Inflation? Deflation? Hyperinflation? All of the above? None of the above?
by Tom on October 1, 2009
in Market Musings, banks
So, what are we in? Are we in a period of inflation? Deflation? Hyper Inflation? Let me explain my thoughts on those options….
In many areas, we are seeing deflation. The value of houses and cars (for instance) have fallen and have done so quite substantially.
Many people are anticipating that we’re going to be moving into a period of inflation. Why?
- Because that’s typically what happens when interest rates are moved to very low levels.
- Because inflation typically happens when the economy rebounds from a slowdown.
And then there’s hyper-inflation. What’s the difference? The main difference between hyper inflation and inflation has to do with the speed and the rise in levels.
What are some of the things that can cause hyper-inflation?
- The supply/demand inbalance in the amount of governmental debt (Treasuries and Mortgage Backed Securities) will shift from more buyers than sellers and therefore very low rates to more sellers than buyers and therefore substantially higher rates.
- The value of the dollar. What impacts the value of the dollar? That’s a topic for an entire doctoral dissertation but let’s just say that the dollar hasn’t been treated very kindly in the currency markets lately.
Below is an interesting interview that took place on CNBC talking about inflation, hyper inflation and the prospects.
Worth listening too…..
Tom Vanderwell
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