Does this paragraph about inflation make sense? It's from the Atlantic magazine, April 2010.

[Boojatta]

Another way to say "collapse of the currency" is to say "hyperinflation." Hyperinflation is when inflation feeds on itself and takes off beyond control. You can have stable 2 to 3 percent inflation. But you can't have stable 10 percent inflation. When everybody assumes 10 percent, all the forces that produced 10 percent push it to 20 percent, and then 40 percent, and soon people are lugging currency in a wheelbarrow as in the famous photos from Weimar Germany.

That is from the article "My Inflation Nightmare." A picture of President Obama, and the words "WHY HE'S RIGHT" appear on the cover of the magazine, and apparently the article containing the above paragraph is referenced by these words on the cover of the magazine: "... And Where He Could Go Wrong."

[jtuck004]

1. No, but there may be two questions here.

If you are asking if his definition of hyperinflation, which seems to be inflation growing out of control, then I think his premise and description in the article here..., is wrong.

Hyperinflation, at least judged by the standards of Wiemar Germany or Zimbabwe, came about due to an enormous foreign currency obligation and a massive loss in productive capacity, according to this article as well as others. It is not _just_ growing inflation or inflation on steroids. It is in the presence of those two preconditions that you have a sudden collapse in the confidence in the currency - you could be in a deflationary period and have this happen. It is more of a sudden jump, not a gradual increase, and more of a psychological event.

On the other hand, if the question relates to his inference that it could happen here - sure, anything can happen, but I don't think we are near that yet. We do have reduced manufacturing capacity which is getting worse every day, though it is still roughly comparable with China. (both of us were around $1.7 trillion/yr in the last numbers), but every day this get worse. (A ton of this has been off shored, and it would take a decade or more to bring it back online here, including huge amounts of capital infusion and training, but that's an aside). We do not owe nearly as much of our debt to foreign governments here and here as countries who have had to deal with hyperinflation.

We are the largest economy in the world, (combine number's 2 and 3 and it still wouldn't be this big) and have never defaulted on anything. We have been wasteful and silly for a number of years, but most places in the world seem to want to emulate that instead of castigating us for it. Gimme that MTV. So it would seem unlikely that, anytime soon, they will suddenly have a fiscal awakening and decide we have turned too many of our factory workers into customer service folks, that the 30 million and increasing number of people who are unemployed or can't work enough hours is not a sustainable condition, or that our Federal Reserve is suddenly going to start adding zeroes to bank accounts like an Enron energy speculator.

On the other hand, if the current administration decides that they can live with 30 million or more people not being productive and not working for the next 10 years, tries to keep supporting an unsupportable housing market, ignores the tremendous debt tied up in households, mortgages, and other obligations, continues to act like short-term support is going to supplant the need to stimulate the economy, never comes to an understanding that we are the sole provider of U.S. Dollars and can use that power to create the conditions for jobs without increasing foreign debt, continues to pursue a program which seems to be that if we can coast long enough the jobs-fairy is going to start leaving offers on people's doorsteps - and did I mention the bone-crushing strangulation of our domestic and international debt (Argentina)....who knows?

[bemildred]

2. When you say "make sense" do you mean "is it coherent" or "is it correct"?

I suppose it's coherent enough, a catchy narrative, but I doubt that it's correct. When I see talk about "forces" and "feeds on itself" the first thing that pops up in my mind is how do they know that? Did they observe something, or did they just pull it out of their asses? I find the use of pseudo-physics in economics fatuous, economics is not physics and it is not physics-like and the discipline would be better served if they dumped all that crap and went back to the empirical study of what economies really do.

[Art_from_Ark]

3. In Europe, at least, hyperinflation has often been the result of a war

Among the most notable examples:

Weimar Republic-- WWI
Nazi Germany, France, Hungary-- WWII
Serbia-- Yugoslavian civil wars


In other countries, hyperinflation has resulted from political instability and/or excessive printing of unbacked currency.

Nearly every country in Central and South America, for example, would fit into this category at one time or another. In many of those countries, such as Brazil, Peru, and Argentina, inflation became so bad that the old currency was simply demonetized and a completely new currency was introduced. In other countries such as Colombia and Chile, the old currency has remained but the value has shrunk to a tiny fraction of what it was 20 or 30 years ago.

[Yavin4]

4. There is no Hyper-Inflation, and It's Not Even Remotely Possible

Largely due to the huge deflation in housing prices and wages for labor which have both plummeted in the last few years.

All this scary talk about inflation is from a bunch of dusty old white guys who don't want to see the government use it powers to make life better for people and thereby disabusing the myth that government is inherently inept.

[Boojatta]

5. Kick

[fasttense]

6. Well there was stable 10+% inflation in the US from 1974 to 1982.

People act as if 10% inflation is just so destructive. Hell we didn't have any problems finding a job during that time. In 1983 we bought our 1st house with a VA guaranteed loan. It had a 13% interest rate and we thought we were doing good.

Inflation is not a scary monster that will eat you up.

[raccoon]

7. I beg your pardon, in 1975 I and my classmates had a hell of a time finding jobs.

And in 1982 I was looking again. Looked for close to a year before I found anything other than short-term temp work, and there was very little of that. Finally in the spring of 1983 I found something.

YMMV, of course.

"Inflation is not a scary monster that will eat you up. " Yes, it will over time. And if anybody thinks wages/salaries kept up with inflation during the 1970's--or for that matter any time within the last 5 or so decades, they are mistaken. Wages didn't keep up for most people. Nor did the minimum wage.

[Art_from_Ark]

9. I second that

When you're living on minimum wage, or on a meager fixed income, inflation definitely is a monster that can eat you up.

And I will also agree that 1982 was definitely a terrible year to be looking for a job. In July of that year, my only job for the month was picking blueberries for one day. I made a grand total of $6.25 for 5 hours work.

[snot]

11. Uh, I was alive in those days, and where I lived, jobs were scarce.

[bemildred]

12. But they were better jobs. nt

[snot]

14. Like my $6K/year full-time job as an office assistant, after

graduating with honors from a top U.S. university?

[bemildred]

15. Depends.

In the late 60s I worked min wage ($1.65/hr) and lived on it (20-ish father of two.) But I also got a good union job with all the benefits without knowing anybody, back then, and most jobs came with benefits. People managed to live on one job most of the time.

Let me put it this way, I made around $3400 as a janitor in 1967, with health coverage, vacation, etc. and I lived on it and supported a wife and two small children.

[Hawkowl]

13. Inflation eats the rich

How? Because most of the rich's money is tied up in fixed rate debt instruments, i.e; bonds. So when inflation increases sharply, the rich's money ceases to grow and may actually contract. (If you are getting 5% on a corporate bond of a million dollars and inflation increases to 10%, the rich are suddenly losing 5% a year). Now if wages are rising and the economy is actually producing goods, and we have full employment, then everyone, except the rich are better off. Now do you see why we hear all this bleating about a non-existent inflation threat?

A post above made a good point on the unlikelihood of inflation with house prices and wages plummeting.

[Art_from_Ark]

16. The problem with that reasoning is

The rich in your scenario really aren't *losing* 5% a year-- at 5% interest, they are still making a cool $50,000/year on a $1 million investment. Easy money. And if the inflation rate rises to 10%, the chances are that they will move their investment to something else that provides a higher return.

On the other hand, someone living on a fixed income at already subsistence levels is going to be hurting if inflation suddenly rises to 10% if their fixed income does not rise accordingly (which in all likelihood it won't).

[Warpy]

8. It looks like slippery slopism

and the type of right wing intellectual wanking the Atlantic started to turn to in the late 80s.

Weimar Germany became hyper inflated because the government kept printing money to throw at war reparations without increasing the wealth to back it up.

Yes, there's a remote danger of that here, with the US government printing money to cover t-bills because we no longer have adequate manufacturing infrastructure to produce the wealth to cover them.

However, it's a very remote possibility. A deflationary spiral is a much more immediate possibility as more and more of the consumer sector gets pushed down into poverty thanks to wealth concentration and the export of jobs.

[Boojatta]

10. Kick