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Showing posts from August, 2010

Why there will be no hyperinflation

I have been reading the inflation/deflation debate for some time now on various parts of the web. The inflationists insist that we will collapse like Wiemar. The deflationists insist that we will collapse like Japan. The memory of the 1970s inflation is strong in many an old gold curmudgeon, so the inflationists seem to be more prevalent. I will in this essay attempt to argue that hyperinflation will not happen if global commodity markets remain priced in dollars. The reason for this is that if inflation increases, the rest of the world will bid commodities up drastically, especially oil, and severely throttle U.S economic growth, leading to a more restrictive monetary policy.



Hyperinflation always happens due to a foreign exchange crisis. The population, sensing a high level of inflation, rushes to change their earnings in for real goods or foreign currency. In the case of Wiemar, or Argentina, the rest of the world is largely unaffected. They see their currencies drastically …