# Deflation as a prelude to Hyperinflation



## DadofTheFamily (Feb 19, 2015)

Have noticed lately that the mainstream media is now finally recognizing we are now in a deflationary cycle. With the ongoing currency war and dwindling demand, this is a clear indicator that money printing will continue. Deflation is a key indicator that usually precedes hyperinflation.

This was written 3 years ago. Financial writer Daryl Montgomery said:

"Since hyperinflation has only occurred in certain countries at certain times, it is important to ask what it the key factor or factors that lead to it. The short answer would be: deflation created by demand destruction, followed by money printing that is taking place because the ability to borrow doesn't exist or has been exhausted. Since developed countries have better credit and can borrow more, hyperinflation is less likely to occur in them than in more marginal economies - at least until their lending sources dry up...The monetary authorities worry about deflation and attempts to handle it with money printing are nothing new. The current actions are disturbingly similar to what took place in Weimar Germany in the early 1920s. They handled their deflation problem with money printing as well. As prices rose, instead of facing reality, the economics establishment acted in concert to deny the obvious. Deflation was cited as the biggest danger to the economy until it became laughable. When inflation exploded, the usual scapegoats - foreigners, speculators and minorities - were blamed by the government. Unless human behavior has changed in the last 100 years, the same scenario is likely to play itself out again in the 2010s."


----------



## Camel923 (Aug 13, 2014)

I believe that the dollars sat is as the world reserve Currency is what is protecting the US from having to have a major currency failure or devaluation. We have violated key monetary principles for decades.


----------



## Salt-N-Pepper (Aug 18, 2014)

I cannot stress enough to people to *GET YOUR PREPS TOGETHER NOW WHILE THE SUN SHINES.*

We are being given an opportunity. NOW. Take it.*PLEASE*


----------



## Salt-N-Pepper (Aug 18, 2014)

Camel923 said:


> I believe that the dollars sat is as the world reserve Currency is what is protecting the US from having to have a major currency failure or devaluation. We have violated key monetary principles for decades.


It's days as the defacto world reserve currency are numbered.


----------



## Diver (Nov 22, 2014)

Inflation is a function of both the money supply and the velocity of money. If you want to understand what is going on with monetary policy look at the velocity of money.


----------



## Maine-Marine (Mar 7, 2014)

Salt-N-Pepper said:


> I cannot stress enough to people to *GET YOUR PREPS TOGETHER NOW WHILE THE SUN SHINES.*
> 
> We are being given an opportunity. NOW. Take it.*PLEASE*


But the only time I have to shop is after hours when it is dark and the sun is down..

(be careful what you say - if you start a rumor you can catch more fish with your willie hanging in the water -somebody will try it)


----------



## DadofTheFamily (Feb 19, 2015)

Couldn't agree with all of you more. @Diver re: Velocity of Money, I totally agree. I have an economics background and keep up with all kinds of "FRED" data this chart tells it all.


----------



## Diver (Nov 22, 2014)

And you will notice that the graph is still pointed down.


----------



## Oddcaliber (Feb 17, 2014)

After WW1 in Germany hyperinflation was very bad. A story comes to mind that a woman was waiting in line with a wheelbarrow full of money. She forgot something at home and when she returns the wheelbarrow is gone but the money was still there.


----------



## SARGE7402 (Nov 18, 2012)

While Germany's Hyperinflation did exist we do need to keep it in context. It had more to do with her inability to pay her war reparations in Gold and the seizure of most of her heavy industrial base by France. She printed more money - not backed by gold - in an effort to pay off her debts.

Our situation is not even close to being similar.

It is very unlikely that our currency will spiral out of control like Germany's did


----------



## Ripon (Dec 22, 2012)

The first book I read on hyper inflation / deflation was in 1992/3 something to do with Great Reckoning or something like that, but the German story that lead the book was something I've lectured with in the past. A butcher and his wife have a baby in Germany. They own a butcher shop, and they prosper for almost two decades while saving daily to send Jr off to a good college to make a life for himself. Their only child, turned 18, and the took all the savings out and were able to buy him a nice dinner at a nice restaurant the day before he was off to boot camp. The book claimed that a true story - who knows - sounds feasible.

Would the US Dollar not being the reserve currency be our doom and gloom? I think most of you think it would; yet in the 1970's when Nixon sold out the Gold Standard so the US dollar could displace the Brit Pound as the world's reserve currency the British didn't disappear and go into hyper inflation? So if they could survive that why couldn't we survive it now? 

I know this is wildly unpopular with the Fed dismissal crowd around here, but it appears to me the circumstances in 2008 were very close to those before the 1920's great depression. At that point and time the government / Fed didn't produce more money and we seriously deflated and destroyed a lot of people. It seems to me if you study history you'd have to acknowledge the printing (quantitative easing) of trillions to infuse the market with massive amounts of cash prevented the 2009/10 great depression from happening. Now we are in uncharted territories since we don't know what would have happened if they'd printed in 1929 we'll have to find out what happens since they printed in 2010.


----------



## Diver (Nov 22, 2014)

DadofTheFamily said:


> Couldn't agree with all of you more. @Diver re: Velocity of Money, I totally agree. I have an economics background and keep up with all kinds of "FRED" data this chart tells it all.
> View attachment 10139


That chart explains why the Fed is doing what it has been doing. What it doesn't tell you is why the velocity of money has been in freefall. Essentially you have a combination of losses, increased capital requirements, fines for normal business practices, etc. Resulting in banks not wanting to lend, and the public not wanting to borrow (regulation a factor here along with idiotic tax levels). Cash stops where it is, as everyone tries to self finance. The Fed will have a challenge if the velocity turns abruptly, but until it does turn there isn't much risk of hyperinflation.


----------

