#1 Stagnate wages and offshoring jobs out of the US did not lower the cost of living for Americans. #2 So if the cost of living increased, but wages did not follow the increasing cost of living, the solution. Lots of credit to make for the different (The spread between income and cost of living) #3 This brought inflation, as more and more people needed to borrow more to keep up, prices kept going up and it snowballed. As long as the credit spigot was open, everyone kept drinking. #4 The average american began to live a life of serfdom to the banking cartel feudalism. They really owned nothing, House note belonged to the bank, everything they bough was on credit and they had big debts on the balance sheet. Credit is not infinite, so what happened is eventually the whole big bubble that began to form in the 1980s Exploded. Here is what you have TODAY. #1 Americans are tapped out, with the spigot of credit closed or closing they are no longer able to sustain the purchasing of goods and services, housing prices get a big haircut so no more house ATM. #2 Cost of goods and services still too high, pre bubble burst pricing, this will have to end. So inventory sits, production capacity sits idle and further unemployment results. This will snowball and continue, more unemployment begets more cutting, more fear of losing jobs will also beget more penny pinching. Banks fearing people losing jobs will continue limiting credit. This is where the big deflation hits. At some point, The banks with their big debt on the balance sheet will scream uncle, The US will fear major reprecussions if unemployment continues and our economy shrinking on a monthly basis. This is where the Mother of all QE will hit. And of course Hyperinflation. I cannot predict how exact the cycles will hit but both will happen. The signs of a liquidity trap is pretty obvious so far, 0% interest rates not stimulating the economy(we are net importers of goods and services), cash hoarding by companies (ie GE with over 70+ billion of cash on had for example) And the carry trade situation. Classic signs, deflation is coming and quick.
Good analysis overall. However, I would like to make a correction. "#3 This brought inflation, as more and more people needed to borrow more to keep up, prices kept going up and it snowballed. As long as the credit spigot was open, everyone kept drinking.: Inflation is mostly a monetary phenomenon. Americans had to borrow to keep their standard of living high, and they WERE able to, the inflation comes because they were able to borrow in large amounts, not because of simply wanting to.
as martin armstrong points out, Hyperinflation will hit the economy, when the speed of money-circulation increases. velocity is a key factor. take a look, worth reading it http://www.martinarmstrong.org/files/The-Money-5-4-10.pdf
The structural problem of the US economy is its all geared towards short term profits and not long term gains. Globalization is the culprit, along a culture climax of materialism and "success" worship. I agree with the premise that there will be deflation followed by hyperinflation; which is virtually meaningless without a timetable for these events. We are clearly in a deflationary cycle now, and historically all fiat currencies revert back to their intrinsic value. Hyperinflation needs a catalyst to kick off. As long as things keep muddling along, there will be nil inflation save hyperinflation. Another oil shock would create decent inflation in the low end of the consumer nondurables sector, but nothing spectacular. With such low velocity of money, and ongoing money sinking "de leveraging", it would take quite a shock to create hyperinflation. As we have seen, printing huge amounts of money and throwing it at the banks has failed to create inflation. It would take something truly catastrophic to create hyperinflation. A military dictatorship in the US would do the job, or maybe the standard scenario that peak oil doomers propose. Even if Ben Bernanke is writing billion dollar checks to all his friends, that would only cause inflation in the high end sector of the luxury yacht market. Either the means of production which underpins the dollar has to be damaged, or the consensus confidence in the dollar destroyed for hyperinflation to occur. Pick your scenario people...
Elaborate, please. How much more easing can we get from where we are now? Can the interest rate literally go negative?
How about the Fed buying longer-term bonds and driving those rates towards 0? Extrapolate from there and I bet everyone can come up with multiple ways the Fed can implement another round of QE.