Still Waiting On Hyperinflation...
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
Well the uber doom-and-gloomers have been decidedly reticent of late. This changed recently in the blog arena. Changes in purchasing patterns of bonds later this year seem to have everyone in a tizzy now.
I renew my stance that all of this HYPERinflation rhetoric is utter nonsense. These positions are generally coupled with someone trying to sell something (commodities, coaching, advice, etc.) so please be skeptical when you see them posted.
Following is a great, level-headed article on the subject for those that are interested:
Why the Pessimists Are Wrong About Inflation
and here are the real inflation rates:
I renew my request for anyone to provide TANGIBLE evidence that we are headed for hyperinflation.
Hyperinflation is different than inflation. If you take the original defination of inflation, (and as currently used by Austrian School Economists) you track inflation as an increase in the money supply, and price increases (commonly referred to as inflation today) are the effect of the money printing. So first defining which inflation, monetary inflation, or price inflation you are talking about is required.
There is no doubt that money supply has been inflated recently. The fed publishes figures and you can see what is going on. Somewhat more difficult to see is price inflation. The CPI is the most common but is skewed to make the govt look good. Looking at prices of common goods one can see price inflation; see gasoline, health care, college tuition, food, silver, oil, etc. The basic commodities are shooting up, which means that all derivative products are also getting more expensive. One way that producers are trying to mask this is by making packages smaller; a "green" package, "effeciency" packages, etc. The net result is maybe only a 10% increase in price, but when you couple that with the 15-20 decrease in product per package, you get 30-40% inflation. And this is happening more and more in the last year or two.
So that was inflation (the two types). Hyperinflation, on the other hand, is a loss in confidence in the currency being printed. It is not like in monopoly, when the more money you get, the more prices go up (remember, at first you dont have much money, so deals are cheap, but as the game progresses and everyone has tons of cash, the bids get higher and higher, hmm, sounds like the housing bubble), but rather that people realise that there is inflation, and that the currency is not a store of value, and they go out to spend (get rid of it, ie exchange it for something of value) it before it is worth less. So hyperinflation is when people do not trust their money anymore and want to buy stuff before the price goes up (ie the value of the paper money declines further).
So hyperinflation is a rare event, but not as rare, nor as impossible as people would like to believe. Argentina is now experiencing inflation in the area of 30% per year, this is very soon going to be hyperinflation if history has any rhyme to it.
The main complication today IMO with the hyperinflation/deflation/inflation debates is that there was such a huge increase in debt (learn how money is issued from banks, they can loan (create, print) 10x the money they have on deposit) money in the last couple bubbles that when the bubbles collapse the debt money disappears, this is monetary deflation (not price deflation) but means that there is less "wealth" on paper, and real losses for many. And debt is spending today what we need to tomorrow pay for, and if the earnings and savings are not there to pay, then money is tight. So the money printing, which is going to the banks to make up for that 10x debt money they created which is evaporating, and not going to the unemployed, underwater, etc, is not having such a big effect on prices yet... But money chases yield. Not going to housing yet, still such debt, and bankers not gonna buy their own shadow inventory, so it goes to stock markets and commodities. That is why the stock market has held up so well, and why commodities are so highly priced. And that is why food, clothes, etc are showing price inflation as well.
I do not see hyperinflation (remember, this a loss in confidence in the currency) happening yet; the US is still the largest producer of food in the world, still dominant in most areas, still no clear alternative (other than gold, etc) so most will cling to the hope that the US will be a safe haven. And remember, most people would rather believe the easy lie than face the hard truth, so they will cling to what has been, rather than look at the facts and accept what is coming.
I think that the situation is unsustainable, but for hyperinflation to come, people need to realize that, accept that, and react accordingly. I do not see the realization on a large scale yet; most would rather believe the easy lie perpetuated by politicians and media and bankers and real estate pros (NAR statistics, sorry for offending any straight shooting real estate people, but so many are clueless and lie) who push housing as the best investment, retirement/'investment managers, etc. They do not yet want to think that something is wrong and take the next step to figure out what and why, which would lead to what to do. When that happens (assuming that the economy and spending continue in this same direction, major deficits, high rate of unemployment, debt overhangs, etc) then you can worry about "hyperinflation", but for now it will be inflation, or stagflation, re the 70's. And look what happened then; gold, oil, etc shot up. Interest rates shot up. Inflation shot up. And then the economy took off, after a long period. Will that happen again this time? who knows, history does not repeat, but is rhymes. Some things are different this time; high debt, low savings, cannot really lower taxes more due to already insane deficit, wars, high oil, lots of jobs have been offshored and not coming back, it is a global economy now, not a US economy, so competion is worldwide for jobs, so many may not come back soon, at least as they were.
My outlook? Things which you "need", ie oil, clothes, food, healthcare, etc, will continue to get more expensive in the near term. Things which were financed/bought with debt will continue to get cheaper in the near term, ie housing, cars, boats, vacation cabins, toys, etc. People have to get rid of the debt items (cant pay for them) and pay for the things they need. And with higher unemployment, and tighter credit (banks not giving money to customers, putting it to "pay off bad debt", investing it in stocks, commodities,etc, remember money chases yield and the bankers have been burnt on housing and consumers, wonder why your HELOC which was unused was cancelled even tho you have 800 credit?), financing is not as big an option as it was.
So what about real estate? No crystal ball, I threw it away a long time ago... but I think that having a part of net worth in real estate or income producing assets is worthwhile. betting on appreciation will be a losing game for a while IMO, but if you can cashflow a decent amount and hang on to what you have even if prices drop another 30% (it can happen...) then you will be positioned well if/when prices increase in the future (10-15 years from now). remember, bottoms take time, recoveries are not instantaneous and even with the money pumping by the fed, this will take a while. but being in place, not too high leverage, and cashflowing allows you to build equity, gain experience, and when the prices start to rise, pull the equity out of your houses and start to buy. Not your own money at that point because renters have paid it.
Those are my thoughts, lol, just lookint that this was "quick reply"
Tony.
Ha! That is funny!
One of my capital raise dear friends hired an employee in California that lied on his resume about what he could do. She later fired him and had to spend a ton of money defending herself in court because of the nonsense laws in The People's Republic of Kali.
We have hoards of people pouring into Austin from California and they are always complaining about our laws here. Native Austinites always remind them that they can move back if they don't like it. They also remind them that they moved to Texas BECAUSE of the non-lunacy and because there is still opportunity here.
I could go on and on....I'll try not to turn the thread into a political one though.
Is it true that it takes 77% of Federal Tax receipts to cover the interest on our nations debt? Is it true that they have to use Medicare and Social Security money to help cover those interest payments?
I just listened to some FACTS that would indicate to me that the crisis is nowhere near over, and in fact is just beginning. This trends analyst discovered that most of the major economic problems in the recent past have ended up back at the US Treasury as they paper over everything with bail out money. Anyway they break down a lot of big numbers to make it simple for anyone to see that you simply cannot tax your way out of the amount of debt that we have created already, not to mention the debts we continue to rack up.
The "doom and gloomers" say that those riots and austerity measures you see in other countries are most certainly going to make their way back to this country.
Once the dollar loses its status as the worlds reserve currency, we will be F*****. Since that will be when the printing press is no longer a solution.
Every commodity is inflating right now, as it should when you print money to cover just the interest on your debt.
No, that's not true.
In FY2010, the government collected about $2.1T in tax revenue. In the same time period, the interest on U.S. debt (including bonds and treasuries) was about $400B.
So, the debt payments account for just less than 20% of the total revenue collected in tax payments (which is still ridiculously high, of course, but not nearly what was claimed).
It's all the same money, so sure, you could say that. They also use Defense money, road money, education money, welfare money and politician salary money to cover that 20%... :)
Btw, Medicare and SS taxes account for about $1T in revenue by the government, and currently pay out just under $1T per year, so that revenue is currently providing a surplus. But, with Medicare Part D and the rising age of our population, Medicare expenses are going to rise DRASTICALLY over the next 20 years, and there will be a major shortfall of funds if nothing changes.
This will be one of the largest drags on our budget unless/until something changes.
That may be true; in fact, it probably won't be "fixed" until we balance the budget AND start paying down the debt, as one or the other isn't going to get us where we need to be. To me, this means that we both need to make major spending cuts and raise more in tax revenue (tax hikes)...one or the other isn't going to be enough (again, in my opinion).
Unfortunately, other than one or two Libertarians, I haven't heard any politicians espouse this strategy, so who knows, the problem may never be fixed.
That said, his "facts" about the interest on our debt is just a flat-out lie.
Unfortunately, when you make something complex into something simple, you lose a lot of nuances that can be VERY important. This is a very complex problem, and any simple explanation is sure to negate too much of the discussion to be useful. So, take any "simple" explanation with a grain of salt.
True, though for various reasons, I don't see that happening anytime soon. But again, until the core issues are fixed (overspending, under-collecting), the problem isn't going away.
Inflation in the values of commodities around the world are hardly caused by the US printing money (we've been printing more money than we have for hundreds of years and LOTS more money than we have for dozens of years), though long-term it could have a significant effect. This remains to be seen.
I guess the short answer to everything above is that:
1. Don't believe everything you read or hear, though add it to your pot of knowledge and do your own research;
2. When someone makes something very complex into something very simple, assume that best-case they are ignoring a lot of important details and worst-case they are using their spin on the subject to try to influence you.
Hopefully this won't devolve into a political left/right discussion...I'm certainly trying to avoid that here. Plus, if you're looking for a party to blame this one, you need to look at not-only both parties, but pretty much every politician that's been in office for the past 30 years...
We're still waiting...
I am sure we can come back to this thread in a year and we will still be waiting. Hopefully people will continue to drag the thread up to demonstrate how stupid this idea of HYPERinflation is...
If gas doubles, commodities skyrocket, real estate falls, wages decline, interest income is non-existent, rental rates decline-it all averages out. Inflation for some families is real, deflation is real for others. The measures are questionable.
As it stands the softening world economy predicts less increases in some commodities which, in turn, helps us.
If/when China and the oil rich countries don't depend on our economy for their income, we will be vulnerable to them and they could call the shots. We can be sure their self-interest will come before ours. When will we wake up?
I don't see the US suffering from Hyper Inflation until we lose the reserve currency status and given all the issues in the world that is less likely than ever. As you know the Reserve Currency of the world has never seen Hyper Inflation.
Could the Euro displace the Dollar - not a chance. In fact I give the Euro only a 50/50 chance of surviving another 2 years. If I was Germany or France I would stop paying for the sins of other nations.
Could the Yen displace the dollar. Not a chance. Too small and not growing, can you say lost decade * 2.
Could the Chinese Currency Replace the Dollar. This seems the most logical choice but until they have an open market with trusted accounts and financial reports it won't happen. Have you seen all the Chinese companies being reported with false financial statements. Not to mention the fact they will likely suffer their own real estate and bad loans crises in the next 4 years. So this could happen but it is easily 10 years out.
Could Gold or Silver. This could happen but the dollar would have to depreciate another 80 or 90 percent as both have such a small quantity of reserves.
So none of these are likely to replace the dollar as the reserve currency so hyperinflation is off the table.
My opinion only
Good Investing
Yeah thanks for the replay J. I thought some of the claims he was making were not true. Of course he says that they are, and says you can go look them up and see what he is saying is true. I guess he is banking on people not actually doing that. So thanks for the clarification on that.
And Bryan, I sure hope you are right. I dont want to get into the RE game this deep only to have to live off the grid later.
I am still shopping for a solar powered generator though, and other things that can be used even if the sky doesent fall.
Unfortunately I don't think the answer to this is good Jeff. I don't see anyone waking up until there is a major crisis. Most of the country is distracted trying to survive right now. I don't think anyone is paying attention to our long-term issues.
I did a google search for "interest as % of GDP. Lots of interesting input. This one has some facts, and charts.
http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm
Interesting article with comparisons of U.S. and Greece with actual #'s. (some of the #'s were projections for 2010)
Of the debt, 9.7T is the PUBLIC debt. The other 4.6T is SS and other govt accts.(we basically owe ourselves) Of that public debt, almost have is owned by foreign countries-China and Japan. (I'm 95% certain I have the %'s correct
The current debt level is 95% of the GDP, up from 51% 22 yrs ago. The rate is increasing faster now. 12 months from now, the debt is expected to be 16.2T.
JSCOTT had a couple items that need some "rest of the story" added on, imo.
1. Paragraph that states "when you take something complex and make it too simple, you lose a lot of nuances" . This also works in reverse. Take something complex, like the health care bill, and NO one reads or understands it until after the fact. Not good, imo.
2. Only reason the total interest paid on debt was the % it was. LOWEST INTEREST RATES IN HISTORY! With realistic rates or higher rates, as anticipated, that % will skyrocket. Higher debt each year and likely higher interest.
Now, here are a couple comparisons that should worry all of us.
Our interest on debt is currently the FIFTH largest item on Fed expenditures.
defense
security
social security
medicare
interest on debt(soon to pass medicare and be # 4 and rising
Here is a chart(others in same article) that should cause concern. We see what is going on in Greece, and of course, that'll never happen here, tic
Greece U.S.
federal deficit as % of GDP 13.5% 10.6%
Total govt debt as % of GDP 115% 94%
There were other charts and info as to current status and the future possibilities without spending less and putting a stop to future debt growth. No sides as to who caused what. This is where we now find ourselves now and without big changes, real problems will show up, imo. Rich
Yup, that's the problem. For the past 30 years, our government (our politicians, actually) have cared more about short-term expenditures than they do about the long-term fiscal health of this country.
Until we get a President, House and Senate that insists on balancing the budget (which will stop the debt increases) and insists on increasing revenue (which will allow us to start to pay down the existing debt), there is no way out of this problem.
Unfortunately, not a single person (from any party) is running on this platform (stop the deficits and start paying off the debt) in 2012. In fact, I've never heard that possibility even MENTIONED by any potential candidates (or our current President) EVER.
Which means we're likely to run deficits for at least the next 5 years, regardless of who ends up in office after 2012.
This is an excellent point. More interesting is the fact that only the first two of these things are non-mandatory spending items, meaning only the first two can be cut without passing new laws.
But again, I've yet to hear any 2012 candidate (other than Ron Paul) suggest reducing those expenditures.
Both parties like to blame the other for the fiscal problems of this country, but when not a single candidate stands up and promises to start reducing the debt, it's clearly a problem on both/all sides.
Pardon me for butting in, and I really don't give a "Hoot in Hyanissport" one way or the other, but I thought political comments were supposed to be limited to the Political Group.
PG
Pardon me for butting in, and I really don't give a "Hoot in Hyanissport" one way or the other, but I thought political comments were supposed to be limited to the Political Group.
It's difficult to discuss fiscal policy or the country's future fiscal status without discussing the budget, the deficit, the debt and the causes of those things (which is inherently those who make the budgets). So, perhaps this entire topic is doomed to get political.
I made an effort not to be partisan, and I assumed nobody would have an issue with this line of discussion given the non-partisan nature...but clearly that's not the case...
If the mods want to move this thread to the Politics group, that works for me!
I don't see J's comments as partisan above.
I am interested in macro economics and not politics. I dont know much about either. The main reason this topic is important to me is to begin preparing for the worst now, for me and my family.
I want to think its not possible to have a complete economic collapse, so this thread helps me from time to time.
If there is a complete economic collapse there is really very little you can do about it anyway Jimmy. Most of the stuff touted on the board like buying gold, etc. won't work in the event there is massive hyperinflation.
Who needs hyperinflation anyways?
http://grandfather-economic-report.com/inflation.htm
And here are a couple of interesting sites with facts to start forming an opinion from:
http://en.wikipedia.org/wiki/Economy_of_the_United_States
http://grandfather-economic-report.com/
All the more reason to buy property with low, fixed-rate debt Anthony. I read through most of the Grandfather Report above and it makes many good points. I don't see anything in there about HYPERinflation though.
My wife and I keep ample fixed-rate debt on the product we own precisely because of all of this. In fact, I argue vehemently on all of the "50% rule" threads that inflation and the erosion of purchasing power of the dollar is a primary reason strictlyy using the "rule" is hogwash in many instances. Everyone invests differently and many people place a premium on this inflation hedge because they are abundantly confident that this erosion of purchasing power will continue to occur over their lifetime. Making your balance sheet look like the government's is a strong play for inflating away your obligations in the eyes of many.
2011 will have at least $2 trillion in the budget deficit. So the $14.5t current ceiling has to go up to $17t at a min. Runaway gov't spending, no jobs, 48mm people on food stamps (up from 30mm in 2009) going to 60mm = a country that must continue to fund it's own debt (we are the only one's who buy our own treasury auctions). This freight train will not stop. It is why interest rates CAN'T go up, the compounding on our own country's debt can't afford it!
This is all snowballing and equals one thing - the demise of the u.s. dollar. At one extreme, yes hyperinflatin is a possibility. To say it is not is to be in denial of the bankruptcy this country is currently in.
I'm never really sure what people mean when they say this country is "bankrupt" or "insolvent".
Yes, there is massive debt and massive deficits, but I haven't heard about the government defaulting on any of this debt or trying to legally discharge the debt (the definition of bankruptcy).
The country has been in debt for 200 years now (at least), so it's something we as a nation have come to accept.
I certainly agree that if things continue in the same direction they've been headed for the past 30 years, we're in a lot of trouble...but to say that we're currently bankrupt just doesn't make anymore sense than it did 5 years ago, 10 years ago or 30 years ago...
Bryan- Did I understand you think the 50%/2% is hogwash? Boy are you fighting the Holy Grail on this board! I posted this morning(early) the same thing. Not even a single reply to that hypocrisy. Where did the holy grail people go? Rich
I don't want to divert the thread to a discussion of the 50% rule Rich...my thoughts on this are well documented across many posts.
What I was saying is that many people are betting on inflation and thus don't rely solely on the 50% rule to guide their investing decisions.
Bryan,
I agree with the idea of keeping fixed rate, low interest rate, long term debt, with a couple caveats. I do not want too much debt, I want provisions for decreases in rent, repairs, etc. In other words, I do not know what is coming, only that too much leverage will kill you. Leverage is a two edged sword... I am trying to find the balance that lets me grow without putting too much exposure in case something tramautic comes (ie falling property values, falling rents, higher taxes, etc). I do not know if that would come, but being prepared is the next best thing to knowing what is coming.
So I guess my strategy is betting on inflation, but trying to protect at the same time if something else happens (ie if something else happens I do not loose, if inflation happens I "win").
Tony
Anthony- I have a Thread or blog on here somewhere with my methods to protect yourself. In short, have at least 2 parallel programs that can't contaminate each other. One with free and clear properties, and one with all your high risk activities. Autos, and highly leveraged properties etc. Rich