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37 comments on CNN/USAToday/Gallup: There are "major problems..." (oh, if you only knew...)

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Don Sailorman on March 18, 2006 - 3:20am Permalink | Subthread | Parent | Comments top
Interesting question!

Should deflation occur despite multiplying the money supply by a factor of ten or a hundred or a thousand, what then?

Hm. Are you familiar with the TORRO  scale for tornado intensity? It is an extension of the Beaufort scale. A T1 tornado has winds of 55-72 mph, pretty Mild as tordados go. A T5 tornado has winds of 137-160 mph, and here we find heavy motor vehicles levitated, let's call that Intense. Now a T10 tornado with winds of 270-299 mph finds entire frame houses lifted from foundations and locomotives carried some distance, let's call that Super. To date the most severe tornado observed is a T11 (1999 Oklahoma Tornado Outbreak in Moore, Oklahoma).

Well, now, how strong can tornados get? Nobody knows. Probably at least T12 and maybe higher than that.

Let's rate the Great Depression as a T10 by analogy. Then my guess for a worst case future deflationary scenario is T12+.

BTW hyperinflations do not last long. Mere triple digit inflation can go on for years and years, but not hyperinflation. I cannot recall a case where deflation followed hyperinflation. Can anybody?

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Agric on March 18, 2006 - 11:12am Permalink | Subthread | Parent | Comments top
I wasn't familiar with the TORRO scale. I would probably put the Great Depression at T5 and the bottom of the one that may come at between T7 and T10 (T10 I would equate to a level 3 collapse on my scale, possible 20% to 60% die off).

Agreed that hyperinflations are brief, and that I don't know a case where extreme deflation has followed hyperinflation. But the current economic situation is pretty unique in many ways, the imbalances are in uncharted territory, in the past adjustments have always occured before this point has been reached. In a sense we (eg. the Fed, the markets) have become too good at palliative care.  Perhaps the (economic) patient will pull through, perhaps it won't.

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Don Sailorman on March 18, 2006 - 12:11pm Permalink | Subthread | Parent | Comments top
Well stated.

The future is uncertain.

The tightrope walker may be able to dance on piano wire; stranger things have happened.

But because of the unusually great magnitude of the uncertainties involved, I think anybody who puts financial bets on a future deflation is taking an immense chance of self-destruction of personal wealth.

BTW, I'm not borrowing to take advantage of what I think will be marked and severe rates of increase in inflation over the next ten years. I do not know what is going to happen. Nobody does.

But chances are it will be nasty.

Or worse.

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Agric on March 18, 2006 - 8:16pm Permalink | Subthread | Parent | Comments top
There's an interview on FSO today with Warren Brussee who argues that there is an imminent depression on the scale of the 1930s:
http://www.financialsense.com/Experts/2006/Brussee.html

In one sense I think he's right but I expect the Fed's clubs may postpone it one last time resulting in significant inflation, possibly hyperinflation, before the inevitable, unavoidable, Greater Depression ensues.

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37 comments on CNN/USAToday/Gallup: There are "major problems..." (oh, if you only knew...)

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