Quote Originally Posted by don View Post
Thursday, October 28, 2010

Signs Hyperinflation Is Arriving

2012 will be the bad year: I predict that hyperinflation’s tipping point will be no later than the first quarter of 2012. From there, it will accelerate. By the end of 2012, I would not be surprised if the CPI for the year averaged 30%.

By that point, the rest of the economy—unemployment, GDP, all the rest of it—will be in the toilet. [FONT=Georgia]By that point, the rest of the economy will no longer matter: The collapsing dollar will make 2012 the really really bad year of our Global Depression.
Sometimes it's fun to go back and revisit some old economic predictions that didn't pan out. There's no shortage of 'em. What might have gone wrong with this one?

It boils down to one thing: confusing the CPI - Consumer Price Index - with inflation.

From my perspective, the prediction of hyperinflation turned out to be correct. The part that went wrong is that it wasn't recorded in the CPI. Why? Two reasons: 1) it didn't last long enough; and 2) it was largely canceled out by the hyperdeflation that preceded it.

Using a measure of inflation - i.e. depreciation in the market value of the dollar - that records shorter term movements than those captured in consumer prices, we can resolve details that are lost in consumer price measures. This chart shows two phases of hyperinflation; one extending from March of 2009 to December 2009 and another from June 2010 to March 2011. The rate of inflation during each of these two periods was (depending on the exact choice of end points) on the order of 50%. But the total length of the hyperinflationary spell from these two periods put together was only about 20 months. Meanwhile, they were closely preceded by a hyperdeflationary period - a deflationary crash - of about the same total magnitude in only 10 months. Consumer prices just don't respond quickly enough to capture such large magnitude but short duration events ... they only briefly registered a small deflation in consumer prices followed by a still fairly small bout of inflation as the shock waves we see in this depiction of the value of the dollar filtered through the pricing chain and finally into consumer prices.