Inflation or Deflation Ahead?
Proper business planning is essential in any business. Some companies are better than others of course; for instance, Toyota’s planning is superior to the U.S. automaker’s planning. Toyota used innovative technology and began to introduce high mileage hybrids when the cost of gasoline began to rapidly rise. This type of proper business planning will lead to greater success.
Personal planning is similar to business planning. A successful life can be experienced with proper personal planning. Planning the budget, future expenditures, and proper investments are important part of successful planning.
What may be considered a lack of proper planning is where the US seems to be heading today. Engaging in a hyperinflationary path the Federal Reserve is creating billions of dollars to loan to ailing banks which is causing inflation. Inflation is a dilution of currency often caused when the Federal Reserve creates more money freely.
Right now we are on a hyperinflationary path; however, will we continue on this path all the way to the end as Weimar Germany did in the early 1920’s? We certainly need not. The currency became completely worthless in Weimar Germany due to hyperinflation. The exchange rate in 1914 was 4.2 Marks to one U.S. dollar. By 1920 it had changed so drastically that it took nearly 39.5 Marks to on U.S. dollar. The trend continued down this path until November 1923 where it would take 2.4 trillion Marks to equal one U.S. dollar!
By December the Mark was worthless and had to be replaced. This is a textbook example of a currency that was hyper-inflated to the point of being worthless. More and more money just kept being created. More and more zeros were added to the paper money. The question arises, do hyperinflations always have to continue until prices effectively reach infinity? The answer is no. The US was headed on an inflationary path back in the late 1970’s. The situation could have continued with ever increasing amounts of newly created money. However, the public mood was focused on the rapidly rising prices. Paul Volcker, the man before Greenspan, changed course from the hyperinflationary path this country was on.
Unfortunately we seem to have found our way to this path again 28 years later. Will we be able to stop the momentum in time or will like Weimer Germany in the 1920’s? Can we stop it and if so when and how?
I wish I had the answers to these very good questions. Today I read about riots in Haiti over food prices that were rapidly rising. People have been killed over this already. Raising prices affect the public differently at times and sometimes hyperinflations are stopped; sometimes however, they are not.
At what point will the current hyperinflationary path change course? I wish I knew the exact answer. The public wasn’t complaining when home prices were rising rapidly (at least those that owned a home and could see its price rise).
There is a saying, ‘the tide will raise all ships’ and this is true. It is nearly impossible for the prices of gasoline, food, and clothing to rise and also the prices of homes to rise as well. The best guess I would have is that the hyperinflation will continue until the price of homes begin to rise again.
Riots and deaths over rising prices of food and gasoline usually is impetus to hyperinflation coming to an end.
Tags: Business