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Hyperinflation takes years and years, not days. And Deflation is the real threat.

April 4, 2011 Comments off

This is a post I wanted to write, but never had the time.  Hyperinflation takes years and years to develop and unfold.   It isn’t a 1 month standing jump from 3% inflation to 35% inflation.  This process takes years to ramp up.

From Rick Ackerman:

Let me explain.  To begin with, we cannot have a Weimar-style hyperinflation for reasons that will be obvious to anyone who has read Adam Fergusson’s classic on the 1921-23 Weimar hyperinflation, When Money Dies.  As Fergusson makes clear, this panic fed off a cash economy, not credit; and it required close collusion between the government and trade unions. In contrast, the U.S. economy is cashless and the unions are widely reviled.  That said, let me cut to the chase:  Hyperinflation occurs when people, fearing their money is about to become worthless, panic out of currency and into physical goods.  This is highly unlikely to happen in the U.S. for several reasons, to wit: 1) Whereas Germany’s hyperinflation took several years to ramp up, today’s financial markets are primed for a catastrophic collapse that could conceivably run its course in a week, if not mere hours; 2) under the circumstances, there would be no shifting of financial assets into hard goods simply because any financial assets one holds at the time of the collapse would become worthless before one could sell them; and, 3) at that point, there would be insufficient currency available to drive a hyperinflation, since mattress money is likely to be scarce and because branch banks keep only about $25,000-$50,000 in cash on hand. All of which implies we will go straight to deflation without the emancipating, hyperinflationary interlude that some mortgage debtors might be hoping for.

U.S. Real estate is falling in value.  When the largest single asset base in the world is falling in value against the U.S. Dollar, it is hard to envision much inflation, much less hyperinflation.

Keynes, once again…the Economic Consequences of the Peace.

Go read the entire article. h/t Zero Hedge.

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