My opinion: I’ve said it before and, here, I’ll say it again. What we ought to expect is what might be called a hyperinflationary depression. Those that believe you can’t have inflation and deflation at the same time, just haven’t been paying attention even during “stable” economic periods. These coexist all the time; the only question being how different sectors behave, where and how fast funds flow through the economy, and which force is the most predominant.
Today, I believe that we are fully in the grip of strongly deflationary forces…which are – for the moment – only being constrained by the temporary “levitating” effect of deficit government spending, which has become so large as to offset the reduction of private sector activity.
In the end, these deflationary forces will overcome the entire economy, but for some period of time, certain sectors of the economy will continue to manifest the sort of pricing behavior that would typically reflect “inflationary” influences. This is due solely to the concentrated flow of funds through both the global and domestic economy.
The degree to which the average citizen will suffer the ravages of “hyperinflation” – in the midst of a worsening depression – will depend utterly on just how much debt the public sector will continue to accumulate, just how much damage will yet be done to our currency, and how our trading partners will respond to that damage. As ever more dollars are produced in support of our shrinking “real” economy, merely to pay our government’s obligations (and to keep the banking system afloat) our trading partners – those on whom we depend for much of our food and energy – will necessarily have to adjust their pricing.
We (or our government, on our behalf) can and, in my opinion, surely will destroy the dollar in the futile attempt to avoid the inevitable deflationary collapse of nearly $55 trillion of collective debt, along with the political consequences of defaulting on well in excess of $100 trillion in additional unpaid future obligations, and (only God knows) how much additional financial derivatives risks.
We have leveraged our future so deeply that we cannot simply “grow our way” out of the problem. Actually, I’ll recant and say that we could, but it would, nonetheless, require such a dramatic restructuring of our political economy that is has become, for all practical purposes, impossible. For some period of time the dislocations that would result from “normalizing” – optimizing it for efficient productivity – are completely and utterly untenable for the ever-growing class of citizens who have become so dependent on transfers of wealth.
Enough said. – HT