Bobcor, I think that you are much more sophisticated in these issues than I am, but here is my simple homegrown take. I am particularly interested in inflation, since I believe the government MAY at some point engage in "unconventional" means of bringing money into the system.
Deflation and inflation may well be two sides of the same coin. As fiat money becomes too abundant, prices will inflate against that fiat money. The rise in the interest rates will create a lack of liquidity, which is in effect deflationary. Anything leveraged - or, which requires borrowing in order to be bought or maintained (like leveraged businesses, or real estate) - will lag in price appreciation as expressed in fiat money.
A borrower will have a choice - either to borrow fiat money at a high interest, or borrow (obtain) something which will be perceived as a more stable and more attractive store of purchasing power, like perhaps Swiss franks - or gold.
If an Israeli in 1973 - or, a Russian in about 1979 - or a German prior to the 1923 monetary disaster (don't call me on the exact dates) would have converted his liras and rubbles and marks into a different store of value, like for instance into Swiss franks, than later he could have converted them into the brand new currency of their respective countries, and his wealth would have survived the hyperinflation and remained intact. If he would have kept his savings in their original fiat denomination, they would become trash.
What I am getting at, is that it is not only possible, but inevitable that hyperinflation must occur simultaneously with severe deflation. The deflation in prices will be against the progressively increasing costs of borrowing of the native fiat money (even as its value is crashing) AND against independent units of value which will play the role of TRANSITIONAL money - between the disappearing original fiat money, and the future new 'improved' currency, which the government in due course would inevitably issue.
In case of hyperinflation an investor - especially a shorter - will probably be unable to keep up with the disappearing value of his returns. You'll sell for "X" and cover for, let's say, a quarter of "X" - but the purchasing power of the total by then might be 10% of the original "X".
Now, you can take me apart at your leisure... -g |
