Hyperinflation In The UK? – Here We Come!!
For those readers with a background in either finance or economics, the basic causes of inflation will be no surprise. For those of you that do not have a macro-economic background – the sensible ones! – here we go…
Inflation is generally caused by pressures that are either internal or external to the country concerned. External pressures would be an increase or imbalance in imports and exports in such a way that the economy expands quickly and wealth (money) is created. Internal pressure would usually come from the central bank and / or government in the form of printing new currency.
Hyperinflation generally takes the form of a number of such characteristics that converge at once and with force. These situations might include rapid money creation, a war, an oil price shock or the rapid devaluation of the currency.
Do any of these sound familiar to the UK right now?
Since the economy is clearly slowing and a big, bad recession is knocking on the door, the Bank of England are planning to ease the situation. So, on the back of a recent oil shock, while the UK is still involved in Iraq and Afghanistan, whilst the currency is falling and there has been a large increase in government borrowing to bail-out major banks – there is a need to print more money.
The BBC explain the situation here:
Bank aiming to boost money supply.
In your author’s humble opinion, this will be adding to the already significant inflationary pressures in the United Kingdom. Things will be getting worse before they get any better…
I finally decided to write a comment on your blog. I just wanted to say good job. I really enjoy reading your posts.
The root cause of hyperinflation is massive loss of confidence. In most cases (I admit being lazy here and using Wikipedia) it tends to occur in the closing stages of a war when the losing side’s government desperately prints money to pay for the war effort, or after the war when there is a total loss of confidence in whether the government can pay it’s war debts, or pay for rebuilding.
Now, admittedly it looks bad in the UK no doubt about that, but at the moment we are not in a war situation, unless we count Afghanistan … er, and Iraq. Oh dear - did I just write that? ha ha.
No matter I’ll continue. In order to kick start hyperinflation we should expect to see a massive surge in spending as people seek to turn their savings into commodities as fear takes place that a tin of beans will cost double tomorrow what they did today. At the moment we are fortunate in that every Western economy is hell bent on devaluing it’s currency, and even the German run ECB is considering it. The real problems could start when it becomes clear that we, the UK, cannot compete with the low wage, low living expense newer economies such as Indonesia or China and will take a decade to recover not simply a couple of quarters.
But, again, although we could get, and will probably get, rampant inflation, I don’t think genuine hyper inflation is a real threat.
To be honest I am writing not as a rebuttal, but to try and think our current situation through and writing is the best way.
I agree with you largely that increasing rates of inflation for many major economies appears to be just a matter of time away. That isn’t good news for most of us.
When it might come? Who can say? If it were up to me, I would have predicted it already, so I clearly don’t know the timing. But does anyone?
One thing ought to be clear though, high rates of inflation will probably not be too good for the stock market.