20 September 2010


Though S&P has just hit 4 month high, and for some people at least it appears as almost credit crisis has never happened, there are increasingly large amounts of emails I am receiving concerning the issue of Hyperinflation.

A client has sent me the following link this weekend:

(if you are interested see also part 2 and part 3, though you probably got the message after part 1)

While in the past I was skeptical to overreacting to the public initiatives like this, generally regarding them as "conspiracy theories" (including documentaries by Michael Moore), I am seeing this hyperinflation issue, and overall bailout issue, becoming increasingly discussed topic amongst the ones who should be discussing it (bankers, economists, politicians).  This is very good news, as the quality of the analysis of these events is much  higher.

For instance, have a look at this Facebook support page for Iveta Radicova, the PM o Slovakia - who is the only European leader to publicly say no to the bailout package for Greece (it will not last long, as the "overall good must win"), but her courage is not unnoticed:


Indeed there are other much more aggressive analysis done of the entire bailout package, its size, its benefactors, its consequences.  Please email us on research@fianancewithvision.com for more links.

So what does Vision Finance think about the topics of bail-out and hyperinflation (US, UK):

1.  Bailouts, printing cash, quantitative easing, "Economic School of Zimbabwe",  call it what you want, but printing will happen, as there is simply no other solution to the problems we have, and even if there are solutions (one of government austerity and increased debt) under the current political systems they are not implementable.  Indeed I personally think that it is also too late to implement them, as economically the "point of no return" in terns of debt levels has been now passed, and the government is a slave to its own low interest rate policy to be able to pay interest on its debt.  Add to this growing unemployment, social sector strikes, decreasing standards of living, the lost generation (another massive issue that needs to be addressed via extended education), and the theories that at 20% unemployment countries start to face social unrest, and it becomes increasingly clear that printing of cash is the only way to go forward.

Below:  link to the paper on cost of unemployment.


2.  Inflation, Stagflation, Hyperinflation

This is more difficult question and the answer is in Asia.  In summary, US prints, China follows, now Japan reacts, other SE countries react, and the old "beggar thy neighbour" policy will lead to US printing yet again, etc. In this scenario we will have very high levels of inflation at some point.

If however Asia does not react, and USD is devalued, becoming more competitive, then we will only see a period of Stagflation, when costs of commodities, products overall will rise, but not wages, and probably not so much real estate (as it already went up so much that its need to be adjusted in real terms).   Of course alternative solution to devaluation, evidently suboptimal, would be for US to impose large import duties on the foreign products (from China, and Asia mainly) - something that has not yet started, but if China does not "play ball" USA might need to implement these policies.  Afterall, even though its 21st century, where generally there is weak decision making process, but if France can "remove its Gypsies", US can impose trade barriers.

So in summary, stagflation yes, hyperinflation no, deflation no.  Other reasons why no for Hyperinflation is that US, and UK, and Developed world overall is benefiting from very substantial asset base, which although will be significantly reduced in real terms once the new cycle starts, it will help the countries in dealing with inflation - without the need for continuous printing of cash.  Basically, the rich will bailout the poor.  The so called Robin Hood effect.

Lessons from Zimbabwe

I had a pleasure of visiting Zimbabwe few times in the times when it was still prosperous, and later when the effects of Mugabe policies were started to be seen.   Zimbabwe was a country full of products, reasonable inflation, and generally stability.  Later when Mugabe suddenly decided to print to basically steal from its peopole (basically, a sudden printing effort to repay the debt to IMF) things almost instantly collapsed.  The roots of the crisis were however totally different to our world, and I feel that in no way is USA or UK at risk of these effects.  At worst USA and UK, having ONLY domestic currency debt, will simply print out xxx billion or trillion to repay the debt, prices will rise one off, wages will mainly remain constant (with moderate pressures via strikes etc), and normality will resume, albeit with the new base level.

"Who is John Galt?"