When does (serious) inflation kick in?



As we all know, the banking crisis has not been caused by a lack of money, just the reluctance of those with the money to lend it to those without.

Central banks around the world has sought to alleviate this problem by simply loaning new money to those banks which are in need. The result of which is a colossal injection of cash into the system.

Now, basic economics teaches us that this causes inflation.

Whilst I understand central banks are trying to get around this problem by providing the loans on a short term basis, there is simply no way you can pump trillions into the system without inflationary consequences.

When the money markets ease up and return to some semblence of normality, there is going to be a massive excess of liquidity (if only for a brief period), leading to higher interest rates with the boom and bust cycle starting all over again.

Can anyone see us avoiding this scenario ?


how about this:

like numbers, we have real and imaginary money,

real money (used to be) based on a limited natural resource such as gold
Imaginary money is created by using real money and leveraging it.
currently, the “imaginary money bubble” has popped and the world is reverting back to real money.

this i believe is a deflationary argument,as currently money (although imaginary) is being destroyed.

This is the same money being used by the goverments to shore up the crap banks, thus its not going to work, because real problems require real solutions, not imaginary ones.
The pain we are seeing at the mo is that of people and buisness watching imaginary wealth disappear.

at least thats how i think of it at the moment,


thats true that a lot of imaginary wealth has disappeared. the most imaginary wealth that has disappeared is in the US. so where would u invest your money these days? follow the lemmings into the US$ or actually put your thinking cap on and get out of it asap?


if i had money, (i don’t)

i’d actually buy property (stone him!!)
i’d buy a small holding where i can be somewhat self sufficient, (water well, good land, good location)

I’d fit it out to my liking and have it in such a manner that excluding maintanance,no future expences would be required.

Because, i don’t believe there is any safe place for money, and won’t be for 5 years.
So in that situation, put it to use. buy something real.


Could there be price-fixing? They might as well go for all-out state totalitarianism while they’re at it.

But, some parts of the economy are less subject to supply and demand than others - electronic material and software for example. Items like that do not face utter resource depletion either like land or water - could credit be somehow diverted into such commodities where there are increasing returns? - “the more you buy, the more you buy more” - but this effect is founded on educating people in the use of something before it can take off (a computer for example)

The Heads are noising about Bretton Woods II now - will we see the introduction of fixed exchange rates or a limit on money a la the Gold Standard? Certainly prices could be ‘fixed’ in some way - taxing CO2 for example would allow prices of certain CO2-heavy products to rise thus initiating a thrust for alternatives. Also pegging currency value to other resources like fresh water which is another scarce commodity but hardly as scarce as oil.

Off loading the inflation onto the exploitation of externalities might thus help preserve the natural world and curb that inflation. After a certain period of time the West might be left with a more sustainable physical/energy infrastructure at least.


I’m in the deflation camp anyway, the funny money is being destroyed thats why the investment houses are going.The whole thing was built on leverage and could only continue by increasing the leverage each time,now its all falling apart.The central bank money afaic is just to try and get a somewhat orderly unwind as opposed to a total collapse.Like the housing pyramid,the money pyramid is falling down.


nods head in total agreement

As for the serious inflation, well the central banks are pumping out trillions in imaginary money, but at the same time trillions more in imaginary money is being wiped out in the derivatives market. I think the overall effect will be deflationary as there is far more imaginary money being destroyed in the derivatives trade than there is being created in these banker bailouts.

Usually takes about 18 months for these things to show up in the real economy, and the “credit crunch” began just over a year ago, so…


What will they inflate, wages, house prices, allowing another spate of mortgage equity withdrawal?



Good explanation superpiper. We have already been through a serious inflation. Just look at the houses and stock prices a year ago.

The financial system is two-tiered. In one tier (and that is the financial system) there’s imaginary money used . In the other tier (this is where you and I live) there’s real money used to buy stuff and the supply of that money isn’t being increased so I wouldn’t expect what we call ‘inflation’ (CPI really) to increase much.

One factor could cause CPI to go up and that is once China ceases beaing a supplier of cheap consumer goods and I reckon that day is still far.


So if I understand you correctly Dom, would it be fair to conclude that most of the country has been living in tier one for the last few years and must now adjust to living on tier two?


Good advice if the price on that property was “real” also and not so detached from reality as to be farcical.Vast amount of deflation to go in these prices before they even approach realistic levels.


traditionally deflation was viewed simply as a decrease in money supply and it was seen as the opposite of inflation, nowadays deflation is more popularly viewed as the reduction of values/output etc.

anyway, at some point, maybe not in 08/09 even, the surplus of money will be realised, currently it is all debt write off that at its most fundamental is equal the value in the reduction of property prices upon which debt was secured.

when this happens we will see several strong years of inflation. there is an equal argument that this won’t happen because the money that is ‘gone’ is locked in place and not likely to re-enter the system but that idea (when it was explained to me in highbrow talk) didn’t make sense to me at first, i’d have to talk to a qualified economist to get a proper explanation

geckko: any guidance? my bets are on inflation


Great Question Mr. Anderson and one in which I would be very interested in being answered. I would like to know so I could time my gold buy a litte better, although in the long run it won’t matter.

I remember reading that before every period of hyper inflation there is a short period of disinflation or even deflation. By a short period I mean months, not longer than a year. This will or is happening with the US dollar right now supposedly because of the dollar asset holders liquidating their assets into dollars in preparation for capital flight which I think will be from funny money to real hard money (gold and tangibles). When will the capital flight happen? That’s the 6 million dollar question. Maybe after the New Year, I’m not sure. Keep your head to the ground, read itulip.com. When it happens the debtor nations will experience very strong inflation.

A lot of readers here are confusing two completely different types of inflation: asset price inflation and currency inflation.

We have just been through a period of strong asset price inflation: houses and stocks; and a period of mild currency inflation.
Now, we are in a period of strong asset price deflation; and a short period of currency deflation (due to dollar asset liquidation and the deterioration in the global economy).
Soon, we will be in a period of strong asset price deflation; and a period of strong (maybe very strong) currency inflation.
The inflation will not come from increased wages (there will be a decrease in wages in a recession/depression). The inflation will come from the massive increase in price of imported goods, e.g. Iceland (three times imported goods price increase: 200%, causing overal inflation at 30 to 50%). The reason imported goods will skyrocket will be because of a lack of faith in the debtor’s currency and economy whereby they pull the plug of the debtor’s currency and leg it (capital flight).
Argentina is a great example. I see the US and possibly Europe and a lot of other small countries having an Iceland and/or Argentina experience. When? Don’t know. Within 12 months probably. I have already stocked up on temporary imported goods in Lidl and Aldi (I shit you not).

Good luck everyone. The shit hasn’t really hit the fan in the real economy yet, but I believe it will.



Good find Greenbear.

The difference between the last great depression and this potential one is that the US was a net creditor in 1929. It made stuff. Today, the US does not. It is a net debtor. That is the reason for the future inflation when the US defaults.

However, strong inflation happens to all insolvent countries, unfortunately the US has been insolvent for quite some time but hid it well with it’s off-liability sheets type accounting and causing an asset price inflation boom (which hid these liabilities). However, the US had to report its books at the end of September 2008. It did not. They could not hide it anymore hence the crisis. The US is insolvent, as is Europe and the banks. The US is one big Enron about to happen. It hasn’t yet, as they haven’t shown anyone their books, so no one trusts them. I believe this lack of trust will lead to capital flight.

I’ll help you uinderstand the situation more by quoting Anne Schwartz:


"We now hear almost every day that banks will not lend to each other, or will do so only at punitive interest rates. Credit spreads – the difference between what it costs the government to borrow and what private-sector borrowers must pay – are at historic highs.

This is not due to a lack of money available to lend, Ms. Schwartz says, but to a lack of faith in the ability of borrowers to repay their debts. "The Fed," she argues, "has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."

So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is "the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue."

Deringer writes about Anne Schwartz:
"She, at 92, is one of the few people who actually lived through it and remembers what it was like, never mind quite possibly knowing more about monetary history, theory and the actual practice of banking than anyone alive.

She is co-author (along with Milton Friedman) of the 888-page tome “Monetary History”, a book that Ben Bernanke himself has said is “the leading and most persuasive explanation of the worst economic disaster in American History.”

And today, in The Wall Street Journal, she calls a spade… a spade."

My comments
An inflationary depression is a nightmare. It is what third world countries experience as they cannot afford imported goods.
As a simplified example, imagine your net income is 3000 euro per month and inflation is 50% and you own a house. Your mortgage goes up, your food goes up, bills, insurance, petrol, sundry items, travel etc. If you spent 1500 euro a month keeping afloat, next year you pay 2250 keeping a float, but your wages have remained static. The following year, you have to spend 3375 a month to keep afloat. You can’t do this, so you cut back. You get rid of your mobile phone, you have a cold house, you shop at Aldi and for cheaper stuff bought in bulk, you don’t eat out, you don’t go out. You can knock your expenses down to 2000 Euro a month. The following year you have to spend 3000 to keep alive, the fourth year you have to spend 4500. You can’t afford this, so you tap your savings. You aren’t spending on stuff anymore, you are keeping alive. Jobs vanish as you aren’t paying for them (including maybe yours). In this environment nobody buys a house because 1. they can’t afford to and 2. the spectre of unemployment destroys all potential purchases. Asset prices drop further.

It is a complete and utter nightmare and an impoverishment of everyone. The winners are those with massive cash savings (not fully tapped out) who can ride out the storm and wait until the debtor nations reindustrialise and become creditors again whereby they can buy assets for peanuts.

Again, I hope my interpretation of this is wrong. In any event we can look forward to a rebirth in new technology and a reindustrialisation.

I have a lot more thoughts on this especially regarding debt as money, but that’s a for another possible thread.


Going back to the when issue of serious inflation, some commentators think 2 to 3 years, others think 5 years and some think 6 months to a year.

I don’t know. I think 5 years is too long. It could be a couple of years. I’m not taking any chances though.

Here is the 5 year prediction:



For interested propertypinnners, here is the Iceland example. The question is how soon will it happen to us?

bloomberg.com/apps/news?pid= … refer=home


Here is what the creditors think of the US bailout and its record amount of debt. Dated 24 September

Default anyone? lol

bloomberg.com/apps/news?pid= … M&refer=us]()


Itulip’s take on capital flight. The problem is it doesn’t say at what stage we are at. I assume their hedge is gold, but I’m not sure as I am not a subscriber.


I hope you aren’t getting bored with these posts. Here is anacdoetal evidence for a bank getting out of US dollars: