Stagflation and assets that perform well

[paxmao]

Most of us have heard of hyperinflation. As of today, Venezuela and Turkey are the common examples. However, the western economies are less likely to fall into hyperinflation yet quite likely to fall in stagflation.

In economics, stagflation or recession-inflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.

https://en.wikipedia.org/wiki/Stagflation

Stagflation is typically created by an offer shock (sudden increase in prices of raw materials or other) and that is pretty much what is happening with the energy as of today in UK, parts of US and most Europe. This situation raises prices at the same time that slows growth and is difficult to be dealt with.

On this case, historically, the assets that perform well are Gold and commodities. Bitcoin has not been tested yet, but it does share a lot in common with gold and commodities (much more in common than with fiat currency indeed). My take is that bitcoin will perform well if this scenario materialises.

[The Sceptical Chymist]

I remember stagflation being a big thing during (or before) the Reagan era in the US--I wasn't old enough to care about economics back then, but I became aware of it well after the fact. 

In 1980, which I think is around the time the US was experiencing stagflation (I didn't check the Wikipedia article before posting this, as it's late and I'm lazy), silver was hitting $50/oz., though that was mostly due to the Hunt brothers trying to corner the market.  And I've been following the precious metals market for years now, and gold & silver have been inching upward since about 2018 or so.  I'm not sure what's causing that, though it certainly could be investors seeking safety from inflation.  That would be a damn smart thing to do if you've been seeing how much money has been created ever since the beginning of "quantitative easing".

And yeah, I wonder if people are going to be eyeing bitcoin as an alternative to stocks or to protect their cash from inflationary effects.  Obviously many have, since we just hit a new ATH but there are still so many of them who've never owned a single satoshi.  I think bitcoin's newness is probably one factor that's working against it with respect to its adoption during times of inflation/stagflation, but the biggest one is its volatility.  Would you try to protect your cash by buying bitcoin now, when it just hit $64k?  Hardcore bitcoiners surely would, but I doubt Wall Street folks or the average Joe would.

[Quickseller]

Assets that perform well in stagflation are those that perform well with high inflation that do not rely upon economic growth. Raw commodities should perform well, as should bonds held to maturity that are not at risk of default due to low economic growth.

To the extent that you believe bitcoin will perform well during times of high inflation, it should perform well. Stocks of most companies should perform poorly. Utility stocks should perform better than most other indexes.   

[Poker Player]

My take is that bitcoin will perform well if this scenario materialises.

I don't know if anyone is going to be very surprised that in a Bitcoin forum we think Bitcoin is going to do well in that scenario. I also think like you, at the moment we have no reason to think otherwise. Since it was created, Bitcoin has been absorbing value by leaps and bounds, being the asset that has given the best returns, and therefore behaving better both as an investment and as a hedge against inflation than other more classic assets such as gold and a not so classic asset such as the S&P 500. Everything points to the fact that in a stagflation scenario it will behave just as well.

[davis196]

Bitcoin will perform well in any scenario.
The current price increase of raw materials will be temporary and it will end during the spring.
There's no shortage of raw materials,so there's no reason to think that their prices will keep going up.
I also don't think that there's going to be stagflation,because if the unemployment rate goes up,the governments/central banks will step in and run the money printing machine+more government stimulus plans,which will pump the demand and save the companies,which are struggling.
There will be high inflation,rather than stagflation.

[magneto]

I think that oil generally performs very well as well?

Although I'm not too sure whether this relationship is going to hold up in the long term future given that oil is certainly not something that is being pushed by governments/corporate right now due to the move to electric.

I don't think that stagflation vs. inflation has any true bearing on bitcoin performance honestly.

Bitcoin is an inflation hedge at the end of the day and regardless of the state of the economy, it will rise when inflation hits.

[dkbit98]

I don't know about stagflation, that is also form of inflation, but you simply can't avoid hyperinflation when in just one year you print more than 40% of all US dollars that ever existed.
There is simply too much money in circulation now, and if you read the history you will see that German Weimar Republic did the similar mistake in 1921 and we should all know what happened after that.
They had a huge debt and they believed that winning a WWI would make them avoid paying that, they canceled the gold standard and printed a bunch of worthless paper.
So in reality when countries want to avoid paying big debt, they create war or other type of crisis and that makes me wonder about situation we have now in the world...


https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic

[fiulpro]

I did not have any idea about this term, thanks for letting us know. I do think when we talk about stagflation, it's something that most of the countries are facing right now but it's not evidence since there are many more things that might be happening and people might tend to mask them inadvertently.
What's needed is :
To increase jobs and at the same time try and not put too much pressure that it might cause hyperinflation. The strategy needs to be revised and evaluated. The way the government works right now is not something that will work in the future, they need better strategies, the government needs a lot of change as well, printing money haphazardly needs to be stopped and currencies and investments like bitcoins needs to be given a chance for sure. 

[teosanru]

Most of us have heard of hyperinflation. As of today, Venezuela and Turkey are the common examples. However, the western economies are less likely to fall into hyperinflation yet quite likely to fall in stagflation.

In economics, stagflation or recession-inflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.

https://en.wikipedia.org/wiki/Stagflation

Stagflation is typically created by an offer shock (sudden increase in prices of raw materials or other) and that is pretty much what is happening with the energy as of today in UK, parts of US and most Europe. This situation raises prices at the same time that slows growth and is difficult to be dealt with.

On this case, historically, the assets that perform well are Gold and commodities. Bitcoin has not been tested yet, but it does share a lot in common with gold and commodities (much more in common than with fiat currency indeed). My take is that bitcoin will perform well if this scenario materialises.

This term very well showcases the current scenario in most of developed as well as developing economies, this basically is a situation where inflation soars high but it doesn't fosters economic growth at all which generally inflation does. It is worthwhile to note that such situation can be very difficult to get out of because government cannot increase money supply to foster economic growth and any measure to reduce inflation will lead to further economic slowdown.

[DrBeer]

An interesting topic, but the very concept of Stagflation is very difficult to describe, it is difficult to comprehend the essence. I offer a slightly different, more understandable description of the essence of the process:

So, stagflation is a situation in a trance, when events such as an economic recession and a depressive state of the economy (i.e., in simple words - stagnation and rising unemployment), moreover, are also combined with rising prices (i.e. inflation)

The term is attributed to the British Treasury Secretary Ian McLeod (served in the early 1970s).

[arallmuus]

However, the western economies are less likely to fall into hyperinflation yet quite likely to fall in stagflation.

Pretty sure that alot of countries will because there is not much that the government can do with the economic growth due to the pandemic. Most countries needs to function as it was before the pandemic otherwise we will stuck in the loop and not to mention that there will be post-pandemic effect that might affect how the whole economy as well

On this case, historically, the assets that perform well are Gold

As always huh and this is what currently prevent people from switching to bitcoin instead because its pretty stable in whatever economic condition

[paxmao]

I don't know about stagflation, that is also form of inflation, but you simply can't avoid hyperinflation when in just one year you print more than 40% of all US dollars that ever existed.
There is simply too much money in circulation now, and if you read the history you will see that German Weimar Republic did the similar mistake in 1921 and we should all know what happened after that.
They had a huge debt and they believed that winning a WWI would make them avoid paying that, they canceled the gold standard and printed a bunch of worthless paper.
So in reality when countries want to avoid paying big debt, they create war or other type of crisis and that makes me wonder about situation we have now in the world...

...
https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic

Yep, a classic example is the Weimar Republic. While I agree on your general principle of the US not being able to withstand such an "attack" on its value, there is a greatly important difference with other currencies. USD is worldwide accepted in exchange for commodities, particularly gas and crude. The demand for USD is not only derived from its condition of legal tender in US, but backed up by goods all over the world making its demand much more elastic than other currencie's.

[exoticweiner]

I don't know about stagflation, that is also form of inflation, but you simply can't avoid hyperinflation when in just one year you print more than 40% of all US dollars that ever existed.
There is simply too much money in circulation now, and if you read the history you will see that German Weimar Republic did the similar mistake in 1921 and we should all know what happened after that.
They had a huge debt and they believed that winning a WWI would make them avoid paying that, they canceled the gold standard and printed a bunch of worthless paper.
So in reality when countries want to avoid paying big debt, they create war or other type of crisis and that makes me wonder about situation we have now in the world...

...
https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic

Yep, a classic example is the Weimar Republic. While I agree on your general principle of the US not being able to withstand such an "attack" on its value, there is a greatly important difference with other currencies. USD is worldwide accepted in exchange for commodities, particularly gas and crude. The demand for USD is not only derived from its condition of legal tender in US, but backed up by goods all over the world making its demand much more elastic than other currencies.

That is true but that ability to export inflation can only go on for so long. All it takes is one big shock (Coronavirus), and right now we are seeing countries all over the world shift away from the dollar and other dollar-denominated assets. Yeah we have a huge military but it's definitely loosing steam (see Afghanistan). I don't know if you're from here but in the U.S. people just aren't really patriotic anymore. The country is demoralized and America as a whole will suffer greatly if we get locked in another forever war.

Commodities should always do well stagflation though that's true. I'm not a bitcoin maxi but I think bitcoin could do extremely well under similar circumstances.

[DrBeer]

The comparison between the United States and the Weimar Republic is not very correct. The process itself may be similar somewhere, but the features were not taken into account. The assets that were printed in Germany did not disappear anywhere, they remained inside the economy, devaluing the brand and accelerating inflation. There were no stabilization processes, which ultimately led to results, with postage stamps of 50 billion marks ...
In the United States, the situation is different. Yes, they printed and distributed a huge amount of money. Yes, it is logical that this will lead to inflation. But then this money will return to the budget, in the form of taxes, fees, or traders who will use them to buy food and goods. A significant part of this money will flow to the world market, since all manufacturers, and especially after lockdowns and other things, are ready to sell everything they produce for a convenient, familiar dollar. Thus, after a while, a significant part of the issued funds will simply dilute the ocean of money in the world economy. Yes, I agree that this will not return everything as it was, but there will be no hyperinflation for sure.

[Hydrogen]

On this case, historically, the assets that perform well are Gold and commodities.

The game has changed. Many time honored historical precedents no longer apply. The blueprint to a healthy, happy and stable life was going to college and having a job. Past era ideology relating to higher education, job security and career longevity have been eroded to a point where some are better off not amassing massive amounts of debt to afford a degree. Similar trends apply to best performing assets in times of stagflation and recession. Our culture and society have shifted as a result of the internet and emerging disparities in wealth and wage inequality.

Commodities are no longer as reliable today, in contrast to past eras. Supply chain disruptions and rising cost of cargo shipping have thrown markets into a state of flux. Fraud and unreliability of shipping insurance also appear to be on the rise. Along with the addition of hidden costs and fees.

Gold markets may always have been extremely centralized under central banks who hold and control the lion's share of trading volume. Production and distribution of counterfeit minted coins and bars in precious metals markets appear to be on the rise. Along with unreliability and cost hikes of shipping, insurance and negative trends affecting commodities.

Bitcoin would appear to be the best option due to it avoiding many of the mentioned hassles. As we see reflected in its upwards trend.