Stage Being Set for Hyperinflation

With governments around the world cranking up the printing presses and throwing caution to the wind, the stage is no doubt being set for some serious price inflation down the road.

That said, it's my belief that the fallout from a still-bursting credit bubble and an accelerating economic downturn will continue to act as a deflationary counterbalance in the short run.

Eventually, though -- perhaps towards the end of this year -- the wealth being destroyed by defaults and deleveraging will begin to be offset by the supply of money being created by authorities.

In no time at all, the risks noted by Marc Faber in a CNBC.com report, "US Inflation Could Hit 200%: Dr. Doom," might well become a nightmarish reality.

The US risks being hit by Zimbabwe-style hyperinflation and there are signs that the world's biggest economy risks turning into a banana republic, Marc Faber, author of the Gloom, Doom & Boom report, told CNBC's "Asia Squawk Box."

"In the US, we have a totally new school, and it’s called the Zimbabwe school," Faber said. "And it’s founded by one of the great leaders of this world, Mr Robert Mugabe, that has managed to totally impoverish his own country. And that is the monetary policy the US is pursuing."

The government's increased intervention in the economy is likely to slow down economic growth because history shows that every time the private sector shrinks to make way for the government sector, the economy suffers, he said.

Asked whether the US risked being faced with 200 percent inflation, Faber answered: "Well, not yet. Not yet. But I think eventually. If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate."

Comments

[mr freddo:]

So far the easy money policies of the Fed hasn't seemed to work, and the term pushing on a string is a good description of why. At some point, when the economy ignites, inflation will rear its ugly head. If the Fed puts the breaks on at that point, we will be in for a double dip recession.

Feb 09 07:02 AM

[paulvard:]

Inflation may not be bad at this stage of the game. People will gravitate towards tangible assets like real estate. That toxic assets held by banks will be more valuable and attractive to private investors. So I believe the Feds should do that or may doing it already.

Feb 09 08:25 AM

[kelm:]

Too may believe we cannot have a currency collapse or hyper inflation in this country because we are the reserve currency of the world. That belief that we are too important for something that bad to happen to us is blinding. What is worse is we show no respect for the danger our policies, if enacted anywhere else, would pose. Like a teenager who views themselves as indestructible we ignore the warnings. Sadly, the path has been set. I am not sure any policy change at this point no matter how drastic will change our course.

Feb 09 10:47 AM

[Crude Oil T...:]

Our days may be numbered as the reserve currency. I love Kelm's teenager analogy!





stock-market-club.blog...

Feb 09 11:29 AM

[Jason Rines...:]

Exactly, this is a W shaped event.


On Feb 09 07:02 AM mr freddo wrote:

> So far the easy money policies of the Fed hasn't seemed to work,
> and the term pushing on a string is a good description of why. At
> some point, when the economy ignites, inflation will rear its ugly
> head. If the Fed puts the breaks on at that point, we will be in
> for a double dip recession.
>
>

Feb 09 12:38 PM

[captmike:]

I love the comments that dismiss or even welcome the possibility of high inflation. We may not see hyper-inflation, but I remember the days of 12% inflation in this country. Trust me, we don't want to revisit those days.

Feb 09 04:40 PM

[Teutonic Kn...:]

To: Michael and other commentators who responded so far:

I have been following events and reading up as much as I could from the learned folks like those of you on this SA web.

In my memory, the 1969-70 Recession was deep and vicious, and particularly hard for myself who was coming out of college as the class of '70. We were coming out of the Vietnam War. Then it was the oil panic with those long line-ups at the gas stations in the '74-'75 follow-on Recession, another deep one. As I recall, my wife and I were shopping around for a mortgage for our first house, and the best deal available, if you were lucky to get approval, was something like a 10 1/2% for a 25-year term, with a 33% down payment. Of course, houses were selling around $50,000 or so at that time!

Would someone be kind enough to enlighten me concisely what the differences are between this current recession and the two mentioned above? Now we are coming our of two wars, no Nixon Watergate for now, but there seems to be plenty of 5% mortgages around still, but few takers I suppose. Inflation then hit 12%, yes, as someone mentioned above, and the prime rate sky-rocketed to ~18%.

The frightening thing in my mind is that somehow the dark side seems to be beckoning and whispering to me to say that a truly terrifying Depression is at our doorstep, one that we have not seen before, and one that has yet to break our imagination.

I truly feel sorry for our young generation who at their early twenties are on the verge of launching a career, buying their first new home, reporting to a new full-time job, and starting to planning for kids. That, unfortunately, is what their golden years would start.

Feb 09 06:03 PM

[Georgen:]

Lets call inflation what it really is, theft by the government from savers. It is not as blatant as the Argentine president who recently siezed the assets of all private pension funds and rolled them into the county's social security system.
Obama plans a less blatant theft, but theft it is still. By diluting the value of the currency, savings, the product of thrift and sacrafice, become less valuable. It reminds me of my teenage son and his friends shennanigans. They sneaked into my liquor cabinet, poured out a few servings of my best vodka, and filled it to the previous level with water. Much more clever than swiping the bottle outright. Obama is watering the vodka and giving pure stuff to his favored constituencies.

Feb 09 10:23 PM

[Teutonic Kn...:]

Georgen,

I believe that every human being, be it his/her background, upbringing, social strata, color of the skin, wealth or poverty, educated or non-educated, genteel or ill-mannered, they all have the same basic desire for dignity, respect, happiness and well-being. I respect your opinion. I hope that you would respect mine as well.

I would like to take a slightly different view of your analogy.

I think in our present crisis situation, the small bunch of greedy banking CEO's (I call them the Bad Apples) who invented and pushed all those derivatives and sub-prime mortgages while raking hundreds of millions of bonuses into their pockets would actually resemble your son who stole your volka.

Sure, it is clear like hell -- what Obama is doing with our tax dollars in that Stimulus Bill is pure charity. I, like yourself, do not particularly like others mucking around with my money. But think about the 4 million of folks who had just been laid off. Obama is like taking soda and fruit drinks from my fridge to handout to the needy.

After listening to Obama on TV moments ago, I feel that I have more respect for him as he seems to show compassion for his fellow human being.

I hope you will too.

On Feb 09 10:23 PM Georgen wrote:

> Lets call inflation what it really is, theft by the government from
> savers. It is not as blatant as the Argentine president who recently
> siezed the assets of all private pension funds and rolled them into
> the county's social security system.
> Obama plans a less blatant theft, but theft it is still. By diluting
> the value of the currency, savings, the product of thrift and sacrafice,
> become less valuable. It reminds me of my teenage son and his friends
> shennanigans. They sneaked into my liquor cabinet, poured out a few
> servings of my best vodka, and filled it to the previous level with
> water. Much more clever than swiping the bottle outright. Obama is
> watering the vodka and giving pure stuff to his favored constituencies.

Feb 10 12:00 AM

[KIT:]

If the USD collapses to 30 % or 300% inflation the largest consumer nation on the planet would not be able to afford the products of the other nations. To save their economies they will match the printing of the US. This will devalue all money but rebalance the relative value of products making them affordable again. There really is no choice. We can have Hyper-inflation in Germany or Brazil because they are not the global base currency. The commodity price rise of a failed USD would hit all countries equally. I expect that before that happens all other nations would step up and buy USD to prevent it. In this the US is going to export the inflation to the rest of the planet. The US is the only country in a position to do so.

Feb 10 12:34 AM

[Jakester:]

Teutonic..it's easy to sound compassionate when you are handing out fruit drinks (money) that isn't yours. Also, you mention greedy CEOs. What about people that bought a home (never mind two or three) with no money down and no way to make their payments? Were they not also greedy or does greed only apply if you're in the top tax bracket?. When will liberals stop falling for this "compassion" racket?? Didn't the failed war on poverty teach you folks anything?


On Feb 10 12:00 AM Teutonic Knight wrote:

> Georgen,
>
> I believe that every human being, be it his/her background, upbringing,
> social strata, color of the skin, wealth or poverty, educated or
> non-educated, genteel or ill-mannered, they all have the same basic
> desire for dignity, respect, happiness and well-being. I respect
> your opinion. I hope that you would respect mine as well.
>
> I would like to take a slightly different view of your analogy.<br/>
>
> I think in our present crisis situation, the small bunch of greedy
> banking CEO's (I call them the Bad Apples) who invented and pushed
> all those derivatives and sub-prime mortgages while raking hundreds
> of millions of bonuses into their pockets would actually resemble
> your son who stole your volka.
>
> Sure, it is clear like hell -- what Obama is doing with our tax dollars
> in that Stimulus Bill is pure charity. I, like yourself, do not
> particularly like others mucking around with my money. But think
> about the 4 million of folks who had just been laid off. Obama
> is like taking soda and fruit drinks from my fridge to handout to
> the needy.
>
> After listening to Obama on TV moments ago, I feel that I have more
> respect for him as he seems to show compassion for his fellow human
> being.
>
> I hope you will too.
>
> On Feb 09 10:23 PM Georgen wrote:

Mar 15 11:58 AM