If you have never seen that photograph of the German woman burning her money as a substitute for wood, you are in for a rude awakening. The inflation was so bad in 1923 Germany it was actually cheaper to burn their currency then it was to buy firewood. It might be hard to imagine but if your electric bill suddenly went up from $250 per month to $25,000, you might do the same thing.
Hyperinflation is not just a thing of the past, it is happening right now! The Reserve Bank of Zimbabwe printed so much money to fund its budget deficits, the annual inflation rate rose 32% in 1998, and 133% in 2004, to 585% in 2005, and blew through 1000% in 2006, and rocked 26000% in November 2007, to an unimaginable 11.2 million percent in 2008.
You might be saying; well that was then or it happened to ‘them’ but it will not happen now to ‘us’. That could be true, the experts running the Fed might be on the forefront of addressing the problems of our monetary situation. If so, then we will have a soft landing and if they are not, then we will have a hard inflationary spiral and no landing. For now though, we are in a huge deflationary spiral. We have seen our Stocks, Real Estate & Commodities sliced and diced. What that means is that we are all a lot poorer than we used to be and we won’t be out buying goods like we used to. It is no surprise that Circuit City just closed all of its US stores.
Before the inflation rocket starts we will continue with the deflationary drag. Both stocks and real estate will continue to suffer. The next event coming is our old friend, Stagflation. The word Stagflation was coined during the 1970s and it meant slow economic growth and high unemployment (stagnation) with rising prices (inflation). With deflation happening now and the lack of spending, more companies will lay off employees. The Stimulus package might stimulate some growth and help a little with unemployment but it will also further inflate the money. The credit freeze will continue as banks become scared to lend money. Bailout money given to the banks earlier did not really help the money machine grease the economy, it was hoarded to protect against further crunches.