because it would be very easy to demonstrate that you were wrong in future) and yet you chide me for writing "trust me" nonsense (even though i didn't) when apparently that's your game.

i abhor inflation more than most, i certainly think all this quantative easing is bonkers (deflation being the natural solution to the earlier inflationary policies which screwed things up), but i also note that such madness hasn't resulted in hyperinflation in japan yet.

i'm suspicious of anyone pretending to be so sure in their dire predictions when they are so far away (quite how far is difficult to say since you won't back your bluster up with numbers but we seem to be talking orders of magnitude not a couple of per cent here) from what the market anticipates.

And I should answer your questions, why?

Some posters on here (you are on of them) are married to the deflation scenario despite overwhelming evidence to the contrary. There's nothing that anyone can post on here to divorce these posters from their deflation scenario conviction, so no point in trying.

If you don't think there's inflation happening NOW and more coming down the pipe, then trade against it. Best of luck, you'll need it.

Any attempt to answer such questions is fraught with difficulties. Your first question should logically come last to help the flow of the answers. Perhaps even we should do a Ted Rogers and go 3-2-1. So:


Are the U.S. & UK playing a dangerous game of trying in inflate our huge debts away?

The short answer is yes. A slightly longer answer is probably but would you choose to start from here? An even longer answer is that a dangerous game has been played for a very long time. Arguably you can take several points in history where the dangerous game began - fractional reserve banking - the setting up of the FED just before WW1 - coming off the gold standard and not fully returning during and after the Great Depression - the total break with the gold standard of Nixon and almost certainly the great bubbleonomics of the 20th and early 21st centuries which is still being played out now. I don't think any serious commentator would dispute that our respective governments would like an inflation rate around our current RPI level which with compounding interest would relatively quickly make a dent in what they owe. One of the reasons why the game is potentially dangerous is that you can't just flick it on or off. Once out of the bottle the genie has a life of its own and takes a great effort to get back into the bottle as our recent history showed.

How long can we go on inflating our economy with rounds of QE, without raising interest rates?

That one is the easiest of the three to answer because the logical answer is it depends. It depends on various factors. If a managed level of inflation is indeed what the government wish for and that level of inflation is achieved then they may be able to keep official interest rates low for some time. Of course it could get a great deal more complex than that because that scenario presumes that the government take the markets with them in terms of borrowing costs. Then you have to factor in that much of our existing borrowing is long dated and so in some senses we aren't in too bad a position. So, in essence they need to walk a tightrope by fuelling inflation whilst occasionally making pronouncements that they are worried about it and may need to take tough action at some indeterminate point in the future. Basically what they are doing at the moment.

What are the chances of this happening?

Undoubtedly the most difficult question for a variety of reasons. Firstly, there is as yet no clear consensus on whether we shall see inflation or deflation in the medium term. In that sense I would argue that things will probably continue as they are for some time. So let us rephrase the question and ask about 2012 and beyond. I have seen credible arguments on both sides as to what will happen going forward. To me this tells us that there is no certainty. Imagine you have two huge armies who are reasonably evenly matched, what happens next depends on the players on the field. From what I have read I have formed two conclusions:

What should follow is deflation. The bottom line is that the deleveraging process for this bubble or series of bubbles is immense. There is a credible argument that the policies enacted will slow the inevitable down but that you would need to QE to the order of tens of trillions to douse the flames. Some would argue (I would and I think charlatan is in this camp) that what they are doing is the same kind of shiit which got us here and that they are potentially storing up even bigger problems down the line. However, that is an argument for another day.

The other side of the argument is that in the final analysis once the policy decision has been taken that there will always be a method to create inflation in a fiat monetary system, be it through the printing press, helicopters or simply a man, with a finger and lots of noughts. I think this is the view of menelaus. As I have suggested, I think this is the wrong policy but I don't doubt that everything they have done leads to a conclusion that this is the policy. One of my principle objections centres on the disagreemnt between charlatan and menelaus on the definition of hyperinflation. Incidentally I think both are right in that there is a gestation period but that there is a period of development of consciousness which can be frighteningly quick. My gut feeling is that they aren't yet doing enough on their own to create hyperinflation. I still sit in the camp that says that there is a lot of deleveraging still to come down the pipe. This doesn't mean that if their medicine doesn't work that they won't go for bigger and bigger doses with more and more consequences including the flight to assets and commodities which could make hyperinflation a reality.

So having given a kind of reasoning my own view is that in that kind of time frame (end of 2012) we have about a 20% chance of deflation and about a 75% chance of moderate inflation. This leaves about a 5% chance of high or frightening inflation levels.

I definitely agree with menelaus that the reasoning is far more important than the numbers which for anybody are guess work.

Eeternaloptimist, your point is well taken but.....

...his post is so far off base, I would have to go through it line by line and turn it on it's head. I don't have the time and more importantly why should I care.

Those who still argue "low inflation" because of the manipulated CPI number and continue to ignore real life evidence (price increases, weight-out and fade-out in products) and trade this position, will find themselves on the wrong side of the trade. Trust me on this one.

More half-truths and rubbish from Mr Bean. Here's the real story:

German Inflation Unexpectedly Quickens as Prices Jump Most in Eight Years
http://www.bloomberg.com/news/2010-12-29/german-inflation-unexpectedly-accelerates-as-prices-advanced-in-december.html

And Mr Bean, once again at the risk of boring the rest of the forum, inflation is a monetary event, hyperinflation is not !!!!!

Your comment re:hyperinflation shows that you still don't get it. But why doesn't that surprise me.....

Anybody referencing Government CPI figures on here has about as much credibility as Comical Ali did during the Second Gulf War - 'There are no American infidels in Baghdad. Never!'