Early in this financial crisis I put myself in the deflation camp and I have stayed here, but I do keep my eye open for anything that might change that. So far I do believe we are seeing deflation.
At some point inflation is possible again, and I have been watching for any signs, or for that matter, what I should be looking for. Financial Armageddon has a post about hyperinflation and what is believed to have been the causes, so this is a good one to check out. As someone in cash, I want make sure I move away from cash should a high rate of inflation come.
The piece suggests it is high government debt that is the first part of a hyperinflation event. The most important thing to correct the problem is "fiscal restraint, which in most cases meant outright elimination of the budget deficit, was probably the most important of these policy measures."
Well, this looks very bad for the US when you look at the degree to which fiscal restraint is a concept that seems to belong in fairytales...
Interesting, the article suggests that interest rates will rise, which is something else that I have been expecting. I think that will result in a massive collapse in the price of treasury bills as longer term treasury bills are repriced to deliver a higher price.
Canada is increasing debt at a massive rate this year and also showing very little fiscal restraint, but I think the debt load per person is considerably smaller so Canada has more room to wise up to a true fix rather then policy that can lead to hyperinflation.
So, two years ago I was reading up on the Depression and developing a timeline estimate based on the housing bubble that was followed by the stock market crash. It was something like 6 years from the housing bubble peak to the stock market bottom. I think we are about 3 years past the housing market peak, at least in some places.
I do not see how we get a hpyerinflation in the near future, but I am watching for it and it appear that we are entering the first part of what happens prior to a hyperinflation. I have no idea on the timeline for a hyperinflation event.