Hyperinflation: What is it and are the current warnings valid?

[ozcopper]

Are we being warned in advance? Lots of stories about hyperinflation in the mainstream media:

Hyperinflation: What is it and are the current warnings valid?

What is Hyperinflation?

Hyperinflation is a rapid and excessive increase in consumer prices, technically defined as prices rising by more than 50 per cent a month or 1000 per cent in a year.

It is a term that evokes a certain image in the public?s collective consciousness, of grocery bills in early 1920s Germany being paid with wheelbarrows full of near worthless money and children playing with piles of cash that were worth less than the paper they were printed on.

Historically hyperinflation has been triggered by a number of different reasons, such as wars, acute shortages of goods and excessive money printing.

More here: https://www.news.com.au/finance/economy/interest-rates/hyperinflation-what-is-it-and-are-the-current-warnings-valid/news-story/fec65f17e76b04c40882456e34df2dcd

 

[Aurora et Luna]

The most visible sign of looming high inflation for me is food!
Restaurants, takeaways don't mess around with 5% price increases any longer!
They either jack up prices by 10% or adopt product shrinkage

 

[Administrator]

The most visible sign of looming high inflation for me is food!
Restaurants, takeaways don't mess around with 5% price increases any longer!
They either jack up prices by 10% or adopt product shrinkage

I've been noticing a lot of shrinkflation lately (less product, same or greater price). Sometimes it's hard to spot. Extra empty space in package. Smaller net weight ... etc.

Meat prices have been rising quickly too. 

 

[ozcopper]

This chart should send a warning....  (Image credit: https://kingworldnews.com/)

 

[Administrator]

The concerning part is we've only just begun. I imagine that line will keep going vertical for years to come.

 

[alor]

inflation is increase in money supply like over printing in Germany, or QE we had after 2008 crash that caused the longest bull run and fastest in market history...now 2021 after almost 2 years in covid world, prices rises are being felt.

 

[Administrator]

China?s factory gate inflation soars to 26-year high on energy crunch
Producer prices rise 13.5% in October in fastest gain since 1995 as stagflation fears mount

Factory gate prices in China rose at their fastest pace in 26 years in October, as crippling power shortages and record commodity prices hit the world?s second-biggest economy.

China?s official producer price index increased 13.5 per cent compared with October 2020, according to figures released by the National Bureau of Statistics on Wednesday, its biggest monthly jump since 1995.

The gain exceeded the 12.4 per cent rise forecast by analysts polled by Reuters, and outpaced September?s 10.7 per cent reading, which was also the highest since 1995.

...

https://www.ft.com/content/1c4b8670-a86f-446d-bb4e-5019d7f4df38

 

[cent66]

This would be a prime example of an economy with hyperinflation currency.

 

[alor]

With inflation surpassing 10%, Greece became the ninth country in the Eurozone in which official inflation has reached double digits, following Bulgaria (10.5%), Slovakia (10.9%), the Netherlands (11.2%), Czech Republic (11.9%), Poland (12.3%), Latvia (13.2%), Lithuania (16.6%), and Estonia (19%).
https://www.rt.com/business/555286-greece-inflation-double-digits/

 

[Silver Soul]

^^^ And they will all blame Putin. Lol

 

[belever]

Chatted yesterday with a businessman I know.
Costing for his project last December - $18m.  Re-costed now - $24m.

 

[Nugget]

Just a heads up guys. It's not lawful (as I understand it) in Australia.... HOWEVER some food manufacturers are changing the ingredients of their products to save money on production which could be a danger to those with food allergies

 

[Aurora et Luna]

How to Solve Australia?s Inflation Problem: Lock Philip Lowe in a Broom Cupboard

Dear Reader,
Have you got an inflation problem, Australia? If you want to solve it, I know a guy?
He?d laugh at our pitiful 6.8% inflation rate. Try 29,500% a month.
That was Germany?s inflation rate the month before Hjalmar Schacht was appointed currency commissioner for the Weimar Republic in 1923.
His solution for ending inflation is fascinating, and a wonderful rebuttal of all political and economic conventional wisdom today.
He locked himself in a broom cupboard at the Ministry of Finance and did nothing?
This might seem like an odd way to solve the problem of inflation. But, if you accept that inflation is caused by government policy, then it makes quite a lot of sense. To bring down inflation, all you need is for the government to stop causing it.
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Here?s how Schacht?s secretary later recalled it:
?What did he do? He sat on his chair and smoked in his little dark room which still smelled of old floor cloths. Did he read letters? No, he read no letters. Did he write letters? No, he wrote no letters.
?He telephoned a great deal ? he telephoned in every direction and to every German or foreign place that had anything to do with money and foreign exchange as well as with the Reichsbank and the Finance Minister. And he smoked.
?We did not eat much during that time. We usually went home late, often by the last suburban train, travelling third class. Apart from that he did nothing.?
To be fair, Schacht did a great deal, initially.
He launched a competing currency inside Germany called the rentenmark, which operated alongside the official but hyperinflating papiermark (papermark).
That currency was still being (mis)managed by Schacht?s predecessor at the central bank, the legendary architect of the Weimar hyperinflation, Rudolf von Havenstein. (You can follow his Twitter feed here, which was subversive enough to get cancelled not so long ago. But the Twittersphere rallied behind Rudi and got him reinstated.)
Anyway, at first, Schacht simply provided an alternative to Havenstein?s papiermark that didn?t hyperinflate. This enabled the German farmers to trust the money and therefore the harvest to be bought and sold again, bringing food into starving cities.
There?s a great deal of speculation today about what would?ve happened without what historians called the ?miracle of the rentenmark?. Let?s just say I?m unlikely to have been born given where my great grandparents were living at the time.
Based on his success at stabilising prices enough to make basic economic exchange viable again in Germany, Schacht eventually took over the official national money supply, too. He became head of the German central bank and wrestled control of the money supply from the government.
He relaunched the official German currency with the same intentions as his rentenmark. The newly gold-backed reichsmark replaced the papiermark at an exchange rate of one trillion to one.
In his 1953 biography, modestly titled Confessions Of The Old Wizard, Schacht explained the importance of gold backing:
?The introduction of the banknote of state paper money was only possible as the state or the central bank promised to redeem the paper money note at any one time in gold.?
Without this, the Germans wouldn?t have believed in the commitment to stop printing money.
Schacht turned the currency and central bank from a money-printing institution whose purpose was to finance the government?s deficits into an organisation that did neither.
Then he locked himself in the broom cupboard, sat back, and let all hell break loose. And that?s an understatement.
What made doing nothing so important is the amount of pressure on Schacht to ?do something? ? the rallying cry of all politicians and central bankers today, even if they disagree on what should be done.
Right now, everyone from the United Nations to mortgage payers are clamouring for central banks to stop hiking interest rates. But the ?pain? has barely begun.
For Germany, the reality of shifting an economy run on inflation onto one run on sound money and (briefly) balanced budgets was extremely painful. As one British official in Germany put it, the country had to pay the ?painful symptoms of convalescence ? heavy taxation and widespread unemployment?.
Unemployment was the key underlying crisis triggered by ending inflation. The amount of people unemployed in Germany doubled in the month after the currency was stabilised. And the devastation that comes with unemployment spread hunger, cold, social unrest, crime, and the annihilation of vast amounts of savings. In Germany, it even made political revolution seem likely.
How serious was the central bank in its commitment to slaying inflation? Just before Christmas, the federal government had to suspend its own payroll to wait for tax revenue?
Can you imagine that occurring today? Because that?s what it takes to bring inflation down.
By March of the following year, the German Government?s deficit of 99% of tax revenue had reversed to a balanced budget! The government went from spending 99-times more than it got in tax revenue to balancing the two?
Can you imagine that occurring today? Because that?s what it takes to bring inflation down.
To say this frugal performance didn?t last would be an understatement. But the knowledge that the central bank wouldn?t print the difference is what prevented a return to inflation thereafter, as bad as things got, economically and politically. And they got bad.
It wasn?t all bad news, though. Faced with the reality of a currency that would no longer pay for impossible promises, things began to shift in the economy. Miners and industrial workers gave up on their demands and returned to work. Government employees accepted pre-war level salaries. Workers were forced to accept any work, at any rate. People stopped trying to live off the free flood of money coming from the printing press.
On Christmas Day 1923, the UK?s ambassador in Berlin wrote of the ?magical wand of Currency Stability?:
?Not even the most fanatical advocate of stabilisation ? and this title I yield to no one ? could have anticipated more remarkable results from its attainment than those which are now manifest.
?Food has become abundant in the great towns; potatoes and cereals are brought to market in large quantities; while butter, which was obtainable only in the better quarters, is now offered at stable, if at high prices. Animals crowd the abattoirs and queues have disappeared from before the shops of butchers and provision merchants.
?The economic d?tente has brought in its train political pacification ? dictatorship and Putsches are no longer discussed, and even the extreme parties have ceased, for the moment, from troubling.?
His views were echoed by many international observers at the time and long after.
But there was a political price to pay for the pain that the shift to a stable currency caused. Schacht?s other biography isn?t called Hitler's Banker for nothing?even if he was implicated in an assassination plot, opposed German rearmament, and resigned his post when the war began.
Now, I?m not so worried about the rise of Hitler in Australia. What I?m worried about is the price of bringing down inflation.
The Weimar example is so extreme that it makes the conclusions we can draw painfully obvious, even if we won?t experience them as badly.
Unemployment, political instability, and seriously bad returns for investors are what you should be worried about?if you believe central bankers will actually bring inflation back down.
Investors who follow government approved mantras like ?bonds are safe?, ?gold doesn?t pay an income?, and ?you should hold a 60/40 portfolio of stocks and bonds?, are especially likely to suffer.
It is, after all, the government who is doing the inflation to you.
Regards,
 
Nickolai Hubble,

 

[alor]

 

[jason1]

well if your somebody who actually believes in Hyper inflation being a certainty, then you would be best togo take out as many home loans as you can and pay interest only. the current property value or interest rates shouldnt worry you, as the value of your debt will be eroded by inflation, and if we got to the point where we are issued $1m notes, well the loan would be eroded to virtually nothing. lol

another reason not tobe renting

 

[Administrator]

well if your somebody who actually believes in Hyper inflation being a certainty, then you would be best togo take out as many home loans as you can and pay interest only. the current property value or interest rates shouldnt worry you, as the value of your debt will be eroded by inflation, and if we got to the point where we are issued $1m notes, well the loan would be eroded to virtually nothing. lol

another reason not tobe renting

Unless the hyperinflation is with fuel and food. Which would drive real estate prices down.

 

[jason1]

well if your somebody who actually believes in Hyper inflation being a certainty, then you would be best togo take out as many home loans as you can and pay interest only. the current property value or interest rates shouldnt worry you, as the value of your debt will be eroded by inflation, and if we got to the point where we are issued $1m notes, well the loan would be eroded to virtually nothing. lol

another reason not tobe renting

Unless the hyperinflation is with fuel and food. Which would drive real estate prices down.

are you talking about demand pull inflation or inflation by Excessive money supply?
If we are talking demand Pull inflation then sure, you could have a situation where food and fuel go up from under supply and house prices go down from low demand.

But right now we have a situation where there is demand pull created by Excessive money supply. virtually people are buying more than what they need or more than they usually would buy, because they can afford to as they were given money by the gov, so that created a demand pull. In some sectors I think we are seeing cost push inflation also as a result, because of wage increases hitting only some sectors due to under-supply of workers in those industries so that is adding to it.

But my comment about debt erosion, was I figured we were talking excessive money supply causing inflation, in that situation where we have (hypothetically) say a $1m note and our Dollar value is eroded, in that situation everything would be effected, and governments would likely increase min wage quicker causing cost push inflation ontop. so housing debt accumulated before Hyper inflation peaked would be eroded by that inflation.

keep in mind, Mostly my original comment is tongue and cheek, but in theory thats what could happen, hyper inflation could erode debt. Its certainly the case with government debt, tobe honest I have a suspicion going by the governments lack of effort on actually tackling inflation, they seem very happy to have inflation removing some of that gov debt burden. Because with rapid inflation $1trillion dollars wont seem like that much.
But then also seeing they have the added bonus of a system where if things cost more the gov receives more money on each sale in the form of the GST, so inflation is also adding to their treasury income.

Ps im not an advocator of debt. But theoretically that would be one example where debt can be a hedge.

 

[alor]

those loans will have inflation protections built in for them the lenders lol
better to wait at a forclosure sales and pay cash for them, insurance premium free !

 

[jason1]

those loans will have inflation protections built in for them the lenders lol
better to wait at a forclosure sales and pay cash for them, insurance premium free !

Um banks dont care if the house goes up in value because of inflation and the debt is eroded by inflation. Infact they would Be hoping you dont pay the debt so they end up with the asset lol. the inflation protection in the case of a home loan is essentially the house it self. House loans here in Aus have for almost 3 decades essentially had their debt burden reduced by inflation. In this country they dont even care if people defaulted all over the place, as they have government backing.

in the event of hyper inflation, waiting for foreclosures may not get you a cheaper house because your buying power on that fiat is worse, If we are talking about needing wads of $100 bills to buy a loaf of bread, the whole point is, if you took out a loan before hyperinflation hit and providing you could service that loan while inflation went up, you would have bought a house when your buying power was more,  pre-hyperinflation.

Heres the thing, rents go up during inflation, so if we are talking extreme cases here, and you need wheelbarrows of cash to pay your weeks rent. good luck trying to buy a foreclosed house when your money is worthless, thats the point

a person who had a mortgage before any hyperinflation, would more than likely be in a better position than those who tried to buy during hyper inflation, for one they arent paying insane amounts of money on inflated rent as a result of hyper inflation, plus again they bought when their money had more buying power.

But as I mentioned before, this depends on the reason for the Inflation, weather its demand pull, excessive money supply or cost push.
Im saying in the event of excessive money supply being the hypothetical.

Now if we say Inflation stops, and the housing market tanks, and supply for homes outstrips demand, then sure you would be better off not having a loan, and instead holding off to buy then, when there are foreclosures. but in that situation banks dont lend, so you need to have the cash. but this topic is about a hypothetical situation where Hyper inflation goes nuts, not a housing market crash.
We  saw this during the GFC in the USA, where houses were very affordable due to mass foreclosures, however very few people could buy one as banks didnt lend, and every one else was too broke to take advantage of it. and because of  that Rent became extremely high due to masses going from the mortgage market to the rental market, house prices were low for the same reason for a number of years.

so its very easy to say as a regular Joe, Just hold off and buy after a crash, its not really something that can happen for most people, this is where foreign investors get rich or the already wealthy class get richer as they can buy those cheap houses. The Regular Joe cant as the banks arent loaning to the regular Joe, and that Pile of money you might have had saved is Being used to pay your daily bills because you have no job any more, after all when the housing market crashes it effects all areas of the economy.

as I said before, im not an advocator of debt, Im just pointing out one example how debt could be a hedge against Hyper inflation, But I hope we never see hyper inflation.

Ps sorry for the edits, Just fixing wording problems, trying to make them clearer.