The worldwide economy is deleveraging, creating a deflationary environment. In this type of environment, cash is king – even if it returns little in a money market or savings account. This is because cash can purchase more as asset values decrease. Examples are sprouting up everywhere, including housing, real estate and vehicles, as businesses and consumers unload inventory.
While this describes the current economic environment, stimulus packages in the U.S. and globally may result in the opposite scenario, that is, an inflationary economy. This may be particularly true if the government opens up its money printing presses, increasing the money supply, which makes federal debt cheaper as the result of inflation. This is freshly minted currency chasing scarce goods, which could result in hyperinflation.
Both scenarios present challenges to managing a business and to social order in society. How does one prepare for each environment?
Yes, in inflationary times businesses and consumers could experience double-digit interest rates for a period of time. As they say on the Weather Channel, it could happen tomorrow.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.
