Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is Hyperinflation a Real Threat to the U.S. Economy?

Economics / HyperInflation Oct 31, 2013 - 01:59 PM GMT

By: DailyGainsLetter

Economics

Mohammad Zulfiqar writes: One of the questions being asked by investors these days is “where’s the inflation?” After the financial crisis and the fall of Lehman Brothers, the Federal Reserve and the U.S. government stepped in to help the financial system. As a result, they promised to print money, and thus quantitative easing was born. Banks received billions of dollars in bailout money.


With this, there was a significant amount of speculation that the increased money supply in the U.S. economy would lead to a period of out-of-control inflation, or hyperinflation.

Fast-forwarding to now, it’s been more than five years since the collapse of Lehman Brothers, but out-of-control inflation has yet to occur. Were those who said there will be hyperinflation wrong? What’s the inflation situation right now?

In August, the Bureau of Labor Statistics reported that the prices in the U.S. economy increased by 0.1%. From January to August, prices increased in the U.S. economy by only one percent. (Source: “Consumer Price Index - All Urban Consumers,” Bureau of Labor Statistics web site, last accessed October 29, 2013.)

Other indicators of inflation ahead signal it’s going to remain dismal as well. For example, I look at the producer price index (PPI) as one of the key indicators of inflation.

In September, the PPI showed that producers in the U.S. economy experienced a deflation of 0.1%. Since the beginning of the year, the inflation in producer prices has only increased by 1.1%. (Source: “Producer Price Index-Commodities,” Bureau of Labor Statistics web site, last accessed October 29, 2013.)

With all this in mind, I stand little different from those who say there will be hyperinflation in the U.S. economy. My take: I say we will experience high inflation in the U.S. economy, but before that we may experience a period of deflation.

Why will there be deflation?

Inflation occurs where there’s an increased amount of money supply; which the current U.S. economy possesses. The Federal Reserve is printing $85.0 billion a month, with many rounds of quantitative easing having already occurred; the balance sheet of the Federal Reserve is nearing the $4.0-trillion mark.

There’s just one thing missing: the money has to be used. Currently, it seems that it is just sitting in vaults.

Take the velocity of money—the frequency at which one dollar is used. As it stands, the velocity of M2 money stock in the U.S. economy—this is the money in circulation, plus various savings and checking accounts—stands at 1.577. This number stands at the lowest level ever recorded. (Source: “Velocity of M2 Money Stock (M2V),” Federal Reserve Bank of St. Louis web site, last accessed October 29, 2013.)

Once the velocity of the money starts to pick up, then the inflation will march ahead.

When this will occur, only time will tell. If all the pieces of the puzzle come together, then it’s clear that bonds will not be the greatest investments; they will provide investors with losses, because inflation is a bond’s worst enemy. Investors who are heavy on bonds in their portfolio need to consider this phenomenon and act accordingly.

This article Coming Hyperinflation a Real Threat to the U.S. Economy? was originally published at Daily Gains Letter

© 2013 Copyright Daily Gains Letter - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in