Reserve currency or no, hyperinflation is a process clearly defined in history and we are fully entrenched in that process. As much as we enjoy the idea of a free lunch there is no such thing so we will all, eventually, have to pay the piper. Let me explain.
By Jeffery Lewis (silver-coin-investor.com) – An edited ([ ]) and abridged (…) version
The Hyperinflation Process
Hyperinflation is a process; a positive feedback loop that, once entered, is very hard to get out of. This process can go on for years. In the feedback loop
- the more the central bank prints money and buys bonds,
- the less other people want to hold bonds…
- the more the central bank has to buy them so that the government has enough money to spend.
This feedback loop can also be called a death spiral, chain reaction, tipping point; like an avalanche, slippery slope, or a debt bomb. Once the conditions are right, it can just go off. Too much debt, too much money created from nothing and, ultimately, [there is a] loss of confidence, leading to panic.
Counter-intuitively, confidence in the near term will drive the demand to print more.
- The more we eat away at what is left of the real economy,
- the more money will be demanded to quiet the masses and bail out the banks again and again.
- The ongoing, growing liabilities and ever diminishing tax base from which to service the cost of keeping debt manageable by desperately keeping interest rates artificially low (and self immolating debt monetization) is a reality – buying and churning our own debt over and over is a temporal phenomenon.
- During hyperinflation, with the money supply rising, the velocity of money is accelerating and real GNP is going down in one tightly wound grand singularity…
Ultimately there is a market response.
- Studies show that sometime after government debt is more than 80% of GDP and the central bank is monetizing more than 50% of the annual deficit, more printing must be employed to keep interest rates under control.
- In the desperate attempt to manage interest rates, less entities desire to hold bonds, which means more desperate printing until the feedback loop is out of control.
The government will [keep on] spending to keep the financial system alive because the people will demand it…[yet]
- the longer we distort [the situation], the further we [will continue to] fall.
- The further we fall, the harder we step on the debt monetization accelerator.
- The more we monetize the shortfalls, the closer we get to the point of the no return – the supernova where confidence is lost.
There is no such thing as a free lunch, no matter how much we all enjoy the idea of one and, as such, we [will] all, eventually, pay the piper.
Disclosure: The original article, was edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide you with a fast and easy read.
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