Inflation or Deflation Ahead?

Every business must use proper planning; some use it better than others. One company that is far superior to the US automaker's business planning is Toyota. With the use of innovative business planning Toyota introduced the high mileage hybrids at the same time gas prices began to rapidly rise. This is the type of business planning that leads to great success.

Personal planning is similar to business planning. Properly plan for the future and you'll be much more successful. When planning a personal budget, future expenditures, or choosing investments, proper planning is essential for maximum success.

What may be considered a lack of proper planning is where the US seems to be heading today. Engaging in a hyperinflationary path the Federal Reserve is creating billions of dollars to loan to ailing banks which is causing inflation. Inflation is a dilution of currency often caused when the Federal Reserve creates more money freely.

Currently, we are on a hyperinflationary path. But do we have to follow that path to its ultimate end like happened to Weimar Germany in the early 1920's? The answer is no. That was an example of a hyperinflation that continued to the point of the currency becoming totally worthless. In 1914 it took about 4.2 German Marks to equal one US Dollar. By 1920 it too about 39.5 Marks to equal the value of one US Dollar. By July, 1921, it took a little more than 76 Marks to equal one US Dollar. July 1922, 493 Mark to One US Dollar. July 1923, 353,412 Marks to equal one US Dollar. October of the same year, 25.26 billion Marks to equal one US Dollar. By November of that same year, 2.4 trillion Marks to equal one US Dollar!

By December the Mark was worthless and had to be replaced. This is a textbook example of a currency that was hyper-inflated to the point of being worthless. More and more money just kept being created. More and more zeros were added to the paper money. The question arises, do hyperinflations always have to continue until prices effectively reach infinity? The answer is no. The US was headed on an inflationary path back in the late 1970's. The situation could have continued with ever increasing amounts of newly created money. However, the public mood was focused on the rapidly rising prices. Paul Volcker, the man before Greenspan, changed course from the hyperinflationary path this country was on.

Well, here we are, 28 years later, and again this country is going down a hyperinflationary path. Where will it stop this time? Will it continue to the ultimate end like Weimer Germany in the 1920's, or will it be halted like it was in 1980? If it is halted, at what point will that be?

Those are very good question. There was a recent news story about riots in Haiti over rapidly rising food prices. Already, five people have been killed. Sometimes the public gets very upset with rising prices. Sometimes the public doesn't. Sometimes hyperinflations are halted. Sometimes they aren't.

At what point will the current hyperinflationary path change course? I wish I knew the exact answer. The public wasn't complaining when home prices were rising rapidly (at least those that owned a home and could see its price rise).

A rising tide raises all ships. It is almost impossible to have rising home prices, with the price of food, gasoline, clothing, insurance, education, electronics, furniture, and everything else falling. Right now, my best guess is that hyperinflation will continue for a while. When the prices of homes start rising again, the public will likely view this as a good thing.

When there is rioting and deaths due to rising prices of food and gasoline, then the days of hyperinflation may be nearing an end. Stay tuned.

Article Source: http://www.share.onlypunjab.com

J Stromsteen has many years experience in the finance and insurance industry. She writes for the website Bush's Depression as well as first time home buyer to comment with up to date details on the current real estate situation.

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