Following a period of severe inflation, will we follow the lead of Japan or France?

Higashiyama

In the mid-20th century, both Japan and France suffered relatively brief but severe periods of inflation (prices increased about 100 times over a period of roughly 10 years). The inflation was finally brought under control. In the case of Japan, the yen was never redenominated, so that today, one yen is worth about one cent. The French franc, on the other hand, was redenominated so that 100 old francs were set equal to 1 new franc.

Suppose that over the next 10 years, the US suffers a similar fate -- prices rise by 100 times, but things are finally brought under control.

In this situation, do you think we would redenominate the dollar, or would we follow the lead of Japan and go with the same currency but much reduced in value? (So, for example, a drink at Starbucks would go for about $ 400)

derryb

Is there a difference between adding zeros or printing more of it?

Historically the US just pays higher prices with the devalued currency. I think it's not a matter of how much devaluation but how rapid the devaluation. The one dollar bill is worth 3 cents of its original value of 1.00, yet it is still a one dollar bill. Slow inflation results in socially accepted creeping, higher prices. Eventually $25.11 will mean twenty five twenties and 11 dollar bills. The money masters have to continue to steal our purchasing power to keep the financial system from collapsing. Until now they have succeeded in doing it slowly to keep the theft under the radar. Recent printing and current printing of Trillion$ more just might tip the scale towards double digit inflation that is much more obvious to the masses. Might be a good time to brush up on the historical record of the last double digit inflation crisis, because this is what our economic and financial future will look like.

On the other hand, very rapid (runaway) inflation results in the sudden, urgent need for more zeros:

RobM

@derryb,
A good example: YOY, housing prices are up 9.8% nationally. But... only rents,and imputed rents are used ny the BLS for calculating official statistics. Add to that the fact that around 20% of all renters have stopped making payments! Therefore, no inflation, please move along, lol.

derryb

Record asset prices are a direct result of money creation. So far, the price inflation that always results from money supply inflation has primarily been limited to asset prices. When and if the existing new money and massive amount of new money to come gets to the hands of consumers, consumer price inflation will see much greater gains than have asset prices.

I suspect the Fed has purposely directed this new money into the hands of asset buyers to reduce its affect on consumer price inflation. I say reduce because we have recently been experiencing more noticeable oil (think gasoline) and food price inflation, which is a more public time bomb. Oil, in one fashion or another is an ingredient in the cost of most consumer goods and services. For some odd reason we cheer asset price inflation and rightfully fear consumer price inflation. Maybe we have been purposely conditioned to do so. The asset price inflation we unfortunately welcome has allowed Trillion$ of new money to be slipped into our financial system with little to no complaint, with most unaware of the dollar devaluation/destruction it fuels.

Once consumer price inflation is forefront in the mind of consumers, look for them to drive other consumer prices higher as they increase demand in an effort to buy it now while it is cheaper. We will likely see this first in durable goods such as appliances. I don't expect us to ever witness Wiemar-like inflation, but I am reminded of the German worker's need to buy food during his lunch break before it's price doubling when he got off of work.

blitzdude

Pretty certain you and I will never have to worry about severe inflation in our lifetimes (that is unless you stack monster boxes of gutter metal and sit on them in your bunker). And for the record the French and Japanese are doing just fine. RGDS!

derryb

Pretty certain you will see double digit consumer price inflation within the next five years, likely less than three years. Until that time enjoy the 'cheap' 10%+ plus credit cards.

Hopefully Paul Volcker will be available to reign it in.

Jimnight

No like what I see.

RobM

We may be subjected to 10% inflation, but not one person in a million will detect it, or something like that. Government has every incentive to, and will do anything in its power to, underestimate an accurate measure of price levels. Sure, they report the math correctly, they just don't tell you that they substituted eye round for your tenderloin.

RobM

Using 1980 CPI methodology, inflation is 9% right now. Using 1990 methodology, inflation is 5%. (Shadowstats)
Imagine how low inflation would have been in the 1970s using today's calculations! Keeping in mind that capitalism (almost nonexistent) has a natural bent towards mild deflation (a good thing) due to collective productivity gains. Ever wonder where all those productivity gains go?

derryb

Unlike what we are told about the economy (i.e. nice green numbers on the TV stock ticker) it is hard to hide the reality of rising consumer prices from those that do the shopping - most consumers. I don't need CPI numbers to tell me that prices are rising. CPI numbers are for economists who plan, forecast and unfortunately make decisions that affect us all. They tend to know only what academia told them. The real world eventually show them they were wrong.

blitzdude

I certainly don't see it here in The Commonwealth although I have certainly taken measures to become mostly self sufficient. Lumber and gold prices are the only things that have affected me directly in the past year. Saving more $$$ than ever. Of course I'm earning more than ever as well.

ricko

Prices for consumer goods are definitely, and obviously, rising. Sometime there must be a reckoning... and I do not think it will be pleasant. Not sure when.... but it will come... Cheers, RickO

MsMorrisine

we are experiencing a tiny bit of japan-like situation now.

as hard as the federal reserve train tries, it can't get up the good GDP growth hill. at least we have some GDP growth. japan experiences brief periods of shrinking then expansion and inflation then deflation.

despite effort I see no better GDP growth than we have now. days of 8% nd high inflation fears are gone -- at least until no one want to buy our debt that is being sold to pay off the interest on the previous debt.

WCC

It's still my opinion that there will be a big financial asset crash first before there will be anything close to hyperinflation. Most "money" is actually someone else's debt.

Where my opinion has changed is how long the interlude will last before inflation accelerates.