Last week we explored the meaning of Deflation. But Deflation itself is also a sign of what is to come afterward, and that is Hyper-Inflation.

Mike Maloney – A US financial expert whom we at Bleyer hold in high regard for his astute financial vision particuarly with Gold and Silver – described what is to come THREE YEARS ago.  He clearly saw back in 2011 that this economic crisis would play out in the following pattern:  INFLATION, DEFLATION AND THEN HYPER-INFLATION. 

We are now into Phrase 2 – Deflation.  So let’s look ahead at what we can expect to happen to currencies, what we can expect to happen to the price of Physical Gold and Silver and what you can do about it:

Deflation can create Hyperinflation:

“It is no accident that many of the worst periods of hyperinflation are preceded by deflation. In fiat currencies with high levels of government debt, severe cases of deflation cause a loss of confidence in the nation’s currency by shrinking the economy and making the government’s debt appear increasingly unsustainable. The loss of confidence then causes the flow of money to speed up as individuals become desperate to exchange cash for real goods as fast as possible, producing hyperinflation.

As an example of deflation leading to hyperinflation, consider the case of the Weimar Repubic. In 1920, fearing a collapse that would throw millions of workers out on the street, the German government desperately printed money in an attempt to re-inflate the economy. During this period, despite the government’s money printing, the mark actually gained in value against foreign currencies, so that prices of imported goods fell by some 50%. Eventually, as a result of the money supply’s rapid expansion, the nation’s massive foreign debt, and the shrinking economy, German citizens lost all confidence in their currency, and the Weimar Republic experience one of the worst cases of hyperinflation in modern economic history. Billions of hoarded marks came out of hiding and entered the marketplace. The chart below tells the rest of the story.

How Deflation creates Hyper-inflation:

1) Deflation slows the speed of money to a crawl, due to fears about the deteriorating economy. The public hoards cash, or, in the case of the US, short term treasuries.

2) The slowing speed of money and debt destruction force the government to create huge quantities of cash to prevent prices and the economy from collapsing. However, because the public is hoarding cash (or short term treasuries), most of the money doesn’t reach the real economy, which leads the central bank to print even more money. In essence, cash hoarding acts as a dam, preventing the enormous quantities of printed money from affecting prices.

3) Deflation weakens economy until it leads to a loss of confidence. With doubts about the government’s solvency growing, the velocity of money quickly picks up speed, and a flood of hoarded cash comes out of hiding, entering the marketplace all at once and creating hyperinflation.

Gold Backwardation signals that the next phase of the economic crisis, a rapid acceleration in the velocity of money, is about to begin. Right now, the flow of money through the economy is basically frozen: everyone is panicking due to deflation fears. Negative yields on the 3 month treasuries are a sign of this.  Despite the glacial rate money is moving through the economy, the dollar has started to fall again, and gold has begun to rally. As this continues, investors will begin to question the safety of treasuries, and sell them off. The money coming out of treasuries will add fuel to gold’s rise and the dollar’s fall. Once the dollar hits new lows and gold breaks up convincingly, investors expecting deflation will begin to panic, and a flood of money will come out of treasuries. It is then that hyperinflation will begin in earnest.” (Eric deCarbonnel, The Market Oracle)

And in the UK interest rates are held low to try to stave off deflation:

Today Ben Brettell, senior economist at Hargraves Lansdown spoke with the BBC:  “I expect them [interest rates] to remain on hold until mid-2015 at the very earliest, and possibly not rise until much later in the year.”  Members of the MPC would have seen the latest UK inflation data, which showed that in September, inflation fell to a five-year low of 1.2%.  That rate – as measured by the Consumer Prices Index – is the lowest since September 2009, when it was 1.1%.”

This means in the UK, as in the US, we are already in Deflation. The powers-that-be keep interest rates low in Deflation to try to get the general public to feel ‘richer’, to spend more and to help the economy inflate.  When this doesn’t happen due to economy-nerves, the Central Banks will enter into more Quantative Easing (money-printing injected into the economy), which in turn up drives the value of Gold and Silver against the pound.

One clear sign of Deflation fears by Central Governments worldwide is the suspciously falling oil prices. Again, like our lower mortgage rates, it is designed to try to make the average man on the street to feel richer and therefore spend more. Oil and low interest rates are both classic mechanisms to try to reverse the onset of Deflationary fears.  “In the short term, falling oil prices might give Bank of England governor Mark Carney the excuse he wants to keep interest rates right where they are until after the election in May next year. But in the longer run, it makes it more likely that ‘proper’, demand-led inflation will take off.” (John Stepek, Money Week)  Read “demand-led inflation” taking off as “hyper-inflation”.


So how will this affect the price of Physical Gold and Silver and when should you buy?

In this 9 minute video, Mike Maloney explores these historical tipping points and clearly sets out the historic pattern of Inflation, followed by Deflation, followed by Hyper-inflation. He he shows the price comparision points between currency and gold ie: when to buy. Right now he states that as far as buying physical Gold and Silver he concludes, “We have the greatest opportunity in history laid at your feet right now!”

But he also warns that “in a currency crisis you wake up one day and the opportunity is gone”. Mike believes gold will reach $15,000 per ounce and that even before this the opportunity to buy will be gone because that will be too high a price for the average member of the public to buy. This is why he advocates silver so strongly, because for a time it will remain affordable. If we think his price prediction is a little high, it is worth reasoning that he bases the potential future price of gold per ounce on historical fact: “In 1934 gold was re-valued to equal all the currency in circulation.” If that were to happen now, his predicted figure is not out of the question – that is how over-valued paper currency currently is and how under-valued Physical Gold and Silver are.




Mike Maloney predicts: “Sometime before the end of this decade a huge deflationary crash and then countries will print their way right into hyper-inflation.”  So right now, while gold is under-valued, “this is where the opportunity comes. I believe in a currency crisis, there is going to be a wealth transfer.”


Call Bleyer Bullion on 01769 618618 or email: sales@bleyer.co.uk to find out more about owning Physical Gold and Silver.  Why not browse our Gift Ideas section for small Gold and Silver gifts for loved ones this Christmas – from 1g Gold Bars to 10th oz Gold coins, all beautifully crafted.


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