Monetary Psychology: Hyper-Inflation vs. Deflation

09 Jul

[courtesy Google Images]

[courtesy Google Images]

Most people suppose that inflation and deflation (changes in the value of a currency) are caused by mathematical changes in the economy.  In terms of minor changes in the value of a currency, they might be right.  Mathematics and science might explain 1% or 2% changes in the rates of inflation or deflation.  But significant changes in the value of a currency (say, 5% deflation or 20% inflation) are caused by public psychology moreso than mathematics.

Because fiat currencies (like the US dollar) have no intrinsic value, their perceived value is subjective and subject to public agreement.  That agreement and psychological changes are measures of public confidence in the fiat currency’s value.  That agreement is subject to change at any moment based on changes in the public psychology.

•  In periods of inflation, confidence that the dollar will still be worth a full one dollar tomorrow wanes.  During periods hyper-inflation, everyone knows/agrees that the value of the currency is falling like a stone.  The faster the value of the currency falls, the less confidence we have in it–and the faster we spend it.  In extreme cases of hyper-inflation, we sell something in the morning and struggle to quickly buy something with the currency we just acquired.  If we hold the currency too long, it’s value will diminish so rapidly as to be almost worthless within days or even hours.

Government likes a little inflation (say, 2%) because: 1) government (the world biggest “borrower”) can repay its debts with cheaper dollars; and 2) inflation compels people to spend more rapidly and thereby “stimulate” the economy and generate higher tax revenues.


•  In periods of deflation, public confidence in the value of the currency rises because we know that $1 will buy more tomorrow than it will today.  Knowing/agreeing that the value of the currency is rising, people tend to save rather than spend.

Government hates any amount of deflation because:  1) government (the world’s biggest “borrower”) must repay its debt with more “expensive” dollars; and 2) deflation compels people to spend less rapidly and thereby slows the economy (a slow economy generates less tax revenues).


•  Today, many economists agree that we may be heading for an economic depression where the economy slows to a near stop.  However, some economists predict that we’re headed for a hyper-inflationary depression (one where the fiat dollar loses value quickly and substantially), much like the former Zimbabwean dollar.  In theory, a hyper-inflationary depression is a contradiction in terms.  A “depression” signifies a slowing of the economy, but inflation (and especially, hyper-inflation) should cause the economy to accelerate as everyone seeks to dispose of their currency as fast as they acquire it.

Inflation is an expression of a loss of public confidence in the currency’s ability to retain its purchasing power. Hyper-inflation is an accelerated loss of public confidence that’s so fast that, eventually, the people agree that the hyper-inflating currency is losing so much value so fast that it must abandoned and allowed to die.


•  Other economists predict that we’re headed for a “traditional” deflationary depression where economic activity slows, in part because the currency’s value increases significantly and persistently over an extended period.  As the people “agree” that their currency will purchase more tomorrow than today, public confidence in the currency’s persistent purchasing power rises, the currency increases in value, people are less likely to spend (more likely to save) their currency and the economy slows.


•  If you believe we’re headed for an economic depression, and you want to know whether that depression will be characterized as “hyper-inflationary” or “deflationary,” answer one question:


Is public confidence in the dollar’s ability to retain its value more likely to rise (leading to deflation) or fall (leading to inflation)? 

Insofar as the American people (and/or people of the world) “agree” that the US dollar’s value is likely to continue to fall (it’s already lost 95% of its purchasing power since A.D. 1971), we’re headed towards a hyper-inflationary depression that will end with the demise of the dollar.

Insofar as the American people (and/or people of the world) “agree” that the US dollar’s value is likely to reverse course and begin to regain value, we’re headed for a traditional deflationary depression.

So which is it?

Will public confidence in the fiat dollar continue to fall or will it begin to rise?

It’s not as true as it once was, but it’s still true that foreign wealth flows to the US dollar as a “safe haven” during times of political or economic instability.  That influx of foreign wealth is an expression of rising (though foreign) public confidence in the value of the fiat dollar and thereby contributes to deflation.  Deflation is possible.

But as I view the US and global economies, three things seem certain:


1) The government wants inflation so it can repay its debts with cheaper dollars;

2) The dollar has, in fact (and probably by government intent), lost 95% of its purchasing power over the past 40 years;

3) The government continues to want inflation and therefore the inflationary trend of the past 40 years will at least continue and probably accelerate;

4) Even if government wanted to deflate the currency and increase the dollar’s value, there’s virtually nothing government can do (except raise interest rates which would probably push the economy into a depression) to increase public confidence in the fiat dollar.

I understand that the dollar’s value will fluctuate over the next months or years. Sometimes, it will go down.  Sometimes, up.  Confidence will rise and confidence will fall.  But mostly, the fiat dollar’s value will have to fall over the next months or years.  That means that, although we may see occasional signs of deflation, mostly, we’re going to see inflation caused by a persistent decline in public confidence in the value of the fiat dollar.

The big question is whether we can expect mere “inflation” of, say, less than 20% per year–or if we can expect hyper-inflation of, say, 50% (or more) per year.

Inflation is mostly caused by the thieves in government wanting to rob their creditors and control their people’s economic activities.   Hyper-inflation is evidence of a complete and accelerating loss public confidence in the value the fiat currency.  Hyper-inflation is evidence that the people have lost almost all confidence in their fiat currency and that, within the next few months or years, that currency will die.



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10 responses to “Monetary Psychology: Hyper-Inflation vs. Deflation

  1. cynthia

    July 9, 2014 at 2:40 PM

    thank you for this, finally some one that is writing a truly objective and non biased monetary article

  2. Anthony Clifton

    July 9, 2014 at 3:55 PM

    sudden changes in the landscape might make all that “economic” mumbo jumbo . . .
    moot if say each individual had to actually “hoof” it say Ten Miles before sundown…
    how many might not make it..
    we’d be in a “New” economy…overnight
    basically, as you predicted with your Tsunami COVER for the Anti-Shyster News magazine
    maybe at that time it was renamed Suspicions,
    a new wave has arrived…3 dollar bills will still spend, but I highly recommend making your own
    Clinton Commemorative coins using washers…and spending them into circulation while
    people can still laugh

  3. Toland

    July 9, 2014 at 4:46 PM

    Since the inflation rate is determined by the money supply, and the money supply is determined by the Federal Reserve, your question about the future course of inflation can only be answered by the secret controllers of the Fed.

    All we can say from the bleachers is that dollar devaluation of some sort is inevitable, so taking steps to hedge against it is probably a good idea.

  4. henry

    July 9, 2014 at 6:38 PM

    Physical gold and silver should maintain their value in the inflation or hyper inflation ahead. Until there is a crisis and an executive order states that it is unlawful for Americans to possess physical gold or silver that is not jewelry. And the metal turned in is likely to have a windfall profit tax of 90%. Metal in safety deposit boxes at banks will be removed during a holiday. Metals in your home will be vulnerable to criminals — government and otherwise.

    One alternative is keep your money in the bank getting no interest or even negative interest while the value of a dollar decreases between 2 and 50% per year. That does not look appealing.

    Another alternative is to buy rent producing real estate. As mortgage rates increase, real estate values are likely to decrease for a few years. Eventually, real estate values should keep pace with inflation. The disruptions to the economy is likely to cause people to not be able to pay inflation adjusted rents. So rents, in real terms, will decrease. The wealthy are getting wealthier and the rest are getting poorer. This trend probably will continue. So, rental properties that wealthy people want to live in may be safe. Property taxes are likely to increase, especially on rental properties. This makes real estate scary but maybe the least scary alternative.

    Another option is to get your money out of the US dollar. Open an account in a foreign country. This is becoming more difficult as US regulations are adding expenses to foreign banks that have Americans as customers. If this option appeals to you, you need to find a country and a bank that you can trust. If the US government declares war on the country that you select, that country may steal your money. The bank could also steal your money.

    Then there is the stock and bond markets. Bond values should be devastated by inflation. The stock market is being propped up the Federal Reserve’s money pumping. The real economy has been in a recession/depression for years at the same time the stock market reaches all time highs. When the money pump stops I can only guess that stock values will fall. Every share of stock is a piece of ownership of the corporation. If the hyper inflation comes, some companies will survive while many will not. If you have dollars in the bank when the stock market declines, it might be a good idea to buy shares of stock in the companies that are likely to survive. But what companies are likely to survive? How do you know when to buy? If the values drop 50% is that a good time? Might it drop 80%? The longer your money is in American banks the danger of it being stolen in a bank holiday increases.

    The way forward is not clear. Those in the media are either stupid or evil. That is, they don’t know of the danger we are in makes them stupid or they do know of the danger and they report otherwise makes them evil.

    With such uncertainty, the only reasonable option is going long on gold and guillotines. I don’t see the breaking point but when it happens, it won’t be pretty. Those who are blamed for the collapse will get their heads cut off. Besides surviving the looting of America you need to not be the scapegoat.

    • Michael

      July 9, 2014 at 7:51 PM

      I agree with you.

  5. Michael

    July 9, 2014 at 7:46 PM

    You cant have a Russian backed Muslim war against Israel in the middle east if don’t collapse the American economy, that renders the US helpless to defend Israel, so the US dollar must be made Zero worthless, to be able to bring in a new world currency and force all other nations to except, and damage China’s hold in the world economy. The US government and its agency’s are ready for this coming event that has been clearly engineered to happen, its only the people of the world who don’t know what is about to come. There are just too many benefit’s gained for the NWO from bankrupting the US. Really who cares about the people who are but sheep for the slaughter to the wolves that the dumb sheep have placed into power over them all.

    Man was given freedom, and given laws to abide by, and learn by his mistakes to do good, to do better, but the evil among men have taken advantage over the multitude, to rule by their corruption over the all of good. You cant change the future that is foretold to be, but you can be prepared for it as the Governments have done, and the people are left clueless to follow due to their own self made ignorance.

    Freedom to be self made blind is part of the deal also, Its all knowing of the creator or nothing and no fence sitting is allowed either.

    Remember this saying ” All talk makes Johnny a dull boy” but its to everyone who is told to think of Johnny, but not to himself., at least he knows the truth and is willing to speak the truth, where only fools, stay silent with empty minds.


  6. Pat Fields

    July 9, 2014 at 11:41 PM

    First, inflation is a rise or fall in the …volume … of money, and … thereby … its valuation. So the phenomenon has its initial cause in math. The serious debates through history, from the ‘Spanish Scholastics’ to Rothbard, have pretty well settled that collapse of value perceptions result from extreme increase in currency volume (hyper-inflation), combined with conditions of goods productivity and population growth.

    In the case of silver, this was engineered by British ‘de-monetization’ of silver coin throughout its colonies. As Britan swept silver out of circulation in these vast economies, it flooded centralized ‘markets’ with the metal to drive down its ‘price’ (relative to gold), (see:

    “In all calmness and deliberation, I consider that the action of the international bankers, in demonetizing silver and virtually destroying the purchasing power of over 800,000,000 people, was one of the most brutal acts ever committed in history.” –Sen. William Borah (1932)

    In un-manipulated monetary conditions, a generational ebb and flow of money (corresponding with productive savings and non-productive expense) naturally regulates inflation and deflation to signal entrepreneurs accordingly. In that scenario, societies are constantly accommodating of their populations’ overall age related needs, not the private aspirations of their politicians, bankers and merchants.

    The term inflation has been twisted to imply general price increases. This is a ruse so that methods of ‘pigeon-holing’ extreme expansion of currency volumes in ‘managed investments’ such as government bonds and other ‘elitist asset’ contrivances can divert inflation’s pricing effect into those particular items. We see that in the cases of art, jewelry, land estates and other favored ‘assets’ of ‘elites’. As long as this inflation is prevented from impairing the general cost of living too dramatically, the ‘rich get richer, while the poor get poorer’ … purely by ‘money’ inflation.


    July 10, 2014 at 5:11 PM

    Heard you talking on 1st Amend. Radio just a couple of hours ago…topic, Fed. Res. Question: If Fraud vitiates all contracts then the item that creates the bucks, the Note is frauded when the accounting is accomplished. From my understanding the original recording/accounting/bookkeeping goes something like this…..Take an easy figure…say 10 buckeroos. Recorded like a checking account…10 debited as an asset to the Bank and 10 credited as owing to the maker. (like a checking account) so in the beginning, the bank owes the maker 10 bucks. Then, via an instantaneous computer move the account is changed … 10 as a debit to the Fed. Res. and 10 recorded as a credit to the bank. This changes the entire equation, conversion if you will, the 10 bucks held by the Fed and 10 bucks owing to the Bank) and that vitiates any agreement as originally agreed. Does anyone agree to the Fed. holding an account changed without the knowledge or consent of the maker? This stated, all the talk that took place was worthless inasmuch as the entire deal stopped when the computer took over and did the Houdini by switching the account making it void. Problem is, how do I get to own a bank…answer that and I’ll make you a partner … you can then do a fraud and change your name to Mr. Warbucks. My kids would be happy as they love to spend, esp. bucks then did not earn.


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