Inflation, Hyperinflation or Deflation?

Rick’s Picks inaugurates a new format today that will give forum participants a larger role in shaping the discussion.  Instead of the usual essay, I will be posing a question that concerns a key issue of the day. Today’s relates to a theme that has been sounded here many times over the years:

Which do you foresee:  inflation, hyperinflation or deflation?

To get the discussion rolling, here’s a post of mine at Mises.org in response to a thoughtful essay by Ed Bugos. In the essay, Bugos, a mining analyst and senior analyst at The Dollar Vigilante, asserts that although CPI has been tame, inflation is very much with us and will soon take off in a big way. My comments were as follows:

“Mr. Bugos and other inflationists (although not the hyperinflationists, who may yet have their day) envision inflation returning more or less gradually.  But suppose a global flash crash were to occur, triggered by some black-swan event? In such circumstances, the financial system would implode overnight, banks would be shuttered indefinitely, credit cards would cease to ‘work’, and the economy would revert to barter/cash. Such an outcome would be catastrophically deflationary.

“Try to imagine an inflationary ‘remedy’ and you see that there are none — certainly not the one used by the German government in 1921-23, since that required tight collusion between the government and a largely unionized labor force.

“Nor can it be argued that a flash crash and financial-system implosion are impossible.  Indeed, this outcome seems entirely likely, if not to say inevitable, since the global financial system is hard-wired to a $650 trillion derivatives edifice that has been built on ethereal collateral.”

Your further comments are welcome.

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© Rick Ackerman and www.rickackerman.com, 2013. |
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