How many of you believe hyperinflation is going to happen in the near future in North America or Western Europe?
And how many of you believe no one can be so certain about the future?
If you mean inflation as the creation of new money and credit (Rothbard) or new money and credit not supported by demand (More Misean) then I do not think that the USA has had enought inflation to cause hyper rises in prices because I do not believe that the USA will be able to get away with the Federal Reserve buying 75% of US Debt issues in perputity. At some point the Japanese (Should be now to save their own skins) and the Chinese will slow or stop purchases of US Debt. Already 75% of US debt is being purchased by central banks, I do not know how much of that is the US Federal Reserve.
Does that mean that I don’t think price increases will be high, 20+ % per year, 40+ % per year in education and healthcare? Sure that is possible.
If I have to decide I take the side of high inflation. Don’t know if it might reach Hyper but why not. Anyway I don’t see any good reason why suddenly it would not be necessary anymore for the FED to monetize huge amounts of debt, or why they would suddenly stop printing and cause a real default. The only question is when.
“In other words, the total US debt just passed the debt limit - break out the Champagne”
We cannot be certain.
In America I think it’s pretty much inevitable now, I don’t know when though.
What is keeping the dollar afloat is mainly China, and I don’t think that they will keeping buying US debt forever. As soon as China stop buying US debt the markets will lose a lot of confidence in the value of the dollar and wil rush to “redeem” these dollars by buying stuff in the US, and that will cause a huge inflationary wave. By seeing the value of their dollar reserves rapidly falling, I believe foreign goverments will also try to “redeem” their dollars and will try to buy production means in the US, and that will finaly set the hyperinflation, not only the US government will have no one to buy their expanding debt, but they will also have to absorb back all the dollars abroad.
It will be ugly.
I do not. I don’t claim clairvoyance, but I don’t see it in the cards.
Probably only all out war would require the central banks to expand credit to that level. Inflation will come at some level though, i’m no expert of course lol.
Robert Wenzel from Economicpolicyjournal.com:
Neither Inflationst Nor Deflationist Should Thou Be (In the short-term)
I get many emails that begin something like this:
Because you are in the inflationist camp.
I get an equal number that start along these lines this:
Because you are in the deflationist camp.
Please know that at present, I am in neither camp. Although in the long-term I fully expect the Federal Reserve to launch operations that will result in huge amounts of new money entering the system, a move that will ultimately become very price inflationary, it is not clear at all that this will occur in the short run.
Although the Federal Reserve is currently pumping huge amounts of money into the system, most of that money is finding itself back at the Fed as excess reserve, and therefore back out of the system.
In late 2010, three month money supply (M2) growth peaked at just above 7% on annualized basis, since then it has dropped back to between 4% to 5%.
This is typical of monetary policy under Fed Chairman Bernanke. Money supply growth has been a bronc ride. I have literally been tracking money supply growth week after week, with pen and paper, for decades. I have never ever seen such wild swings in money growth as the swings under Bernanke.
This is partly because of the many new monetary “tools” that he has introduced by which he conducts monetary policy. Since the old tools of the Fed: controlling the discount rate, the reserve requirement and controlling open market operations, worked for the Fed chairmen before Bernanke, it is unclear why Bernanke created the new tools. Further, it is unclear as to how controllable the new tools are, e.g. since Bernanke started paying interest on excess reserves, the amount placed by bankers in excess reserves has swelled to over a trillion dollars. It is unclear that Bernanke has created the proper new “tools” necessary to battle the new tool of paying interest on excess reserves, should bankers suddenly decided to start loaning that money out.
I follow the changes in money supply, excess reserves, required reserves, etc, weekly in the EPJ Daily Alert. Money supply really has to be watched that closely at this time. The longer term money growth trends in the days gone by of Alan Greenspan and Paul Volcker are a thing of the past.
It is extremely dangerous, at present, to be bold and step out and say that inflation or deflation is imminent. If the current annualized money growth trends of between 4% and 5% continue, I fully expect stagflation, i.e., price inflation but a stagnant economy. If money growth climbs back over 7%, price inflation will be much stronger (well into the double-digit range), with a manipulated stronger economy. If money supply growth dips below current levels, the economy could move into crash mode.
All this said, the exact direction on a short-term basis is unclear because of the whipsaw action of monetary policy under Bernanke. It is too dangerous to be a hardcore inflationist or deflationsit at present for the short-term (meaning roughly for the next year or so). It is simply best to watch the money growth numbers and adjust investments accordingly.
Peter Schiff made the argument that Japan has a trillion dollars in its wallet. Now is certainly the rainy day they were saving it for, with their country in a shambles, and yet they are not spending it, instead borrowing money. Why is that? He says its because they realize that sure they can spend the money, but if they do, the inflation caused by its release into the market will destroy its value.
So that bottom line, Japan now understands that owning dollars in large amounts doesn’t get you anything. Quite possibly the Chines and everyone else will think about what happened to Japan and reach the same conclusion.
Which means who will buy the Treasuries from now on [= lend the US govt money]? The Fed and only the Fed [=money printing to be able to spend]. Which means high inflation is on the way.
QE2 ends in June. I imagine that QE3 will happen then. And there’s another war to pay for.
BTW, here’s a little tidbit:
In my estimation (as Krazy Kaju said, we can’t be certain), the chance of hyperinflation is better than remote these days. The quantitative easing inflation policies of the Fed, ECB, etc. cannot last without that happening. If they cut back on the inflation, then economic activity will contract again. It seems pretty clear to me that they won’t do this - after all, they started massively expanding the monetary base once economic activity did start to contract back in 2007-8.
As governments take on increasing amounts of debt, it becomes increasingly difficult for them to finance their interest payments. Even ignoring changes in interest rates, the interest payments will become so large that it will start to become difficult for them to attract sufficient buyers of their new debt. All other things being equal, this will lead to default. Of course, all other things aren’t equal - governments typically have central banks and monopolized fiat currencies these days. To stave off default, then, governments will monetize their debt by either literally cranking up the printing presses or by central-bank lending.
I think a fairly realistic worst-case scenario would go as follows: mass inflation → total capital controls → wage/price controls → rationing → hyperinflation → martial law → ???
Get ready to barter.
@ Prateek Sanjay
By the way. What do mean by near future? 1 year 5 years 10 years?
I have a timeframe of around 3 years in scope.