Sunday, January 30, 2011

Deflation vs. Hyperinflation—Stoneleigh vs. Lira

It’s clear that some type of economic depression is coming to the United States and to much of the rest of the world. In many ways, it has already begun.

The question is, Where is the United States headed?
• A 1930s-style deflationary depression?
• Or a Weimar-style hyperinflationary crisis?
For the first time ever, two of the most prominent writers on this issue will face one another in a live online debate, to be held on Thursday, February 10, 2011, at 9pm EST.

Nicole Foss, a.k.a. “Stoneleigh” at The Automatic Earth, ranks among the most prominent of the deflationists. She maintains that the ongoing contraction of jobs and overall income in the US will lead us into a sustained deflationary depression. Consequently—and in direct contradiction to the advice of hyperinflationists such as Lira—Foss strongly recommends Americans stay liquid in US Dollars and avoid going into any debt. As jobs and many businesses disappear, Foss foresees a crash in the money supply, leaving most people without cash or credit, and a minority hoarding the little that remains.

And as far as me? Well, you who read this know that I’m a hyperinflationista—but a thoughtful one, not some crazed tin-foil hatter. I’ll be drawing on my personal experience from Chile in the early 1970’s, and arguing how the same hyperinflationary crisis will soon take place in the United States, due to the massive oversupply of debased U.S. dollars chasing after a finite supply of tangibles. I’ll be arguing that anyone wanting to survive and prosper would be well-advised to structure their investments and their own personal lives in anticipation of a rapid and stunning hyperinflation.

This live online debate will be moderated by Jay Carter of Financial Survival Radio.

Stoneleigh and I will be taking your questions—live. So if you sign up (and I certainly hope that you will), please have a microphone attached to your computer, in order to participate in the live Q&A.

Hope you catch our debate!



  1. Should be interesting. You both could very well be right. Hyperinflation in the things we need (food, energy, clothing) and deflation in things we don't need (i.e. mortgaged houses, collectibles, antiques, furniture, cars). I can't imagine anyone arguing for deflation in commodity based items - that would be like arguing that the sun didn't rise this morning, as they would already be wrong....

  2. Any chance of getting a recording. I fled to Switzerland to avoid the financial collapse, but one of the downsides is that listening to this will be awkward because of the timezone...

  3. To save everyone a bit of money in GD2: it's a combination of both.

    Deflation in certain "assets" like houses, the stock market, bonds, etc.

    Inflation or even hyperinflation in other "assets" and "commodities" like gold, silver, food, currencies, etc.

  4. My question is, given the recent precedent of QE1 and QE2, why would the Fed reverse course and sit on their hands and let deflation happen?

    The Fed has an unlimited supply of dollars and Bernanke has, through his own spoken words, made clear he will do whatever it takes to prevent deflation, even it if means dropping dollars from helicopters.

  5. Am a huge fan of your blog and your commentary. I have quite a number of Chilean students as clients (they are Duke students, law and MBA). I plug your blog and your commentaries whenever possible

  6. The argument here is ultimately how will the US economy collapse. My belief is that it's going to happen so fast and in such overwhelming force thanks to the hundreds of trillions in debt and CDS's that neither deflation or inflation will have a chance to set in. If the US Gov't had not rescued AIG in Sept '08, the world's banking system would've melted down within days. We're going to revisit this I'm afraid.. but not this year.

  7. In one of you most illustrating posts, you tell about how a friend of yours, at the height of Chili's inflation crisis, is offered an apartment in exchange for his old Fiat car. For me that is [asset] deflation in combination with [first necessities] inflation. So they happen at the same time, parallel but on different domains of tangibles.
    At that [short] moment you don't want to be in the position to need to trade your gold bars for a loaf of bread.

  8. The following is one of my favorite articles regarding the subject. It makes perfect sense to me.

  9. Yes, the marketskeptics piece is nearly spot on.

    I do not agree wholly with the premise: "Deflation weakens economy until it leads to a loss of confidence."

    Deflation is being printed away by Bernanke -- but other factors can lead to a widespread loss in confidence that catches fire quickly and creates the mad dash to the fiat currency exit.

    Hyperinflation does not arise from any form of supply or demand problem. It is psychological / herd mentality. You've seen the lines at the gas stations when a shortage is threatened. You seen the insanity at the grocery store when a hurricane is predicted.

    Money supply theory does not even enter into hyperinflation.

    (BTW Gonzalo, why don't you remove the "al" and just be Gonzo Lira? That has a neat ring to it).

    I do like the introduction of velocity, or money flow, into the equation, as this actually pertains to economic activity, but more discussion of the production side of this "flow" would be worth mentioning, i.e. these issues are relevant to the severely constricted production environmnet in the U.S. created with corporatist globalization.

    Structural changes in the U.S. labor force must take place, and competitive production must develop in order for confidence in the currency to sustain. A sovereign's currency represents the character of its people only when it is tied to their own sweat equity.

  10. Dear Gonzalo, could you please organize a transcript of the discussion for the Deaf? It also provides important keywords for a search!

  11. GL

    I was in the deflation camp until your article appeared on Zero Hedge. You were very convincing. Unfortunately it is just one piece of the puzzle.

    Lindsey Williams - the pastor who has access to the elites says the system is rigged. Predictions and economic theories are irrelevant . The elites want the downfall of the world to reach their goal of One World Government and they have been methodically accomplishing their goal. It has been subtle enough not to arouse too much suspicion, but if you connect the dots, it will all make sense.

    The dollar will be devalued. Commodities will soar in price. Jobs will be lost. Debt will be difficult to be repaid. So Voila ! The elites have control over the planet with their gold and silver,and with their ability to modify weather (HAARP), and with their spying and fear tactics, with forced vaccinations (I am in the medical field and am being monitored because I did not want the flu shot) with their control of the media/movies and with their elimination of the true God from our lives.

    The financial stuff is just a small part of their agenda. When you have time, look into the One World Government idea. Their goal is to have complete control over our lives. You will be shocked at how close we are to the abyss.

    Thanks for sharing your brilliance with us !!!

  12. Round One goes to: Gonzalo. Unfortunately, Stoneleigh is not the loser.. it's those in very poor nations who are seeing the price of food skyrocket. Egypt might be the first of many meltdowns this summer:

  13. Hey, Gonzalo. Just checked into your site, and instead of being greeted with a background consisting of a bull fighting ring (a macho background), there's this hideous vomit green. What's up with that?

  14. These one world government theories really annoy me. Can someone explain to me how China, Russia, Europe, United States, Iran, Venezuela, etc. are going to agree on anything, LET ALONE a world government?

    It ain't gonna happen. The only thing "one world" is going to be one world war, one world famine or one world depression.

    I do believe the elites have major power but their power is limited due to unforseen consequences of their actions. I also believe that these "elites" are not as intelligent as many believe. They are human and therefore subject to the human nature just like all of us. They are not immune to herd mentality and egotism. Many have inherited their positions or acquired them through social prowess and few through chess-player style intelligence.

  15. Re. anonymous’s 7:36 pm note, " instead of being greeted with a background consisting of a bull fighting ring (a macho background), there's this hideous vomit green. What's up with that?"

    What's up with the change in background? What's wrong with change?

    The cult of stability is a culture of death.


  16. Anonymous 7:52 p.m.

    There is a major global concentration of power already - 13 families. True, they are not infallible, but have been honing their skills for many years - sometimes generations.

    I know at first it sounds like an outlandish concept, but listen to Lindsey Williams (google and YouTube him), the pastor who had direct access to the elites.

    When you accept that major premise, all the weird stuff that is happening on the planet at this time makes sense.

    It took me a long time to accept it because I want to be a trusting person. The elites take advantage of the trust people have in their government, in the media, and in the banks.

    I wish you the best.

  17. Gonzalo, you have balls!! I give you that. But Nicole is a very smart lady and I'm afraid to say you picked a target you may not (yet) be grown up to take on.. I'm certainly looking forward to hear what you guys have to say in that debate :) A tip for your preparation, focus on debt and what happens when it has to be paid back?? Since all money created is debt, what do you think will happen when it will have to be paid back? Ponder that one, because it will come up, I'm sure :)

  18. Before beginning the debate could you guys please define what "inflation" and "deflation" means?

    I still don't get it. Mr Lira talks about the hyperinflation in Chile but then says that house prices dropped.

    How can house prices drop in a hyperinflation?

    Stoneleigh's definition of inflation is "an increase in the amount of money and credit". So even if food prices are rising it is still deflation if the money/credit supply is falling.


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