Clarification of Financial Terms : LUSENET : TimeBomb 2000 (Y2000) : One Thread

May I request a clarification of some of the financial terms we see talked about re: potential effects of Y2k? What are the similarities and differences between, inflation, deflation, hyperinflation, recession depression, etc? What likelyhood do they have of occuring, what conditions make them likely to occur, and what signs would you see to warn you of them in advance? What would each one do to an average middle class family? In talking to people I have found very few people can define or explain any of these terms, or their effects (Including myself) Appreciate the help,

-- LauraA (, August 28, 1998


Inflation: purchasing power of money diminishing rapidly, especially if in real terms (ie rate of decrease of value noticeably in excess of available interest rates on short-term deposits) Usually creeps up on an economy, you'll notice if you keep track of your everyday shopping costs. Once started, hard to stop (like a runaway train).

Hyperinflation: purchasing power diminishing noticeably by the day, whenever you get money you rush out to spend it as soon as possible. In severe cases of hyperinflation it may be better to use last month's currency as toilet paper than to purchase toilet paper with it. (I have a German 1920s-hyperinflated postage stamp at home: denomination 40,000,000,000 marks, present value about a dollar as a collectors item). A runaway train wreck.

Deflation: purchasing power of cash increasing as time passes. Usually accompanied by a major economic depression and desperate attempts to pay off debt. Also often characterised by bank failures and the introduction of (broadly) socialist government policies, and often heralded by a stockmarket crash. (take note!)

Recession: lots of people losing their jobs because companies can't make ends meet.

Depression: a bad recession. (Cynics definition: you lose YOUR job! )

One you didn't ask, Panic. Used to mean depression, but now more often used to refer to what it does in everyday life applied to financial markets. We may be on the verge of one as of yesterday, and it's nothing to do with Y2K!

Y2K is without any historical precedent. I'd say that it's a virtual certainty that it'll cause at least a recession. Other than that any of all of these may result, probably different ones in differnt parts of the world.

Apart from obvious advice to pay of debts if you can and make whatever non-financial Y2K preparations you feel necessary it's hard to know what to do. Probably safest to be in cash, and keep your ear to the ground! Any financial strategy that works well for inflation will work badly for delation, and vice versa: they're basically opposites, though both mean financial hardship for most people.

Hope this helps!

-- Nigel Arnot (, August 28, 1998.

One other thought: hyperinflation and the severest of depressions are related in much the same way as communist and fascist politics are; the further one goes towards the extreme, the more similar to the other extreme things become. In economic terms, the extreme is total economic collapse, which is where the survivalists' scenarios start.

-- Nigel Arnot (, August 28, 1998.

This link might help:

-- Buddy (, August 28, 1998.

Don't forget disinflation: a decreasing, though still positive inflation rate, i.e., the "Goldilocks Economy" (where we just were) and stagflation, a sustained shallow recession with high rates of inflation, e.g., the USA, ~ 1973-1980.

-- Nathan Hale (, August 29, 1998.

Great link buddy.


-- vic (, August 29, 1998.

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