Hyperinflation already started?

Discussing with a friend specializing in economics, he told me that real estate boom over the past 15 years could be the real hyperinflation already starting.

A house is a house. If the same house that was priced 500 000 is now 750 000, this is not growth as official economists put it, but inflation. As everything in the past 15 year growth is based on loans backed up by real estate overvalued, then all the growth of economic activity is artificial meaning it s just inflation not real growth.

The ability for the US gvt to export heaps of dollars outside ( to China, Japan etc) has made it possible to disguise this inflation. like dust under a carpet.

When the dollars come back to the US ( other countries denying the value of the USD, or asking for tangible assets against their T-Bonds but not USDs), the hyperinflation will emerge concretely.

By the way, this is exactly what happened to Iceland. Everything became totally uber expensive there but no inflation as their banks were lending surplus abroad.

or what do you think?

[edit on 4-3-2009 by seb118]

Inflation will come since the tripled the US dollar money supply. It will take 2 to 3 quarters for the effects to begin.

Originally posted by Bl0rg
Inflation will come since the tripled the US dollar money supply. It will take 2 to 3 quarters for the effects to begin.

I agree, but what I meant is that inflation was already there but we did not see it. We took it for growth.

inflation will become visible yes when trillions are poured into the economy.

It s like a tsunami, first races underwater unseen, then surges when landing on the shore.

Well if you remove inflation you will see there was growth the last 10 years, just not as much as it would seem in nominal terms. Once the high inflation hits and our economy is still in a mess, we will see a lost decade if not more at least.

I still have serious problems with the inflationary thesis. First there is no wage component to sustain higher prices. In the 70's unions and other organizations were able to force COLA adjustments fueling the inflation. Wages have been pretty stagnant for a while now (unless you're a CEO or other high level exec). Most of the monetary base expansion has been flushed down the drain of failing institutions, it's not circulating in the economy causing more dollars to chase the same amount of goods. Third and most conspiratorially banks and monied interest benefit more from deflation than inflation.

I'm not saying we don't have some inflation coming down the road, but I'm pretty confident that '09 is going to be a deflation story. I could conceiveably see inflation ramping 2nd half of '10.

Let s take an example:

If i have a house normally worth 500 000 ( current building price and supposingly paid), I can borrow 500 000 and start a 500 000 sized business project.

If the same house, because of market evolution without any physical improvement done to the house, is now valued 1,000,000, I can borrow 1,000,000 and start for example a 1,000,000 project.

The bank is doing creation of money based on inflated price. And now 50% of the capital injected is not backed by real asset. When the market turns down, I will have a business with at least 50% of its operations artificially created.

Spread the reasoning to the whole of the US, and you will understand that artificial growth has been created which should not have happened at all.

So the net growth (after inflation) you re mentioning is still relying on artificial valuation ( Call it speculation), even if the effects have been real.

another example: People buy flat screen tv, but at the same time they bought their tv with loans based on unrealitically valued assets, so their real debt was increasing ( way more). So when the system collapse, price of flat screen tv collapse too, net debt remains. People are broke and ask for bread if they ve lost their job. THe only solution is real hyperinflation ( printing more money to help the people strangled by debts). The State would otherwise face rioting.
The other solution is preparing war ( like Germany did).

[edit on 4-3-2009 by seb118]

Originally posted by jefwane
I still have serious problems with the inflationary thesis. First there is no wage component to sustain higher prices. In the 70's unions and other organizations were able to force COLA adjustments fueling the inflation. Wages have been pretty stagnant for a while now (unless you're a CEO or other high level exec). Most of the monetary base expansion has been flushed down the drain of failing institutions, it's not circulating in the economy causing more dollars to chase the same amount of goods. Third and most conspiratorially banks and monied interest benefit more from deflation than inflation.

I'm not saying we don't have some inflation coming down the road, but I'm pretty confident that '09 is going to be a deflation story. I could conceiveably see inflation ramping 2nd half of '10.

Again I agree with that. Deflation precedes inflation. What I say is that inflation existed before but was not accounted for.

Visible inflation would start when deflation decrease production ( no demand-> no production) so that necessary purchases ( food, lodging, transport) becomes scarce. This drives the State to help by printing more money in order to prevent despair and rioting.

Originally posted by seb118
inflation will become visible yes when trillions are poured into the economy.

Oh, it was planned. THEY know what they're doing.

And they have set it up such that there are trillions sitting in financial institutions, with basically the world floating on a sea of debt that will be meaningless when they open the floodgates of cash from these institutions.

Then hyperinflation will explode, and the floating world will sink and They will take over.

the problem with this theory is that property value is subjective. Meaning increased property value might actually be valid. The value is simply an assessment of what someone would be willing to pay for it. If I buy a 250k house and 5 years later all the super rich people are moving into my neighborhood and someone is willing to buy my house for 500k because of the school district, local police, etc. then there is no inflation. That is coming out of someone's pocket.

However that is not to say hyper inflation isn't coming. However I have a theory that hyper-inflation will not kick in until there is a critical mass reached of unemployment and our current Federal spending habits can no longer continue floating on the idea that their is still tax revenue coming in. Business profits are all down which means less corporate tax. People are losing their jobs which means no income tax. This means the checks won't clear from the Federal Government and when China and Japan who are our current lines of credit decide we have hit our spending limit I would expect the value of the dollar to drop like diarrhea after eating taco bell.

I say let hyperinflation hit things like McMansions & RollsRoyce, Caviar, Imported wines, Numismatic coins, rare stamps, SkyBox seats...


but let the things we Need to survive on, be spared...
milk for the rug rats, nabs & crackers with a cola for work breaks,
hamburger helper & a brewski for dinner, utility rates so we can
remain in clean clothes, listen to radio, lights in the barn or shed...


Wants can go sky high for all i care,
but Needs of the working class should be bailed-out

Originally posted by Anonymous Avatar
the problem with this theory is that property value is subjective. Meaning increased property value might actually be valid. The value is simply an assessment of what someone would be willing to pay for it. If I buy a 250k house and 5 years later all the super rich people are moving into my neighborhood and someone is willing to buy my house for 500k because of the school district, local police, etc. then there is no inflation. That is coming out of someone's pocket.

However that is not to say hyper inflation isn't coming. However I have a theory that hyper-inflation will not kick in until there is a critical mass reached of unemployment and our current Federal spending habits can no longer continue floating on the idea that their is still tax revenue coming in. Business profits are all down which means less corporate tax. People are losing their jobs which means no income tax. This means the checks won't clear from the Federal Government and when China and Japan who are our current lines of credit decide we have hit our spending limit I would expect the value of the dollar to drop like diarrhea after eating taco bell.

precisely there is no inflation but the doubling of your house's value is not based on real creation of tangible assets, but just psychological value admitted by the buyer. The area was not extended, no work has been done, the product is the same but the price soars. THis is exactly inflation. Money has less value for the same good.

For sure it does not act like money erosion, but it creates artificial value on which people based their next loan. A whole chunk of the economy is then relying on this artificial value.

It s exactly what is happening to stocks. If profitability of a company remains the same, and its price on the stock exchange is soaring because people want to buy, the company can start to borrow more on the basis of increased value. If the value is diving, then the bank ask for coverage or reject loan request. Oops, big problem!

in other words, it seems - to me- that when you accept to pay more for the same product, the truth in the end is that you eventually accept that your cash has less value. If your cash comes from real added value creation, it means that you re destroying added value.
If your cash comes from increased artificial value ( you have sold your house with a better price), then you re just piling artificial value on each other which increases the problem.

[edit on 4-3-2009 by seb118]

reply to post by seb118


Yes but there is no money being added in the economy as a whole if the perceived value of a home goes up which is necessary for monetary inflation. It still comes out of someones pocket.

The other to consider is while some people's housing prices are going up, others are going down somewhere.

Originally posted by jefwane
I still have serious problems with the inflationary thesis. First there is no wage component to sustain higher prices. In the 70's unions and other organizations were able to force COLA adjustments fueling the inflation. Wages have been pretty stagnant for a while now (unless you're a CEO or other high level exec). Most of the monetary base expansion has been flushed down the drain of failing institutions, it's not circulating in the economy causing more dollars to chase the same amount of goods. Third and most conspiratorially banks and monied interest benefit more from deflation than inflation.

I'm not saying we don't have some inflation coming down the road, but I'm pretty confident that '09 is going to be a deflation story. I could conceiveably see inflation ramping 2nd half of '10.

The system we have set up now allows inflation independent of wages. Which is a side effect anyway. We had a modest increase in CPI in January and yet consumer spending was down. How can you explain this? Monetary Base inflation. Which affect M1 and M2. We can't look at M3 but since it's all tied to CPI(regardless of manipulation) we can take a good guess what is taking place in the money supply.

We will see inflation.

Originally posted by jefwane
I still have serious problems with the inflationary thesis. First there is no wage component to sustain higher prices. In the 70's unions and other organizations were able to force COLA adjustments fueling the inflation. Wages have been pretty stagnant for a while now (unless you're a CEO or other high level exec). Most of the monetary base expansion has been flushed down the drain of failing institutions, it's not circulating in the economy causing more dollars to chase the same amount of goods. Third and most conspiratorially banks and monied interest benefit more from deflation than inflation.

I'm not saying we don't have some inflation coming down the road, but I'm pretty confident that '09 is going to be a deflation story. I could conceivably see inflation ramping 2nd half of '10.

Very true.. if it's not a wage driven inflation (money supply) and only consumer products, it will only lead to deflation. If the money supply is increased but wages are not, you get stagnation, or consumer inflation, or deflation.. depending on who gets the money. If the money being pumped into the economy reaches the consumer, you see true inflation..

Sometimes the devaluing of a currency is seen as true inflation.. in 1999-2007 we saw the dollar drop 30+% in value in relation to other currencies. This lead to international investments in America, driving the prices of virtually everything up, while wages remained stagnate, and upper incomes grew. End result is deflation because the consumer's wages did not increase. Money in the hands of the people is the only way to see hyper inflation.. until that happens, we will see inflation, deflation or stagnation.

It seems like everyone is arguing the same basic points. A rapid expansion of the money supply is not important given a low velocity of money in the system. Even the stimulus, in my opinion, is too small to fully make up for the evaporation of money/credit/debt in the system. You are looking at trillions sitting in savings accts and CDs. There is a huge vacuum right now which is why the dollar is strong against other currencies. The demand for dollars is because the U.S. is still seen as a "safe-haven" with other economies much worse than our own.

Deflation has been (and I think will continue to be) mild. It is actually the stimulus/govt spending that is keeping deflation at bay somewhat. Many businesses have price points below which they simply will not go. They will cut back on their supply of goods and hunker down. The prices may actually rise as competition fades. I think some sort of intense period of inflation is coming - but probably not for awhile.