I too put my money on dollar hyperinflation and lost. Like most people, imagined that American deficit spending aka pumping freshly printed dollars into the economy, would cause inflation. It didnt. Still I dont know why it is so. About 2 years ago, sensing hyperinflation, I borrowed money from the bank at LIBOR + Bank of Israel moving rate, and bought solid stock of large corporations like Bank HaPoalim, BAZAN, etc.
Results are in and it was a bad move. Stocks hardly moved while real interest rates have doubled. I am losing money in this operation.
Where was I wrong? I commend The Economist that has been also making some reflecting on the subject. Notwithstanding the fact that British intellectuals have been under-reproducing for centuries, there is still much IQ left in London. The journalist writes:
I've been trying to think of a situation in which a country like America—rich, with good institutions and able to borrow in its own currency—has dangerously overstimulated its economy. When has a country like America and in America's position opted to do too much fiscally or monetarily, such that it found itself in a dangerous and irreversibly inflationary situation? There aren't that many data points, but I don't believe there's been such a case. Mr Summers is right; the risk to doing too much was minimal, while the risk to doing too little was significant.Too late for me. Now I have to think what I'll do in the next round. I think I'll renew my subscription. I hate paying but The Economist is worth its cost.
4 comments:
You have to measure the decline of the US dollar not against the Euro which is on equally wobbly footing, but againt a more stable currency, for instance the Singapore dollar. The other thing is that there has been a massive transfer of resources to the banks in the US and the UK mainly in order to ease the pain in the housing market. While the cost of action seems negligible, the cost of inaction would have been negligible too, the business cycle would have brought the US back to the same point as it is today, without the concomittant increase in the size of government, the cost of which will become apparent in the coming years, when the cost of a bloated public sector will weigh down every sphere of economic activity.
Ivan
Yes, but I expected some kind of hyperinflation or at least, a modest inflation. It did not happen as it should. God knows why not. May be God is American.
J, having read Adam Fergusson's When Money Dies on Weimar era hyperinflation, recently, the impression I have is that in relation to the current state of the US economy, there is a long way to go before irresponsible policies start taking their toll. In other words, I think that Mr Bernanke can tolerate another round of QE before seeing any significant impact on inflation.
Ivan
We are expanding our money supply, and should pay, but since so many other countries have bigger problems our judgement is on hold.
Standard economic theory is like the calculus porn that your students demand: it is necessary in many situations but also often enables smart people to avoid seeing through the math to the actual problems at hand and therefore to avoid the hard labor of thinking.
Anyway, I need to get off the internet, it is late.
Goodye.
Mark
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