Friday, February 20, 2009

More Deflation/Hyperinflation Fun

Deflation or Hyperinflation?

Both excellent articles.

I have comments on both of these articles, but I will reserve them at this time. I have not changed my position. If anyone would like to comment on these articles in the comment section, I will be happy to engage.



Anonymous said...

The deflation case is certainly a much stronger one. Maybe there are other places where hyperinflation is predicted with more specifics? The deflation article is absolutely compelling in its description of monetary mechanisms at work, differences with Weimar Germany, etc.

Anonymous said...


I think we will have both deflation and hyperinflation in various stages. We will get a temporary deflation phase and then a U turn where it turns into hyperinflation. What are your plans for this economic depression, besides just buying gold? Have you thought about planning for survival with food and water?

I want to share with you this newsletter. McHugh has been very accurate with his Elliot Waves. He said that Friday confirmed the Dow Theory. If you go to page 7, there's a nice graphic of the Depression 1929/1930s vs. current date. He's also expecting another major drop this spring from current levels. It should align with Armstrong's 2009.3 date. All hell will break loose. I think the stars are aligned and destiny awaits us, unfortunately.

Anonymous said...

As inflation & deflations are in essence products of the actual IFMS (International Financial Monetairy System) And since this system is theoretical broke, it is of no relevance to discuss the subject anymore.

The final termination of the system is only a matter of time. There will (must) be a new system comming and that is only also a matter of time......

As ANOTHER pointed out a few years back, people who hold GOLD in times of transition will be comming out of it always better.


FOFOA said...


I agree, Mish wrote a compelling article. And he is very sure of himself. Janszen, on the other hand, is less sure of the "Zimbabwe outcome". I will say that most of my disagreements with Mish's article are only semantic. Except when he says we can't or won't have a Zimbabwe-esque outcome here.


Yes, I have been "buying time". That means I have arranged for my necessities. Thanks for the newsletter. I have read several this weekend that lead to the same conclusions about the markets right now.


You make good points. But I think this discussion is still relevant because mental preparation for what comes our way is as important as physical preparation. And in my estimation, the hyperinflation outcome would me many times worse than a deflationary spiral.

It seems to me that the deflationists are driven by this idea that because money is debt it has expanded for the last 75 years and has reached it's peak, and is now contracting uncontrollably which is leading us into a catastrophic depression and the very end of this monetary system. As I said, most of my disagreement with this view is semantic in nature.

First of all, I think they overvalue the importance of deflating credit money in the money supply. The large leverage credit money only flows out into the system when collateral is attached (you could never take out a $500K loan to stock up on food). That means it is earmarked for spending only in certain sectors. Those sectors are deflating along with the leverage and the credit. Those sectors do not include food and other necessities.

Mish always just says "prices". Differentiation is key in this case. In real terms, everything but the necessities of life deflate in price, even in hyperinflation. In that sense, hyperinflation IS deflation, even under his loose definition of prices.

The declining official CPI we see today is due largely to the CPI calculation model and the decline in oil. At the very least, it is a poor indicator of either inflation or deflation.

I think Mish consistently beats the "deflation drum" because that is his description of the end of the world. I agree with him on that. Only I see hyperinflation as worse than deflation. I don't think he does. I think he loosely associates hyperinflation with inflation, which I think is wrong. And he thinks of inflation as a positive, an improvement that will not come. I agree with this. I see the spectrum as deflation-inflation-hyperinflation. The middle is normality. The extremes are deadly. And deflation won't persist in a completely fiat system. It simply can't. Yes the system is ending, and I see only one way it ends.

I think I define deflation a little differently than Mish does. Since there is no solid definition in existence, this is fair and allowed. I don't think he is wrong overall. But I think he is wrong to scream "deflation" so loudly. He may be very surprised within 12 to 18 months.

Lastly, in "It's Just Time", Armstrong describes the "flow of capital". This is key!!! Capital, or true value, or wealth, flows in and out of different countries and in and out of different asset classes. It has always done this and this is what Armstrong's Economic Confidence Model shows.

By Mish's definition of money (M0 + all credit money), we could lose 90% of all money (Mish's definition of deflation), and if the remaining 10% flowed into necessities and then gold, we would have hyperinflation, and freegold.... in my humble opinion.

And the government's reaction to this will push that hyperinflation to Zimbabwe status. I believe that is the only reaction the government can possibly have when this happens.


Shanti said...

Good comment especialy the "physical preparation" ;-)

Armstrong Model is briljant, but personaly in this context i prefere the explanation of Peter Miller.

Seems some trouble in posting here with the password.


FOFOA said...


I changed the comment format. Let me know if this works better for you.


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