Hyperinflation? Not Likely, But There Are Worries

Friday, 31 Jul 2009 01:30 PM

By Dan Weil

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Some economist are worried about inflation. Some, including, clearly, the Fed under Ben Bernanke, about deflation.

Anand Chokkavelu says it makes sense to be concerned about both, but not about hyperinflation.

“Let's get one thing clear from the get-go: Hyperinflation is an extreme occurrence,” he writes on The Motley Food.

“In the worst-case scenario of hyperinflation, a country's currency is rendered worthless; a trillion dollars wouldn't buy you a Coke.”

The United States hasn’t even seen double-digit inflation in almost 30 years, let alone triple digits.

“Just because hyperinflation hasn't happened recently doesn't mean it won't,” Chokkavelu acknowledges.

“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.”

Basically, the world would have to totally give up on the United States as an engine for their growth.

“While hyperinflation in the U.S. is possible, it's just not very likely,” Chokkavelu writes.

“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,” he says.

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

Chokkavelu isn’t the only one worried about deflation.

World Bank Chief Economist Justin Lin warned in a speech last week that a jump in excess capacity around the world could spark a global "deflationary downward spiral," The Wall Street Journal reports.

Meanwhile, the International Monetary Fund warns that the United States should have a second stimulus package ready just in case deflation becomes more evident.

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