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.
“Follow the munKNEE” on Facebook, on Twitter or via our FREE bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner)
Hyperinflation is not an unusual phenomenon. 32 countries have experienced hyperinflation over the last 100 years of which no less than 21 have experienced it in the past 25 years and 3 in the past 10 years. The United States is one of the few countries to have experienced two currency collapses during its history (1812-1814 and 1861-1865). Could it happen again? Words: 1450
Janet Yellen and the Federal Reserve are so behind the inflation curve, and many other market implication curves, that we probably are staring at a 35% chance of a Hyper-Inflationary period by the time the Federal Reserve realizes that “noise” is actually real inflation!
The Fed, together with other central banks from around the world, have created the perfect crescendo of worldwide credit bubbles and asset bubbles leading to the excesses and decadence which are the normal finale to a secular trend. They have totally destroyed all major world currencies and left the world with debts that cannot and will not be repaid with normal money. As such, there are only two alternative outcomes, debt default or hyperinflation. Both will have disastrous consequences for the world economy.
It is difficult to say exactly when hyperinflation will hit a currency. However, I am convinced that the danger level is so high for most fiat money that it is worthwhile for everyone to increase their understanding of hyperinflation. This is the first part of a Hyperinflation FAQ for frequently asked questions or objections about hyperinflation. Words: 1600
The U.S. government is in what is known as a “debt death spiral”. They must borrow money to repay prior debts. It is as if they are using their Visa Card to make an American Express payment. The rate of new debt additions dwarf any rate of growth the economy can possibly achieve. The end is certain, only its timing is unknown, and, once interest rates begin to rise, and they will, it’s game over.
James Turk believes hyperinflation is ahead. Bob Prechter believes massive deflation is coming. An interesting discussion between the two takes place in this audio. Ultimately, both lead to Depression. Only the route taken differs, but that is important.
I respect many of the writers who believe that we will experience hyperinflation… but I think they are jumping the gun. Hyperinflation is something that is easy to say – and it certainly achieves the sensational headlines that so many financial writers seek – but it is much more difficult to achieve. At this point none of the economic or political factors required to set off hyperinflation are present. The question should not be whether or not it is possible, but whether or not it is probable in America today and in my opinion the probability of such happening is very low. [Let me explain why that is the case.] Words: 2695
The U.S. economic and systemic-solvency crises of the last five years continue to deteriorate yet they remain just the precursors to the coming Great Collapse: a hyperinflationary great depression. The unfolding circumstance will encompass a complete loss in the purchasing power of the U.S. dollar; a collapse in the normal stream of U.S. commercial and economic activity; a collapse in the U.S. financial system, as we know it; and a likely realignment of the U.S. political environment.
Economists are telling central banks to accelerate monetary growth even faster…to avoid a bank balance sheet implosion with all the deflationary consequences that implies. [As such,] the prospects for the future are for Total Money Supply to continue its hyperbolic trend – and when such a trend becomes established it becomes almost impossible to stop because the whole debt-based economy and the banking system would collapse. [Let me explain further.] Words: 550
There is a difference between inflation and hyperinflation…and there is no gradual path from one to the other. To wind up with true hyperinflation, some very bad things have to happen. The government has to completely lose control… the populace has to completely lose faith in the system… or both at the same time. [Are we there yet? Let’s take a look.] Words: 1188