Prepare For Rising Or Falling Prices?
J Stromsteen
In business, there is always a need for proper planning. Toyota does this well, while US automakers don't plan nearly as well. Toyota introduced high mileage hybrids just as the price of gasoline was beginning to rise rapidly. Proper planning paves the way to greater success.
Similar to business planning is personal planning. By properly planning for the future you will experience a more successful life. Planning a personal budget, future expenditures or choosing investments is essential for the highest level of success.
What may be considered a lack of proper planning is where the US seems to be heading today. Engaging in a hyperinflationary path the Federal Reserve is creating billions of dollars to loan to ailing banks which is causing inflation. Inflation is a dilution of currency often caused when the Federal Reserve creates more money freely.
Right now we are on a hyperinflationary path; however, will we continue on this path all the way to the end as Weimar Germany did in the early 1920's? We certainly need not. The currency became completely worthless in Weimar Germany due to hyperinflation. The exchange rate in 1914 was 4.2 Marks to one U.S. dollar. By 1920 it had changed so drastically that it took nearly 39.5 Marks to on U.S. dollar. The trend continued down this path until November 1923 where it would take 2.4 trillion Marks to equal one U.S. dollar!
By December of 1923 the Mark was completely worthless and was replaced. This is a prime example of a country's currency that experienced hyperinflation to the point of worthlessness. The big question regarding hyperinflation is if it is necessary to add to the continuation of prices until it reaches infinity? No. In the late 1970's the U.S was on an inflationary path. This could have continued with more and more currency being created; however, the attention was drawn to the rapidly raising costs. Paul Volcker, changed the path from a hyperinflationary one that the country was on.
28 years later we seem to be on this path yet again. This time around will be stop in time or will be have the experience of Weimer Germany in the 1920's? Can we halt this like it was stopped in 1980 and if so when?
These are good questions to which I wish I had the answers to. Inflation often leads to situations like what is going on in Haiti where riots are breaking out over food prices and people are being killed.
At what point will the current hyperinflationary path change course? I wish I knew the exact answer. The public wasn't complaining when home prices were rising rapidly (at least those that owned a home and could see its price rise).
There is a saying, 'the tide will raise all ships' and this is true. It is nearly impossible for the prices of gasoline, food, and clothing to rise and also the prices of homes to rise as well. The best guess I would have is that the hyperinflation will continue until the price of homes begin to rise again.
When there is rioting and deaths due to rising prices of food and gasoline, then the days of hyperinflation may be nearing an end. Stay tuned.
About the Author:
J Stromsteen has many years experience in the insurance and finance industry. She writes for the website Bush's Depression as well as first time home buyer to comment with up to date information on the unfolding real estate crisis.
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