Depression – Inflationary or Deflationary?

As all of you know that, US economy is passing through Recession and soon it will slip into a Depression like The Great Depression of 1929. The Depression of 1929 was of Deflationary one but what will be the next depression – Inflationary or Deflationary?

Well, The next depression (I mean this depression) will be of Inflationary type just like Germany Hyperinflation after the World War.

Remember, whenever the Government prints money out of nothing, there will be Inflationary type of Depression. The reason is, because printing more and more out of nothing will increase the money supply in the economy and thus brings down the value of money because of Hyperinflation.

The Great Depression of 1929 was of Deflationary type because at that time the US Government did not printed money. And one reason of not printing money was because “The US Dollar was backed by Gold”. 1 Ounce Gold = 16 US $ at that time. So if government wanted to print US $ 1600 than it first has to reserve the 100 ounce of gold.

But after 1971, USA stopped following “The Gold Standard”. President Nixon announced that, “The United States will no longer redeem its dollars for Gold because it is now backed by full faith of the Federal Government.”

And thus, Money became Currency. So after 1971, Gold and money became Commodity. After 1971, US Dollar became Fiat Money/Elastic Money. It means that the government can print as much money as it wants according to the need for Economy & Businesses.

Now the advantage of Elastic Money is that, the Government can contract or stretch it according to the need of Businesses. But the main disadvantage is that, if government starts printing money like anything than it can cause Hyperinflation.

And this time, USA Government did so. It has printed US $ 1.45 Trillion in March 2009 out of a thin air only (Nothing). It means Federal Reserve Bank had issued Treasury Securities & the government of USA had bought it. In normal economy, countries like China, Japan, India & Private investors buy these treasury securities but this time federal government itself has bought it. This means that Federal Government has printed money in true sense this time.

So in coming years, we will see hyperinflation and the coming Depression will be of Inflationary type. Means your money will have no value at all. No matter how much money you save in the coming years, it will become worth less.

Solution --

So what is the solution of this problem? Well, the true solution is government stop printing money like this. But we don’t have any hold on the Federal government so what you and me can do is, whenever we have money on hand, we can simply invest this money to buy Assets out of it such as stocks, bonds, gold, real estate, art, blogs, websites, intellectual properties or any other asset.

Because Asset will be more valuable than money in the coming years.