When Will Debt Deflation Turn Into Hyperinflation?

We know that, right now, we are most likely in a period of "debt deflation." Wages are falling. Prices also appear to be falling - though this is open for debate, as there are smart people who believe prices are steady or even rising. For example, Marc Faber recently said he's surprised that prices are not falling faster during this downturn, which may be an ominous sign for inflation.

But for the sake of argument, let's say that at this moment in time, we are experiencing debt deflation. When, then, will the printing of money create price inflation? Tomorrow? Next month? Next year?

I read a great explanation today in Agora's 5 Minute Forecast, where they quote guru Rob Parenteau:

When it comes to the fate of the U.S. dollar, “Two tsunami waves are crashing in to one another,” Rob Parenteau told us last night, “debt deflation on one side, and policy inflation on the other.” Rob delivered quite a speech at our first ever meeting of the Richebacher Society, amid the spectacular views of the hotel’s rooftop lounge. Our highlight came during a period of open dialogue between Rob and Riche Society members when he was asked how will we know when deflationary period is over and inflation -- or hyperinflation -- begins?

The answer, said Mr. Parenteau, is found in credit and wages. No matter how inflationary the government may be, true hyperinflation can’t be had until the consumer has access to excessive credit and his wages rise as the value of money falls. In the current environment, where credit is tight and wages are falling, rapid inflation would only be possible if there were a true crisis of confidence in the dollar. If that were to happen, he assured us, it’d be pretty obvious.

So while the current deflationary environment exists, what do we do with our money? Here's a guest article from Mr. Deflation himself, Robert Prechter, who shares 10 Things You Should and Should Not Do During Deflation.

And if you're looking for more ideas, Tom Dyson has a few as well. Tom writes the 12% Letter, an excellent publication that digs out high income ideas. Yesterday in DailyWealth, Tom had this to say about deflation:

Airline fares are also down. I just bought a nonstop ticket from Florida to Las Vegas for $120 on Southwest. This peak summer-season ticket probably would have cost twice that much last year.

Local retailers are offering big discounts, too. Last weekend, I saw three retailers advertising liquidation sales with entire store discounts of at least 50%.

Even Internet retailers are using heavy discounts. I bought some bicycle equipment online last week. I got a 40% discount on the retail price... then another 20% discount as part of a Fourth of July sale.

The Federal Reserve may be inflating our currency, but when it comes to the prices of the goods and services I use, I only see deflation.

Cheap credit is the cause. Credit's been too cheap – on and off – for the last three decades. Cheap credit caused savers to spend more than normal and entrepreneurs and businesses to borrow and build more than normal. It led to overinvestment in production and service capacity.

Last year, we reached the peak of the credit and price boom... and now prices are falling. We're in what economists call a "debt deflation."

To read Tom's full article, click here - and I'd also recommend you check out the 12% Letter if you enjoy his insights.