However, what can be gained from these meditations, is perhaps a broader understanding of the world and its' environment. This is especially true if one is trying to make their money grow into more money. Whether investing or speculating < really the only difference between the two is your time horizon >, .the degree of one's success will depend on how well they have predicted / guessed what will occur in the future. Even if the predictions are completely wrong, the probability of success may increase by the time spent in trying to make these predictions.
That is the real usefulness in talking about whether or not the US, and indirectly the rest of the planet, will be going into a hyperinflation, or a deflation in prices.
A Mr. Practical on a website called Minyanville.com, makes it clear why he feels the Untied States will have a deflation. Basically, he thinks that with all the bad loans out there, a tremendous amount of "debt destruction" will occur. This will then result in a shrinkage of the money supply, with an indirect result being a 40% rise in the US dollar vis a vis other foreign currencies.
This all has a certain logic to it. However, in what time frame this all occurs, Mr. Practical then gets very fuzzy in his forecasting. If he's talking about a 40% rise in the dollar equally spread over 5 years, this is feasible and won't be a strain on the world financial system. If he's talking within the next 6 months, it will be catastrophic.
The flaw in Mr. Prac's thesis, I think, is that he may not be taking into account what overall economic effects will occur with the type of "debt destruction" he is predicting. A tipping point, very quick in time, would occur, when everything financially started unravelling. Stock markets, bond markets, everything having to do with money, would go ballistically ape. It would make Oct 2008 seem benign.
If this actually started happening, a rapid deflation of prices, Banzai Ben Bernanke and his Fed stooges have one last ultimate weapon. They, indirectly, could issue a million dollar check to every American citizen. This would result in a complete destruction of the American currency, which a hyperinflation does. Think this is ridiculous? Well, he hasn't been called Helicopter Ben for nothing. Just look at the crazy stuff he's done over the last year.
Actually this is not a new or innovative solution. The same thing occurred, with different details, during the ancient Roman Empire and in France during the early 1700s. The latest incident was last century when Weimar Germany hyperinflated in the early 1920s. The power elite of industrialists and Junkers were about to financially implode from all their debt. The government induced hyperinflation made this debt worthless and they survived. The loser was the German middle income class, who were completely wiped out. This made it possible for some wacko group to seize power ten years later. For more details, I suggest you read Emil Ludwig's 1934 biography Hindenburg.
The world financial / economic system is on a razor's edge. Very likely, control will be lost and a rapid shrinkage in prices will occur. At that time, Banzai Ben will do his Kamikaze Raid and intentionally crash the dollar. In the aftermath, a new currency will then be created.
So Mr. Practical may have his deflation. But if it occurs, it will be after a hyperinflation. Really, it's just a disagreement about which is first, the chicken or the egg. Whatever which way, they will both get devoured by a hungry wolf.
And this will be the last article about deflation / inflation. I don't think there can be any more useful benefit from further discussion.
"All money is a matter of belief." - Adam Smith
< This article is for information purposes only. It is not a recommendation or otherwise investment advice. >
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