While I am a fan of Kotlifoff's work on the understated liabilities of the U.S. Government, hyperinflation seems unlikely. For that matter, severe deflation seems unlikely as well.
I think that we will have a crisis. These kind of things happen every 8 years or so. The last one was in 2008. The one before that was 2000. Before that is was 1992, although that one was rather mild. This type of crisis seems to be getting worse. So if the pattern continues, we should expect another crisis in 2016.
I think President Clinton will overreact and makes things worse so, putting on my Amazing Kreskin hat, I predict deflation in 2017 followed by inflation similar to the seventies.
A lot of the talking heads on television are making a big deal out of the oil price drop. It is a big deal, but not for the reason they think.
Here is Forbes' "take" on this:
Domestically, lower energy prices means more money for discretionary spending. The equivalent effect on the US economy is a tax cut for consumers on the order of $100-125bn. Think about how low gasoline prices are now compared to where they were a few months ago. This saving generally translates into higher consumption on other things like retail spending. For airlines, this will be awesome because the cost of fuel and flying decreases, the effects of which may be passed on to consumers. Net-net, analysts estimate higher consumer spending should boost US GDP by .4%-.5% over the next year. This will be balanced by lower domestic energy production, however.
The last sentence is what I want to focus on. In general, a drop in a commodity price is a "zero sum game."
In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which a participant's gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s). If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero. Thus cutting a cake, where taking a larger piece reduces the amount of cake available for others, is a zero-sum game if all participants value each unit of cake equally (see marginal utility).
In other words, the winners and losers balance out.
Internationally, Asia (except Indonesia), and Western Europe (except Britain and Norway), will have a rather substantial increase in net income. Russia, Nigeria, Venezuela, Saudi Arabia, and all oil producers will be hurt traumatically. The US, since it is a major oil producer, will benefit and be hurt, depending on where you live and who you are. The US currently imports about 1/4 of its oil needs. Thus there will be a net benefit for the US.
Personally it will be a quite large net benefit, as I spend about 12 hours a week in the car driving. In addition the area where I live will be a beneficiary of lower gas prices as it is a tourist destination for the greater Los Angeles area. Also I may buy some Russian real estate as the price of it just dropped by 60% from my perspective as a dollar-oriented person. As Baron Rothschild once said, "Buy when there is blood in the streets."
Although there is a lot of buzz in certain circles about how bad things will be in 2015, I do not agree. A habitual "bear" will be correct a few times a decade, since that is the number of times the market declines in a decade. Never underestimate the power of the state to prop things up. So my view has not changed in the blog's hiatus. Things will be moderately good for a couple of years, I do not see how the current situation can continue, and as Herb Stein said, if something can't continue, it won't. The oil price drop adds instability to the system.