Is U.S. Hyperinflation a Real Possibility?

Let's get one thing clear from the get-go: Hyperinflation is an extreme occurrence.

In the worst-case scenario of hyperinflation, a country's currency is rendered worthless; a trillion dollars wouldn't buy you a Coke. Uber-reporter Michael Lewis wrote an eye-opening account of the kinds of things he saw while visiting recent hyperinflation victim Iceland: an epidemic of people blowing up their Range Rovers for insurance money, hoarding food and foreign currency, and seriously contemplating emigrating from the country.

Stepping back from that dire possibility, a more conservative definition of hyperinflation is a doubling of prices over three years. For the century or so we've been keeping track, the U.S. hasn't come close.

In fact, we're spoiled, because we haven't seen a year with double-digit annual inflation in the last 25 years. However, we did experience it in the 1910's, the 1920's, the 1940's, the 1970's, and the early 1980's.

Just because hyperinflation hasn't happened doesn't mean it won't. But inflation of the triple-digit variety is a doomsday case that would require a massive devaluation of the U.S. dollar, and a weakening of the U.S. economy, on a scale much larger than even what we're seeing now. In short, the world would have to completely distrust the U.S.'s future earning power for hyperinflation to occur.

That happened to Iceland. But remember that Iceland was a small fishing country (population: roughly 300,000) that morphed into an international banking hub overnight. The U.S. banking problems are bad, but we have the rest of our income-producing industries to fall back on. While hyperinflation in the U.S. is possible, it's just not very likely.  

Scary possibilities
So let's focus on two concerns that have a much greater likelihood: a return to double-digit inflation, and a return to that hallmark of the Great Depression, deflation.

Is it rational to be concerned about both inflation and deflation? Absolutely.

We should certainly worry about deflation. When one of our nation's primary asset classes (housing) is coming down from historic bubble, there's tremendous deflationary pressure put on the economy, and prices rapidly decline. That's bad, because once deflation starts, it's in everyone's interest to slow spending -- a dollar today is worth less than a dollar tomorrow. When everyone slows their spending, the economy comes grinding to a halt, ensuring that people don't have to the money to spend, even if they wanted to.

This is exactly what happened during the Great Depression. We experienced annual deflation of 2.3%, 9%, 9.9%, and 5.1% from 1930 to 1933. The economy was in shambles. Real GDP plummeted (it fell 13% in 1932 alone) and at one point, unemployment reached one-fourth of the population. Yes, 25% of all Americans were out of work. Families split up to scour the country looking for jobs, shantytowns sprouted, and we feared hunger as much as fear itself. It's about as close as this country has come to an economic Armageddon.

Ben Bernanke: arch-nemesis of deflation
Of course, Fed Chairman Ben Bernanke knows this. He's studied the Great Depression, and he clearly manages the economy trying desperately to avoid a deflationary spiral. This is why he's reduced the government interest rates to virtually zero. It's why he's printing money by the trillions, despite its limited effectiveness in spurring banks to lend.

Assuming these government actions work, double-digit inflation will be the more likely result. All the moves the government is making to forestall deflation are by definition inflationary. The excess money in the economy, the low interest rates, and the tremendous increase in the national debt can all combine to devalue the American dollar and pump up inflation.

Who wins with inflation?
If inflation does hit, that's great news for borrowers. And terrible news for lenders (sorry again, banks). In a high-inflation scenario, the price of everything generally goes up. Your food and gas prices increase, but eventually, so do your wages. However, if you're a borrower, the amount of principal on the debt you owe stays the same. Only now, you can pay it back with inflated currency. Hence, borrowers profit at the expense of lenders.

Companies that have outstanding debt and the ability to survive to pay off that debt can find themselves in a very nice position. Here are some examples:

Company

Debt/Capital

Interest Coverage Multiple

Wal-Mart (NYSE: WMT  )

38.5%

10.6

BP

26.5%

27.2

IBM (NYSE: IBM  )

71.7%

26.5

Procter & Gamble (NYSE: PG  )

40.1%

12.1

Altria (NYSE: MO  )

72.5%

22.8

McDonald's

43.3%

12.1

GlaxoSmithKline (NYSE: GSK  )

66.1%

10.7

Hewlett-Packard (NYSE: HPQ  )

34.1%

17.7

Coca-Cola

30.9%

20.0

Verizon (NYSE: VZ  )

39.7%

9.9

Source: Capital IQ, a division of Standard and Poor's.

All the companies above have significant amounts of debt, but they can safely cover the interest payments on that debt with operating income. But there's one more consideration to keep in mind before we can call these companies inflationary winners.

Only the companies that can successfully maintain demand and raise prices can really take advantage of this effectively cheaper debt. Companies such as Altria, GlaxoSmithKline, and Procter & Gamble, which make products with relatively inelastic demand, can thrive in an inflationary environment. You could probably lump Coke in there as well.

The others are less clear-cut. Though by no means luxury purveyors, Verizon, IBM, BP, and Hewlett-Packard would all face real threats of decreased demand and substitution if they raised prices significantly. Meanwhile, Wal-Mart and McDonald's are known for their low prices, but they'd have some room to raise prices as their higher-end competitors raise theirs.   

What to do with this information
If you believe that double-digit inflation is a possibility, and you want protection for your portfolio, this list of companies is a good place to start your research.

Remember also to pay attention to companies with significant non-U.S. operations, since exposure to foreign currencies offers additional protection against high inflation and a falling dollar. Remember the fundamentals, though. In any environment, we want to buy companies that will sustain and grow their earnings over the long term. And we want to buy these companies when the market prices them as if they aren't.

For those looking for more ideas that hedge against high inflation and a weak dollar, our Global Gains team exclusively analyzes international opportunities. They recently identified their 10 best buys for new money. You can see them all with a free 30-day trial. If you aren't impressed, there's no obligation to subscribe.

Anand Chokkavelu owns shares of McDonald's and Altria. Coca-Cola and Procter & Gamble are Motley Fool Income Investor picks. GlaxoSmithKline is a former Income Investor selection. Coca-Cola and Wal-Mart Stores are Motley Fool Inside Value selections. The Fool owns shares of Procter & Gamble. The Fool has a disclosure policy.


Read/Post Comments (33) | Recommend This Article (112)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 23, 2009, at 4:01 PM, pondee619 wrote:

    Why were people in hyper-inflation Iceland hoarding cash? It would seem that cash, in a hyper-inflation climate, would be spent as soon as it was obtained lest it be worth less tomorrow.

  • Report this Comment On April 23, 2009, at 4:53 PM, TimothyVR wrote:

    Hyper-inflation?

    And I was just getting over my paralyzing fear of deflation.

    One catastrophe at a time, please....

    Regarding double digit inflation in the 1920s: I assume that was only at the very beginning of the decade in the aftermath of WWI. I had thought the 1920s were a period of exceptional price stability.

  • Report this Comment On April 23, 2009, at 5:05 PM, whale59 wrote:

    I wonder why the Fool doesn't mention precious metals as a hedge against double digit inflation? Seems like only stock is considered as a portfolio investment.

  • Report this Comment On April 23, 2009, at 5:23 PM, dc46and2 wrote:

    I like precious metals too, but I don't consider it to be an investment. Precious metals don't "earn" anything or multiply themselves. It's only the value of the fiat currencies that change. Precious metals are a "store of value." Generally you have to pay for the storage somehow, for instance GLD sells some of your gold periodically to cover costs.

  • Report this Comment On April 23, 2009, at 5:33 PM, afamiii wrote:

    Your right, my sense is that the Fool believes only in stocks, rather than building a portfolio from stocks, fixed income, real estate and commodities. Commodities (including Gold) and Real Estate are also excellent hedges whether double digit inflation or hyperinflation.

    No one knows if we we will have hyerinflation, deflation or doubledigit inflation (and you don't need to be in the crystal ball brigade to make money in any market.) I don't share Anand's sentiment of discounting hyperinflation (its a bit like saying average house prices won't fall nationwide.) Hyperinflation can have a monetary cause as well as a confidence cause. I for one can't see the difference between quantitative easing and what the Central Bank of Zimbabwe is doing. And when the guy starts dropping those notes out of his helicopter, God save us all.

  • Report this Comment On April 23, 2009, at 5:36 PM, matthewbanis wrote:

    So yeah, you must not have bought gas in the last few years, or a home, or gone to the supermarket - because it seems to me all of these items have easily doubled!

  • Report this Comment On April 23, 2009, at 5:37 PM, matthewbanis wrote:

    So yeah, you must not have bought gas in the last few years, or a home, or gone to the supermarket - because it seems to me all of these items have easily doubled!

  • Report this Comment On April 23, 2009, at 5:48 PM, TMFBomb wrote:

    pondee619,

    Yes, i clarified to "foreign currency" rather than the generic "cash"...obviously hoarding the krona would have been the worst move in a hyperinflationary environment.

    TimothyVR,

    Yup, 1920 had the double-digit inflation. 1923-1929 saw inflation/deflation vacillating around 0%.

    whale59,

    I personally don't like gold as an investment...unlike other commodities like oil and steel, its value isn't based on its usefulness. Sure, it moves up and down, and sometimes you can make money on gold, but I see gold as speculation rather than investing.

    -Anand

  • Report this Comment On April 23, 2009, at 6:13 PM, XMFSinchiruna wrote:

    whale59,

    Some of us do. :P

    http://www.fool.com/investing/international/2009/03/27/the-m...

    Anand,

    may I offer a third scenario?

    Bernanke's interventions don't have to be successful to spur inflation.

    When you have a contracting economy, but massive spending transitioning into quantitative easing in a failing attempt to counteract de-leveraging, and foreign creditors grow increasingly wary of the entire mess... these are clear ingredients for stagflation.

    Eroding value of the USD (looming) vis-a-vis bailouts and quantitative easing can indeed stoke double-digit inflation even as several key asset classes like housing experience falling nominal prices in a contracting overall economy. I prefer the term stagflation because it differentiates from the commonly understood hyperinflationary model which presupposes some measure of economic stabilization to precede the event (thus increasing velocity of money).

    I believe the bailouts and fiscal interventions will fail to generate economic recovery in the face of an insurmountable mountain of toxic derivatives (at least $684 trillion). I believe that the recent foray into quantitative easing is just the beginning, which creates a dangerous vicious cycle for the USD, prompting further acceleration of the printing press and sealing the downward trajectory of the USD against the basket of foreign currencies.

    This will yield higher USD prices for core commodities like oil, food, metals, etc., forcing the hands of foreign holders of USD reserves to begin unloading in one form or another and making the eventual emergence of a replacement reserve currency system a certainty. Foreseeing this scenario, I believe, China and Russia have held no punches in voicing their level of discomfort with our policies and the continuing role of the USD as the reserve currency of the world.

    It seems most folks are watching housing prices, unemployment figures, and other such domestic economic indicators for clues about when we could being to see deflation bottoming and allowing inflation to rear its head. I agree that such a reversal would indeed herald the arrival of inflation, but I consider this scenario far less likely than the stagflationary case.

    Instead, I have my focus honed in upon Treasury bond auctions and quantitative easing, the USDX, gold, the growing crisis tally, strategic moves to secure future commodity supplies, and global currency developments with respect to concern over the fiscal health of the greenback, etc. These, I believe, provide the clues we need to follow to predict the onset of inflation.

    http://www.fool.com/investing/international/2009/03/24/102-t...

    http://www.fool.com/investing/international/2009/04/01/an-op...

    Just one Fool's opinion. :)

  • Report this Comment On April 23, 2009, at 6:26 PM, roseblasss wrote:

    Please forgive my ignorance, but my friend insists that if the U.S. Treasury gave every single U.S. resident (recorded by the latest Census Bureau Report at 302 million), it would cause mega-inflation.

    I just don't get it. $302 million is a drop in the bucket compared to the TRILLIONS being thrown around now, and not "trickling down". Imagine not only the incredible excitement people would feel by receiving such a huge check, but wouldn't the majority either fix their mortgage/foreclosure problem, or go out and spend like crazy? ...putting people back to work, stimulating production, and all other positive effects of the consumer on an economy...Thanks for any thoughts on this!

  • Report this Comment On April 23, 2009, at 6:59 PM, TheGarcipian wrote:

    Nice article, Anand. I generally agree with everything you wrote except the part about inflation not being in the double-digits since 1980. You're using numbers like the CPI to compare against, and the government's finagling of that index is highly suspect, leaving out key inflationary measures like energy & food. More than likely, our current inflation is in the 8%-9% range (rather than the 4.5% the fed.govt. says it's at), and we have definitely pushed into the 10%-12% range sometime in the past 25 years.

    Otherwise, I enjoyed the article.

    Cheers!

  • Report this Comment On April 23, 2009, at 7:10 PM, holosys wrote:

    Recommended Reading:

    THE HYPERINFLATION SURVIVAL GUIDE

    Strategies for American Businesses

    by Harry E. Figgie, Jr.

  • Report this Comment On April 23, 2009, at 7:14 PM, AWF wrote:

    I don't know where Anand studied economics ? but I think he ate the books. What is Inflation? Inflation is an increases in prices that reduce YOUR purchasing power--that means YOUR dollars don't buy as much.!!! What is Deflation? Deflation is the decreases in prices that increase YOUR purchasing Power--that means YOUR dollars buy MORE>!!

    What are financial "Bubbles" will let Anand figure that out on his own--But its not what you get at the car wash~Can Inflation be good? Most of the time the answer is NO--but if YOU are in debt up to your eyeballs--Inflation can help--But only If YOUR wages go up "eventually" "eventually" "eventually". Stockmarket returns adjusted for Inflation are not impressive. Even the majority of "smart money" pro's returns adjusted for Inflation are less than impressive.

    So if you are an Investor Inflation is a bad thing.

    Do you all remember the old carpenter rule:

    Measure twice cut once--

    Well the very first carpenter rule is:

    You can't build on a bad foundation !

    Bernanke is trying to rebuild the economy on the bad foundation of debt --I don't believe this plan will work.

    Capitalism works best without government intervention

    and a central bank bent on reflating a financial bubble.

  • Report this Comment On April 23, 2009, at 7:36 PM, mjtria wrote:

    Absolutely guaranteed. The inflation of the next ten years will give new meaning to the term. The only question is what to do about this on a personal level.

  • Report this Comment On April 23, 2009, at 7:50 PM, WishToRetire wrote:

    My advisor says

    1) we Canadians will have a rising doillar and so that will counterbalance the effects of inflation in the price of things from the US - resulting in less inflation in our cost of living.

    2) All stocks do well durung inflation because rising prices mean rising earnings and stock prices overall.

    Are his arguments sound?

  • Report this Comment On April 23, 2009, at 7:53 PM, xetn wrote:

    Actually, inflation is the increase in the number of money in circulation. This usually results in a "price inflation" meaning that with more money available, the price of every thing gets eventually bid up. When the Fed prints more money out of thin air (Bailouts 1 and 2) federal guarantees of Freddie and Fannie, BofA, Citi, GM, etc. this takes money out of productive projects (steals money from the citizens and gives it to someone else; like friends of politicians) but can and usually means price inflation is not too far away. This is exactly what happened during the Great Depression. First Hoover cajoled big business into maintaining high wage rates (usually one of the cures to recession/depression is falling wage rates) which resulted in fewer workers being employed (an unintended consequence of this government intervention which led to 25% unemployment). He also created various price supports for housing and all manor of crops. But these efforts made everything worse with deflation resulting. And to make matters worse raised taxes. FDR campaigned on a platform of returning government to its senses and severely criticized Hoover's policies. After being elected, he continued the same policies but even worse. Both the actions of Hoover/FDR resulted in deep deflation, and an extended depression which ended up lasting through the end of WWII.

    Hyperinflation happens when the users of a currency lose faith in the currency (there are too many, in our case dollars, with the result that the purchasing power of the dollar falls very rapidly. This can has has happened several times (post WWI Germany, Zimbabwe, Iceland, etc.) With China and Russia making remarks about the value of the dollar, and suggesting that the dollar be replaced as a standard currency for international settlements, and the Fed beginning to monetize its own debs (buying treasuries instead of selling them to foreign buyers, this could be the beginning of hyperinflation for the US.

  • Report this Comment On April 23, 2009, at 11:48 PM, WishToRetire wrote:

    These pictures give the word trillion a sense of its real (i.e. scary) meaning

    http://www.pagetutor.com/trillion/index.html

  • Report this Comment On April 24, 2009, at 12:00 AM, laogao wrote:

    XETN, Happyashell, AWF,

    Dudes, start getting paid for your insights. Get MF to pay you for your comments instead of paying their usual useless "financial journalists".

    I'd prefer giving you guys $33 each than wasting my annual fee on the Gardners website.

  • Report this Comment On April 24, 2009, at 12:08 AM, TMFBomb wrote:

    I got a reader e-mail about Treasury Inflation-Protected Securities (TIPS). They are inflation-indexed Treasuries...these are great bond vehicles to protect against double-digit inflation (in a hyperinflation scenario, this could break down). My Foolish colleague, Alex Dumortier, wrote about them here: http://www.fool.com/investing/dividends-income/2009/02/28/sl...

  • Report this Comment On April 24, 2009, at 12:57 AM, ralphmachio wrote:

    It's true, gold is not an investment, but a storage unit of value, but that is under normal circumstances. IF we were to look to gold for a hedge against complete currency default, it would once again gain value as a monetary exchange unit, multiplying it's value by 10 - 30 of what it would end up at AFTER waves of mild paranoia about financial collapse from the entire planet at once, full of OPTIMISTS thinking their gold will be tradable in it's electronic format. I know, that's like a million to one odds, unless you see the writing on the wall.

    Silver would whip golds butt up and down the block in that instance, but historically it does so only after gold makes it's initial run.

    Check the chart for the 200 year relationship between silver and gold. Things are way out of whack, and fiat currency may or may not make it through the next ten years. I'd even be skeptical of someone storing your gold for you, IF things get crazy.

  • Report this Comment On April 24, 2009, at 1:04 AM, paultaut wrote:

    Like someone said, its about the rapid erosion of purchasing power.

    Future Hyperinflation is not a "gimme" but if the USD takes a rapid nosedive which persists. Then everything imported will rise rapidly, it will not be immediate since prepaid cargo will still be arriving.

    We import "practically everything". Our Industrial might is a shambles. The workforce needed to produce practically everthing retired years ago.

    All Internationals with facilities overseas will see their earnings soar. But if this Administration is still in control, I would expect a Windfall Profits Tax to be imposed.

    After all, they were going to Tax Big Oil until Oil dropped. Distribute the wealth.

  • Report this Comment On April 24, 2009, at 1:06 AM, paultaut wrote:

    Rapidly dropping dollar, everything imported soars...Hyperinflation.

  • Report this Comment On April 24, 2009, at 1:49 AM, divedivedive wrote:

    I think the mistake here is assuming Hyperinflation is just inflation out of control. I think inflation is caused by too much money chasing too few goods. Hyperinflation is a loss of faith in a currency or a run on the currency. I think it is possible that the Fed could keep pumping out dollars to fight off deflation until China and others say uncle and dump treasuries. The dollar would drop like a rock. Deflation to hyperinflation overnight.

  • Report this Comment On April 24, 2009, at 2:29 AM, janetlesley wrote:

    ROSEBLASS: quite riightly as you sweetly delineate, the game is not what it is presented, giving each person in the US even the wetback slaves their portion of the bailout in cash which they could spend, close mortgages get the economy moving etc is NOT the game.

  • Report this Comment On April 24, 2009, at 2:42 AM, mberan wrote:

    Oh geeezzzeee....now it's hyper inflation. Buy the wheelbarrows to put the money in.

    Can't they find something that makes sense to write about?

  • Report this Comment On April 24, 2009, at 7:58 AM, brwn8484 wrote:

    Lets see... some 6-8 months ago economists and the "experts" were predicting a runaway economy. Helicicopter Ben and his predecessor made an unusual move of 6 hikes in the interest rates,,,, Then we had a major financial collapse and now you are telling me we probably wont see hyper-inflation because Helicopter Boy knows what he is doing.

    Not sure, but I'd bet someone is smoking something recreational here and has lost some perspective. I wouldnt bet on anything the FED or Bernanke or our leaders are telling us. They have been selling us a bill of goods for over 25 years. You might believe that hyperinflation is not going to occur but that doesnt make it any less of a threat.

    When will we all wake up (and hold those people who are criminally responsible for this mess) to task. Only then will the threat of Hyperinflation be reduced. All the stated good intentions in the world mean nothing. I havnt seen a politician or corporate fat cat yet who really wanted to help the middle class. We are in for a rough ride and there will be no easy way out of this mess.

  • Report this Comment On April 24, 2009, at 9:50 AM, ralphmachio wrote:

    I bet we are gonna see both deflation and then inflation, taking jobs away, then charging you too much for everything.

    The middle class served it's purpose, now it is a liability to the Empire it has created. That is why they are being stripped of their financial power, and will soon be incited to riot, which will bring in the martial law that was the plan in the first place. Problem - Reaction - Solution government.

    China and Russia will be dumping our currency simultaneously Iran will be selling oil in Euros, or whatever is not Dollars, and that's one not so unreal possibility. What would gold be worth 6 months from now if that was to happen in 5 months?

    At this point if you are in denial of the plan for one world government, I just don't know what to tell you. America would never go for that unless it was in utter turmoil. That is why I know we will see turmoil. O'bama (a fine Irish lad) was chosen to put a friendly young face on a policy shift for the better that manages to rob middle and upper middle class america and doesn't do much for the poor either. Fooled again! Darn it!

    The only way to properly see this charade is from the perspective of their goal. Everything else is just a cleverly designed plot to corral the masses. Amazingly, they always get just the problem to further their current goal. Isn't that astounding?

  • Report this Comment On April 29, 2009, at 12:20 AM, redneckdemon wrote:

    ralphmachio;

    I could almost buy that, if I could bring myself to believe that the government was actually capable of organizing it. But I don't.

    The only parts of our government that is good at its job is the military (when it comes to making parking lots) and the IRS (when it comes to figuring out who hasen't paid them yet).

  • Report this Comment On April 29, 2009, at 9:57 AM, Buzz144 wrote:

    We are currently going through a period of deleveraging which has the effect of shrinking the money supply and causing deflation. But when that ends, it is going to get real ugly really quickly. That pendulum will swing from deflation to inflation quickly and will pick up speed, destroying wealth as it goes. It is easy to see the coming change from deflation to inflation, but it is not easy to predit how soon it will happen. Some economists I respect are predicting it will take the better part of a decade. But others I respect are predicting it will happen within months and investors should be positioning themselves for double digit inflation and the collapse of the dollar. I am myself already positioning for inflation by investing in safe currencies and in companies that get most of their revenues outside the US. I am particularly impressed with several Brazillian firms.

  • Report this Comment On April 29, 2009, at 10:42 AM, Foxwood18 wrote:

    You got it bass-ackwards...DEFLATION = each dollar GAINS in purchasing power ... items you are buying are cheaper!! INFLATION = each dollar LOSES purchasing power...items you buy cost more! Foxwood18

  • Report this Comment On May 01, 2009, at 11:23 AM, fixedincomesecs wrote:

    Blowing up cars for insurance money!!! Local news in S.F. Bay Area last night said that over 60 cars a month are being torched for insurance and to get out from under auto payments. That is just one small area of the US.

    The Federal Reserve has lots of successful experiences in fighting inflation. Deflation is the one thing that frightens most people.

  • Report this Comment On May 02, 2009, at 1:37 AM, holosys wrote:

    > On April 23, 2009, at 6:26 PM, roseblasss wrote:

    >

    > Please forgive my ignorance, but my friend insists that if the U.S. Treasury gave every single U.S. resident (recorded by the latest Census Bureau Report at 302 million), it would cause mega-inflation.

    >

    > I just don't get it. $302 million is a drop in the bucket compared to the TRILLIONS being thrown around now, and not "trickling down". Imagine not only the incredible excitement people would feel by receiving such a huge check, but wouldn't the majority either fix their mortgage/foreclosure problem, or go out and spend like crazy?

    Dear roseblasss,

    Before correcting your math (not meant as nitpicking!) I want to commend you for hinting at the core of the solution to the Obama riddle!

    First, if Obama gave 302 million United States citizens one dollar ($1.00) each, it would cost $302 million dollars. I think you intended to calculate a more realistic sum per citizen.

    Let's say it would hypothetically take $100,000 to bail out the average citizen.

    I very carefully entered $100,000 multiple by 302,000,000 into my desktop calculator. Copying and pasting the sum:

    $30,200,000,000,000

    That is $30.2 trillion dollars.

    If Obama really was intent on stamping out the liquidity problem, add another zero. Give each citizen $1 million, for a total "stimulus" sum of $302 trillion making the New Deal look like spare pocket change.

    Realistically, I would say $250,000 per citizen would probably do the trick if every recipient of this "stimulus" money were to IMMEDIATELY pay down their mortgage and credit card. I fear this approach would cause a hyperinflation scenario unprecedented in human history. The question is whether it would "fix" the current problem of liquidity? Absolutely!

    Could we survive the tsunami of inflation to follow? I honestly don't know.

    My solution is to approach the horse from the other side. Rather than sneaking up from behind and surprising it, why not walk right up to it instead?

    In other words, why not zero out all mortgage and credit card debt existing with banks and mortgage lenders on or before January 1, 2009?

    Debt only exists on the books. It is not real until it is paid. Much of that debt will likely get charged off in the next few years. It wouldn't cost Obama or the now government subsidized banks and mortgage lenders to simply charge off ALL credit card and mortgage debt (in the case of the latter, reverting title to homeowners for all owner occupied primary residences).

    This course of action is the only way for Obama to nail the recessionary coffin shut, wouldn't you agree?

  • Report this Comment On May 02, 2009, at 11:16 AM, RVerbalKent wrote:

    Far too much gloom and doom here, although at some point Inflation has to take off to counteract the printing of all these dollars. Didn't we already have "hyper-inflation" (to an extent) during the incredible run up in house prices and food and commodity prices? Mostly due to speculation. The saving grace for the dollar is which other currency can the World use? The dollar may be bad but is there much out there better?

    The scariest thing is countries like China holding so many dollars, of course they don't want to see their holdings take a huge hit, but if at any point they want to cripple the US Economy they'll start dumping their dollars and use a different holding currency. Same can be said of the Saudis.

    The better question is given inflation will be a factor in the future (and no I don't subscribe even to long term double digit) what do you invest in??

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