The price of oil futures and gas at the pump are jumping with dizzying speed. I believe that the government has been lying about inflation for years. From what I know about hyperinflations in the past, they are due to the creation of unlimited currency and snowball rapidly as soon as the public realizes this. Given that the Fed and Treasury have created vast amounts of money in the past to prop up the stock market and that they flooded the economy with money before Y2K, could we be entering hyperinflation?

-- Mr. Adequate (mr@adequate.com), March 01, 2000

Answers

Adequate,

I certainly hope that you are wrong. I am concerned about all of those balance of payment deficits that the U.S. has been running for more than 40 years. If our creditors should start dumping dollars, Katie bar the door.

-- Harb (harb@scared.com), March 01, 2000.

If "they" start dumping $'s. Where are they going to "dump" them?

-- Waiting (/@/.com), March 01, 2000.

Inflation usually happens when the demand exceeds supply on basic commodities needed to sustain our current way of life.

In case of Oil which is liked in to all our commodities the shortage is causing price increases which will flow on to everything else.

It is now a matter of seeing if the production can be increased before a critical point is reached on reserves. The closer to empty they become the more worried they are and prices increase based on their gut feelings because some positive reports miss out vital information.

Restrictions will have to be imposed if the reserves are too low.

Only the officials of the producers or the oil organisations know what the true status is and you will only be told on a need to know basis.

Currently No OIL = No modern society

We must accelerate research and implementaion of non polluting alternative energy now at all costs while we have the chance.

-- kaz (kazk@acsupport.com.au), March 01, 2000.

Doubt we are heading into a period of hyper inflation as oil prices go up and go down naturally because of supply and demand. Oil prices could slow some purchases but this is just cyclical movements in oil prices.

-- Patrick (BAMECW@aol.com), March 02, 2000.

Webstewrs dictionary defines inflation as : An increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level.

The Federal reserve is adding so much money and credit to the system that they don't even know how much it really is. They are creating more debt instruments than ever before in history of the world. In the last year alone we went from 7 trillion dollars in Derivatives(Highly leveraged debt)to an unGodly 21 trillion.

It is my oppinion that the only reason we have been able to go as long as we have is because we are running up a huge trade deficit, thus flooding the world with dollars. Some day in the future we will start seeing these dollars come back and when that happens we will see inflation most likely hyperinflation.

-- Gambler (scotanna@arosnet.com), March 02, 2000.

Gambler, Greenspan said he didn't know how much. That's complete hogwash. He knows exactly how much money there is. But if he says he doesn't know, than they can't ask him to say specifically how much, eh?

Notice they didn't pursue that line of questioning? They didn't WANT to know how much, nor did they want the world to know how much.

Jolly can count.

-- Jollyprez (jolly@prez.com), March 02, 2000.

Actually we're far better placed to handle an oil shortage than in the seventies. It's ony a catastrophically sudden interruption to oil supplies that could cause economic ruin.

THe reason I say this is that technologies such as solar cells, batteries and (hydrogen) fuel cells, electrical vehicle propulsion, wind power, coal gasification, extraction of oil or gas from oil shales, are all now well-understood. What prevents them becoming mainstream is only that they do not represent value-for-money compared to simply burning oil. If the oil price rises year after year, that will change (and deployment of thse alternative technologies will give rise to economies of scale that will press downwards on their prices).

As for inflation versus hyper-inflation: a change in foreign investors view of the USA dollar would cause inflation (ie the value of the dollar would fall as measured in pounds or Euros or Yen or whatever); imports to the USA would become more expensive to USA consumers. It would also mean exports from the USA became cheaper to foreign countries, which is why this stabilises in the long run. (USA consumers buy less more expensive foreign goods; foreign consumers buy more cheaper USA-made goods; the balance of trade deficit disappears). In the short term, this spells recession and hard times.

Hyper-inflation is caused by a government printing money when it can't borrow it. This destroys confidence in the value of the money, and inflation gets worse, and the government adds zeros to the banknotes and keeps printing, and before long it's cheaper to use currency as toilet-paper than to buy toilet-paper with it. I think it unlikely that this lesson hasn't been learnt (not least, because AFAIK no democratic government that did this has ever survived the consequences, and for that matter few non-democratic ones).

-- Nigel (nra@maxwell.ph.kcl.ac.uk), March 02, 2000.

The government has been lying about inflation -- since at least 1971 - - and there are several things these lies portend. First of all, and most recently, the Asian currency crisis (1997) brought an unprecedented flow of dollars into that region. It won't be too long, I fear, before the buck isn't wanted there any more. When all that cash repatriates, the value of commodities will skyrocket (in dollar terms)as money flowing out of stocks and bonds contributes to the escalation in raw material prices. Another potential disaster faced by the US economy relates to bonds. The lying government, when it is finally exposed and accepted for what it is, will have a very difficult time getting anyone to buy its bonds. Now, rather than lock in debt at long-term low rates in recent years, the Clinton Administration has chosen to fund more than 70% of the US debt with short term instruments (bills and notes with terms of ten years and less -- a considerable portion in two and five year notes). This will mean that short term interest rates will have to rocket higher in order to induce capital to invest, and rates will have to make up -- in percentage terms -- for the previous lies of government and the sham the Clintons have pulled on global capital. The volatility in bonds will be unprecedented; you ain't seen nothin' yet. Of course, if the government can't fund its debt through treasury auctions (you may have noticed that the February auction was one of the worst received endeavors in recent years), you have to tap the public. While the Clinton Administration has (as of 1993) imposed the highest rate of income tax on the American public in US history, whomever it is that follows in their footsteps will have to ratchet up income and other taxes in order to fund the debt that global investors don't want any part of. The important thing there, of course, is that taxes are inflationary. In fact, because the government doesn't address the economic impact of taxation, their inflationary data is a joke. If they'd account for the impact of taxes, we'd have a little clearer picture of where we are -- and why our money can't stretch far enough. Get ready. We're going to be tapped for higher taxes still and, if the US public has any sense left, it will reinvent the revolution. This time, it won't have anything to do with England. It will, this time around, be geared toward eliminating all of the stuffed shirts in Washington who are busy stuffing our tax dollars into their foolish and wasteful causes. Be assured of this, inflations -- whether hyper or not -- are government creations. They will attempt to "un-create" this disaster with the little bit of our money that we have left, in the form of higher taxes. As our taxes increase, watch for a decline in spending power. The hyperinflation will have begun.

-- (cashtradr@aol.com), March 02, 2000.

Nigel:

>> Hyper-inflation is caused by a government printing money when it can't borrow it. <<

Thank you for a clear and even-headed explanation.

I would note that the volume of dollars held outside the USA dwarfs the amount of foreign exchange held inside the USA. If foreign investors repudiate the dollar, the potential for import-driven inflation is *very* high.

-- Brian McLaughlin (brianm@ims.com), March 02, 2000.