Monday , 7 October 2024

Hyperinflation Isn’t In the Cards – Here’s Why

 

…[As] we know, money creation by the Fed cheapens the existing supply of dollars and leads to higher prices for goods and services. That has happened progressively over time…[but] the extraordinary increase in the money supply by the Federal Reserve in such a short period of time last year has led some to expect the hyperinflation (or runaway inflation, as it is sometimes called)…but that does not seem to be happening, nor did it happen after 2008 when the Fed adopted very similar quantitative measures. Let’s see why not.

There are two specific reasons why runaway inflation did not happen a decade ago, and why it won’t likely happen now, either:

  1. The demand for money is overwhelming the desire to spend. People are choosing to pay bills, pay down debts and save money rather than borrow and spend more. The demand for cash counterbalances the supply of cheap credit available and, as a result, the cheap credit has fueled price explosions in stocks, bonds, and real estate. Now, all financial assets are overpriced and subject to huge downside drafts. This could lead to further drops in economic activity and a full-scale depression.
  2. The effects of inflation created by the Fed are unpredictable and the impact of that inflation has been declining for more than fifty years.

The chart below (source) shows the ratio of the gold price to the St. Louis Adjusted Monetary Base back to 1918…

A false assumption by some gold bulls is that the size of the money creation is mathematically correlated to higher prices for gold. If the inflation effects of money creation are not evident, it is assumed that gold’s price will eventually go up in a way that corresponds proportionately to the amount of money that has been created. This is not true:

  • The higher price for gold is correlated directly to the loss in purchasing power of the U.S. dollar; NOT to the amount of money created.
  • Just as important, the quantitative loss in purchasing power is unpredictable; and gold’s price increases to reflect that actual loss after it has occurred – not before.
  • A significant amount of new money creation is required ongoing just to keep debt deflation at bay and stave off economic collapse…[so, as] long as the Fed creates enough new money to prevent debt deflation, any amount of new money created above that level presents the potential for minimal inflation effects…

Conclusion

As the gold-to-monetary base ratio above shows, hyperinflation isn’t in the cards.

Editor’s Note:  The original article by Kelsey Williams, has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read.  The authors’ views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

Related Articles From the munKNEE Vault:

1. Gold/Monetary Base Ratio Suggests A Significant Monetary Event On the Horizon (+6K Views)

We could be close to major financial/monetary crisis and it is most likely that it could happen during a major stock market crash and recession.

2. Will Hyperinflation Occur As Result Of Gov’t Response To COVID-19 Plague?

The longer the economy stays shutdown, the more money we will print; increasing the risk of hyperinflation so we are starting to…

3. Hyperinflation Highly Unlikely In U.S. & U.K. – Here’s Why (+4K Views)

Without pricing power or a large fiscal deficit and large foreign currency demands, it simply isn’t credible to claim that hyperinflation in the U.S. or the U.K. is in the offing now or anytime in the immediate future.

4. Hyperinflation Insights: What You Need To Know! (+6K Views)

To wind up with true hyperinflation, some very bad things have to happen. The government has to completely lose control and the populace has to completely lose faith in the system – or both at the same time. Will the U.S. go down that path? Let’s review the situation.

5. What Massive Increase In Monetary Expansion Means For Gold & Gold Mining Stocks

The massive increase in monetary expansion initiated by the Federal Reserve in the wake of the lockdowns imposed to address Covid-19 is clearly a reason to own gold and, in the case of equity investors, gold mining stocks, on a long-term basis.

6. What Would It Take For Hyperinflation To Occur in the U.S.? (+27K Views)

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

7. Inflation – Defined Correctly – Shows the “True” Picture

To hear Federal Reserve officials, politicians and mainstream financial media pundits tell it there is no inflation… but inflation defined correctly is rampant. In fact, it is at all-time record levels.

8. The Silver/Monetary Base Clearly Says Now Is the Time To Buy Silver

There are way more U.S. dollars in existence today than at any point in history, but yet the silver price is not reflecting that reality. Currently, it is really one of the easiest decisions to make silver part of one’s investment portfolio.

9. Bill Holter: The Price Of Gold Vs Today’s Monetary Base Has Major Ramifications (+2K Views)

I knew the monetary base had grown wildly but did not realize the extent until seeing it in graph form [in an article by Peter Degraaf. It is truly the Chart of the Century]. While Peter spent just one paragraph on this, let’s look at it in depth to get a better understanding of why it is so important and what it really means.

10. Current Excessive Money Printing Will Lead To Hyperinflation – Got Gold?

Hyper-inflation will spread from country to country just as the coronavirus has starting most likely in the U.S. and within the EU quickly be followed by Japan and most other developing countries. Got gold?

A Few Last Words: 

  • Click the “Like” button at the top of the page if you found this article a worthwhile read as this will help us provide more articles of interest to you.
  • Comment below to share your opinion or perspective with other readers and possibly exchange views with them.
  • Register to receive our free Market Intelligence Report newsletter  (sample here) in the top right hand corner of this page.
  • Join us on Facebook to be automatically advised of the latest articles posted and to comment on any of them.

munKNEE should be in everybody’s inbox and MONEY in everybody’s wallet!

 munKNEE.com has joined eResearch.com to provide you with individual company research articles and specific stock recommendations in addition to munKNEE’s more general informative articles on the economy, the markets, gold & silver and cannabis & psychedelic drug stock investing.
Check out eResearch. If you like what you see then…

2 comments

  1. A hyperinflation is usually the result of a collapsing economy. An excessive printing of money will not cause a hyperinflation (= loss of confidence into the government issued currency), but a failing production of food or other necessary goods may spark high inflation rates.

    The hyperinflation in Zimbabwe was caused by the failure to produce enough food for the country. Similarly, the hyperinflation in Venezuela was caused by the inability to produce enough oil for exports so the country could not buy the products it needed.

    The hyperinflation in Germany was caused by the losses of WWI which led to losses of production and gold reserves. Whatever was produced had to be exported abroad in order to satisfy the war reparations. There was not enough productive capacity left in order to satisfy consumer demand. That led to hyperinflation. What is also frequently overlooked, the hyperinflation was initiated by foreign exchange traders who sold short the Reichsmark in effect putting devaluation pressures on the Reichsmark.

    The US can produce all the food it needs. Even if the Chinese stop delivering consumer products to the US, the US economy is strong enough in order to produce all essential consumer goods. That by itself will prevent any hyperinflation in the US.

    To the best of my knowledge, there was never any case of hyperinflation where the underlying economy was able to satisfy the local consumer demand.

    It is the production of goods and services which really matters. A hyperinflation is only an indication that this production is failing.