The deflationists theory is we are not going to have hyperinflation because pay raises are low and getting lower because of eastern Euros willing to work for pennies a day. Of course this is just propaganda as inflation is live and well, and the final shoe is about to drop as we head into a hyperinflationary bust. Even the BBC is finally starting to admit wages are escalating: http://news.bbc.co.uk/1/hi/business/7234389.stm and the amount of council workers earning 50K + a year is soaring: http://www.expressandstar.com/2008/01/31/5...l-workers-soar/

You have been warned.

My pay rise from April has been confirmed at 8%.

So much for CPI @ 2.1 eh.

What a surprise. . . . . 2 of the merry band of gold rampers start a thread about inflation . .

Yawn. . .

Everything I can see looks the opposite. We have had the inflation the last 10 years with the exponential expansion of credit.

That is now all getting destroyed. How is that inflationary? How is credit tightening that we are all seeing inflationary?

It isn't

On the contrary, you have had 10 years of deflation (because of china) and a property bubble (isolated inflation caused by monetary expansion).

Watch and learn as the price of food and energy goes through the roof and wages start to follow as credit is withdrawn to supplement poor wages. Those banking on a deflationary bust are going to poorer than they could ever imagine. Deflation is not an option.

Yep im with you there, mines also confirmed at 1.9 for next 3 yrs..........we have take off.







EDIT.....ps that was sacarstic on my payrise.

If you believe in deflation you should be happy with a 1.9% increase. Everything is getting cheaper so you should be happy - right?

I agree with inflation over all possibilities, showing my disdain for my never to keep up pay rise along with countless other Public Sector workers.

Just out of interest, if a major US bank were to fail, with associated knock-on effects, what effect would that have on the inflation/deflation argument? Any?

I disagree.

What do you mean "inflation is not an option". Seems like you have too much faith in the wizard of oz. Its like saying "death is not an option" when someone is diagnosed with terminal cancer.

What about sentiment and attitudes. I can see them changing rapidly, particularly towards debt. The central banks cannot do anything for that.

Bernanke is a fool IMO. He will meddle and pull as many levers as possible and simply make matters worse and go on for longer.

You cannot hold back the tide.

Do you think the government is going to start paying money directly into peoples accounts to get them to spend??

But how are we supposed to continually pay for these wage increases (public sector) ?? Darling is already 8 billion in the hole (and that is assuming the economy doesn't tank).

You say "inflation is live and well", yet (mass - nurses, teachers, police etc...) public sector pay rises are currently 2-3%, hardly "Hyper", in fact I would consider these to be deflationary if you compare them with the quoted RPI. And I notice that a lot of people here consider that to be a great underestimate of true inflation, so we are actually experiencing greater wage deflation!!

If RPI is 4%, do you consider 4% pay rises to be Hyper-Inflationary?

BTW, what would you consider to be a "Hyper-Inflationary" payrise ATM, just so when one comes along, I will know that you were right. Hopefully it will be me getting it!

Oh, what is all this "Warning" stuff all about then?, that you may get a deflationary pay rise, but think that you are better off!?!?

++ Deflation is not an option.
++ Sentiment is changing as people realise they are skint and need more money - borrowing to survive not a option anymore - pay rises are!
++ Bernanke is not a fool he has been dealt a 10 high when everyone else is sitting at the table has flushes and blackjacks - he trying to bluff he way out.
++ Governments will dish cash out - the US has started - Shrub has elected to just post out checks as apposed to dropping money out of helicopters, probably thinking about saving fuel.

Heed the warnings or prepare to live on beans on toast for the rest of your life - if you're lucky.

Don't forget, money cannot be removed from the economy (Deflation) unless:

A.) Debt money is paid back
B.) Physical money is physically destroyed

http://en.wikipedia.org/wiki/Money_creation

As pluto said, we've had 10 years of controlled inflation via a stock market and housing bubble.

The central banks are now flooding the world with paper in an attempt to stave off recession. Have you not been watching the news of liquidity injections, bank bail outs, bond insurance bail outs and fiscal stimulus packages? We're talking hundreds and hundreds of billions of dollars.

Where is this freshly created paper going to go?

You guessed it, commodities.

Like most inflationists you fail to see the difference between price increases and inflation. Credit is withdrawn? Thats deflation



Yes we PREDICT DEFLATION. The credit bust has lasted 6 months so far. Japans bust has been 18 years. The great depression, the shortest deflationary depression of such magnitude was over 3 years. So an optomistic assesment is that we are 1/6th of the way into a new deflationary trend. Only enough to collapse the credit markets, collapse consumer mortgage lending and halt house price rises and kill the stock bull. Its only been 6 months and already a good 1/3rd of the people on here have realised the case for inflation is falling apart, when I joined in '06 and started warning of a deflationary depression there were NO THREADS about deflation and NO DISCUSSION of it and NO ONE would take it seriously. Deflation is commencing, of the money supply now, then later your ego.

You are looking in the rear view mirror. Wages have been supplemented by mewing and credit cards in recent years. This option has now been removed. Looking ahead the only way to keep up with escalating fuel, food, and taxes is to DEMAND more in wages. This will start the happen in the coming years. Of course there will be strikes etc, which will all lead to a hyperinflationary bust.

So, I take it that thnat is what the Japanese were doing for 10 years then?

Why did they not just print sh!t loads of money then - problem solved!!

Are you confident pay increases will happen across the population ?

Credit facilities being withdrawn isn't deflation.

Loans being called back in is deflation.

Credit withdrawn for the leveraged punter, which will cause them to demand more in wages. The banks are having no trouble borrowing BILLIONS from central banks.

As I have said many, many times. DEFLATION is not an OPTION.

Woops. How could that have happened?

Yes. Wages have been low and the shortfall made up in MEWing, credit cards, and bank loans. As these are withdrawn there is only one other option - pay raises. You will start to read more and more about inflation busting pay raises, especially in the public sector. Nurses, police, fireman etc will only put up with so much.

People will spend if they expect inflation, refrain from spending if they expect deflation. They will watch the actions of the government(s) to decide which is more likely. So far it's looking inflationary to me.

Money supply growth is going negative in the US. It has been discussed here many times before.

Have a nice day everyone in the glorious sunshine!

Please direct me to such discussion. I must have missed that one.

Then surely we will see interest rates rise too.

....what if the employers are in a position to do a Branson? ie accept the low wage increase or you will be replaced.

That will be a political decision - no-one can predict what politicians will do as they don't have a set of rules to follow. However, what I do know is the longer they leave IRs low the higher they will have to go to wring inflation out of the system. Volcker had to go to 20% in the late 70s to get inflation tamed.

Until IRs start heading up above 10% hyperinflation is on the cards.

Tell me Pluto, do you expect a recession in either the US or UK ????

Are you referring to credit or cash? Credit is destroyed by default or repayment.

Replaced with who? Branson is bluffing, he knows service on his flights will suffer will low paid staff, and ultimately his business will suffer.

Let's see other companies try and bluff their way out.

Yes, eventually. But the next phase will be to try and inflate the economies again which will lead to hyperinflation. Central banks in the UK and US are already priming the pumps to dosh out extra cash - the interesting thing will be how they get around the banking credit crunch. As I have said before deflation is not an option.

How is credit destroyed by default? The money was created, then lent out and is in the economy circulating. How does defaulting on credit reign in this money from the economy?

When you say hyperinflation, which historic scenario / example, are you imagining?

Because the entity that loaned the money either no longer has it or more likely still owes it to another entity. It has to draw money from other sources and out of circulation to repay it.

To be honest you sound like one of the many gold bars you recently bought fell off its bedside shelf and hit you in the head. How else could someone assert that hyperinflationary pay rises are just there for the asking and people didnt ask because they'd rather borrow or MEW it.

And as for the commodities comment, yeah they'll go up as we have to bid for them with a devaluing currency against other countries like China who have all the money already. Point is money doesnt "go to commodities", it goes to people first who then use it to bid up the price of necessities like commodities should demand ratio increasingly exceed supply. This only happens if everyone has equally valuable currencies with which to bid. Only some will have that, its not in any way a given that we will all be in that position...far from it.

Do you even know what hyperinflation is?? You and your merry gang seem to band this term about, citing daft anecdotes about vending machines, etc.

Go and look at the definition of it.

US money supply analysis:

http://www.minyanville.com/articles/M3-M+P...e/index/a/12785

i would guess most that have flirted with an unbacked currency

Zimbabwe
Germany
France
Argentina
China
America - Continental Dollar

I am sure there are more

So why have they stopped spending (see reports of Jan's dire high street sales)?

Being a bit pedantic here but even though there appears to be no hard and fast rule, hyperinflation is generally accepted as being an increase in prices in the region of 1000% per year. If that were the case then Western society would break down in pretty much the same way as Zimbabwe.

I agree that there will be very high levels of real inflation (10% +) in the short to medium term which in relation to peoples pay increases will only lead to a squeeze on disposable income. Whether this in turn will lead to a proper price spiral is anyone's guess ... the powers that be have the tools to control it but have they the balls to use them.

The Government and BOE seem to be trying to send out a message that the forthcoming slowdown will take care of any long tem inflationary worries, but then they would say that wouldn't they ... lying incompetent f@ckwits

I think we're now entering a bit of an economic twilight zone where central banks will gradually lose control. MY best guess is still a period of stagflation, but beyond that and future wage inflation who knows.

can you give one specific example of where credit would have been "destroyed"?

their tightenings may be slowing the rate of credit growth, but I see very little credit destruction.

Control freak, do some research, inflation was not the best option for Japan, they were a CREDITOR nation, their reserves were growing in value or holding value instead of inflating away when they had deflation.

In the early 1970s, when inflation was at one point slightly more than 24%, unions still had to fight for pay increases. Now, apart from the public service unions, where is the industrial muscle that will achieve these pay rises, especially with so many immigrant workers around to undercut you.

Because they're overloaded with debt, a problem that eases with inflation and becomes much more painful with deflation. When have we ever chosen to take nasty but necessary medicine?

We know almost all money is credit/debt (depending what side you look at it from)

The dictionary definition of debt:

1. Something owed, such as money, goods, or services.

The dictionary definition of credit:

1. Belief or confidence in the truth of something

Now you see the value of the credit/debt/IOU arises from the confidence that it will be repaid.

NOTE THAT I DID NOT SAY THE VALUE OF THE MONEY!

Thats the best definition I've come up with for debt/credit though you can easily think of it as simple IOUs.

I'm writing this for the other people who are interested and want to know btw.

The formal definition is: "inflation exceeding 50% a month."

I’ve read that in Germany some people were paid three times a day
Rushed home to buy food in the shops before they run out of stock.

More likely a compulsory purchase of gold by the Government (again! ) would precede it?

I think you may have answered your own question. The massive and increasing public sector wage bill plus the welfare payments will put unacceptable pressure on the public purse already at breaking point. I believe the urge to "print" money will become overwhelming.

that's where you are wrong.

removing credit availability isn't deflationary, it's just LESS inflationary.

you have to destroy money for deflation, where is that happening?

I believe the deflation scenario, but unlike the goldbugs here I am not banking on my belief. I am now mainly cash. If things change to make me believe that we are entering hyperinflation (like banks actually extending cheap easy credit) I will buy hard assets (gold and land as in a hyperinflation house prices have to go up, right?!?!); I may miss some price action but hey, better than banking on inflation and getting killed on a precipitous drop in gold price. The thing that goldbugs don't seem to understand is that I am capable of changing my view (was an inflationist, now a deflationist) with new info for relativley little downside (thus I will not be poorer than I can ever imagine as I will quickly realise that I may have been wrong; even if it takes 6 months my loss is half a year of negative real interest rates), however if you are caught on the wrong side of the gold trade in deflation you are dead, period. At the moment for me, continued inflation is not an option, but I may be wrong and if I am so what?

Do you mean like Northern Rock going to the BoE and Treasury - are they the other sources you are talking about? If not please tell us what other sources you are talking about, and printing money does not count.

Be prepared to be poor. The policy of the Anglo nations is to inflate its way out of its liabilities.

We had a mild dose of hyperinflation in the 70s. We are going to see the 70s again - this time worse - as we don't have the manufacturing jobs to fall back on. Mild hyperinflation of the 70s was stopped by very high interest rates. Deflationists are going to be very sorry as their lolly shrinks in their bank accounts.

Of course this is rubbish. So, let me get this straight: Inflation running at 100% a year is not hyperflation because it is not running at 1000% a year - no wonder everyone is confused.

It doesn't matter if inflation is 50% 100% 500% or 1000%, if inflation far exceeds the rate of return in an average savings account you are going to end up poor. Hyperinflation to me is anything over 50% / year.

1000% / year is the destruction of the currency, I wouldn't even call it inflation at all.

What do these graphs mean?