The Monetary Endgame Score To Date: Hyperinflations: 56; Hyperdeflations: 0

The debate of hyperinflation vs. deflation is easily resolved with a simple understanding of human nature.  In periods of deleveraging after credit bubbles burst, the correct thing to do is to simply allow the deleveraging to occur naturally--asset prices drop to their economic levels, bad debts are defaulted on, malinvestments go bust, and market price discover mechanisms perform their clearing functions.  After all, you can't clean house if you don't throw out the cockroaches.

Instead, what we have is an interventionist Fed which aborts the market clearing process, manipulating and distorting asset classes in an attempt to stave off the necessary, but painful recessionary (and deflationary) forces.  After all, no one complains when their stock portfolios and home prices rise in value.  But when asset values crash, the masses certainly don't want further declines.

Quantitative easing (QE) temporarily suppresses interest rates, but their effects are diminishing with each round.  Why?  Because it also increases the Fed's balance sheet--the debt burden.  Propping up equities to stimulate the wealth effect and ignite "animal spirits" are also temporary once participants understand the fictitious nature of this fake prosperity.  In the Fed's extend and pretend policies, they don't prevent recessions--they merely exacerbate and delay the bust into something deeper and worse.

Easy monetary policies are temporary band-aids, and have been instituted as permanent policy since the Bush II administration and metastasized during Obama's tenure.  Referring to the human nature comment, it perfectly explains the pathology of politics: if indeed a collapse was inevitable, those currently in office will do everything in their power to ensure the collapse occurs on someone else's watch.  Governments and politicians never want to confront the ugly truth regarding insolvency--they'd rather delay it so the next regime will have to deal with it.  With that in mind, every politician will turn on the money printing press to delay the day of reckoning, proverbially kicking the can down the road.  The problem is the can eventually becomes a tank, and the road eventually reaches a brick cul-de-sac.

So while economies collapse globally, including the Euro zone, Asia, and the US, governments will jawbone deflationary fears into the masses, justifying their money printing bazookas.  They'll claim inflationary fears are overblown.  But what they don't tell us (or don't understand themselves) is that money creation by itself is inflation, by definition.  What many call "inflation" could potentially become hyperinflation if confidence in the soundness of the paper currencies collapses.  At that point, instead of hoarding dollars, consumers will quickly dishoard them like hot potatoes, in order to purchase tangible assets.  Economists correctly call this money velocity, which will usher in hyperinflation, as the trillions of dollars of liquidity change hands quickly.  People will buy things today with the knowledge that prices will rise tomorrow.  Instead of cash being king, it'll be confetti.

So will we get deflation or hyperinflation?  The answer is probably both, with the former occurring first, and the latter occurring later as central banks worldwide will turn to the printing press in a short-sighted attempt to maintain the status quo.  However, these high priests of finance should revisit history.  Reckless money printing eventually leads to pitchforks.

http://www.zerohedge.com/news/monetary-endgame-score-date-hyperinflations-56-hyperdeflations-0