Hyperinflationits have now blown it twice. First, they insisted hyperinflation would happen before deflation. They were wrong. Then, during the QE2 inspired equities and commodities ramp, they said the same thing. They were wrong again.

Prior to the Great Financial Crisis I had a bet with "Heli-Ben", a staunch hyperinflationist who insisted we would hyperinflation before deflation. I won the bet but have not yet received my prize, a "crying towel" from "Heli-Ben".

By any rational measure, and certainly by my definition, the US went into a period of deflation lasting at least a year. Deflation ended in March of 2009.

In the wake of QE II hyperinflationists again started preaching about hyperinflationary crashes. Once again, and with increasing intensity, we heard things like ...

  • The US is Zimbabwe
  • No food available at any price
  • Oil is going to $200, then $400
  • Excess reserves will pour into the economy causing massive inflation
  • No one will be willing to hold US dollars
  • Treasury rates are going to the moon
  • The US dollar is going to zero
I could assign names to the above list, but I won't.

Two well-known hyperinflationists confidently predicted hyperinflation would start this year. A third said 2011 or 2012 giving himself extra time to be proven wrong.

My position all along was that the US would go in and out of deflation over a period of years, just like Japan.

I am claiming my "crying towel" prize for the second time. The US is now undeniably back in deflation. If "Heli-Ben" does not submit a "crying towel" his word is as good as his economic theories, which is to say worthless.

Definition of Terms

Before discussing terms one must define them. I have on numerous occasions defined mine, and my definition was the basis for the bet.

Inflation

Inflation is a net increase in money supply and credit, with credit marked-to-market.

Deflation

Deflation is a net decrease in money supply and credit, with credit marked-to-market.

Hyperinflation

Complete loss of faith in currency.

The first two definitions have nothing to do with prices per se, the third does (by implication of currency becoming worthless).

Price Myopia

Many if not most economists, especially Keynesians, think of inflation in terms of prices.

In contrast, Austrian-minded economists generally have definitions similar to mine except most of them fail to properly include credit in their analysis. Austrians in general look at money supply alone, and that is a huge mistake.
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