So predicting a tsunami correctly would be an abject failure if the predicted water-wall height is off by <1%?
It’s one thing to say there will be a tsunami, and another to say there will be a tsunami reaching 30 feet high or more.
Speaking generally that there is going to be unemployment and some rise in general price level is also a different thing from saying there will be double digits.
But wait, I didn’t pay attention to something. Which index is it which says price inflation is at 9%+? That’s a figure dramatically different from official ones, yes?
I shan’t ask for conclusions to be taken to absurdity, but surely we should be cautious with dramatic predictions about phenomenon happening on the scale of millions of people doing millions of things.
I have been following the situation with interest for several years now. Three years ago I thought hyperinflation was such a low probability that it was essentially zero. Two years ago I believed it was still a low probability, because even our (USA) politicians weren’t so stupid that they would do anything that would make hyperinflation a high risk. Today I believe it’s up to about 50-50. Here’s why I believe this…
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Whereas “normal” inflation is typically the result of cyclical factors and ordinary, run-of-the-mill supply and demand, hyperinflation is caused by structural problems with a country’s currency that lead to a loss of confidence in the currency’s value. The Fed and Washington have tripled the money supply in just two years, doubled the national debt from $7T to $14T since about 2006, and guaranteed that the debt will continue to pile up in the future by implementing another major entitlement and several other commerce-stifling regulatory acts.
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The early signs that the USD is losing its status as a reserve currency are already apparent. China and Russia are quietly backing off their positions on the Dollar, while the Fed happily prints more and more of them. Who’s buying them, if our regular buyers are backing off? Nobody - the Fed is simply monetizing the debt, thus accelerating the loss of confidence in our currency.
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When I consider all the “pent-up liquidity” in the market - banks sitting on piles of cash rather than making loans, and all the private liquidity locked up in 401ks, 403bs, IRAs, and other “retirement” instruments, the mental image of a Hoover Dam of liquidity about to burst on the market comes to mind. You may ask, “Why would people empty their 401k? Unless you’re retirement age, you’d be penalized…” Indeed… there is a 10% penalty for early withdrawal, and then you pay taxes on the withdrawal. So, say I have 100K in a retirement account whose net growth is a little bettern than zero for the last decade, and I’m faced with the prospect of even a modest 10% - 20% inflation for the next ten years, then I have no reason at all to care about a 10% early withdrawal penalty and a few thousand dollars of extra taxes, when the alternative is to wait until I’m retired and my 100K is only worth 20K. I may let it ride while I keep an eye on the situation. I read a week or two ago that if today’s inflation were computed using the same formula they used in 1980, we’d already be over 10%. Say I’m facing a 20% - 50% inflation - now I’m on the phone with the bank telling them to show me the money and d@mn the penalties. People will want to spend their retirement in full, right now, when faced with the prospect of it becoming worthless before they ever have the chance to retire. Somewhere in the middle of that, the banks become more willing to unleash their own liquidity because all of a sudden, everyone’s flush with cash, and able to qualify for cheap credit. Hyperinflation happens when 50 - 100 million workers empty the $9T in their retirement savings and start spending it all at once.
Here’s a short scenario… If I’m a computer chip maker, and I can make 1,000 chips a month, I can make 1,000 chips and sell them, or, as long as my customers have confidence in my ability to produce chips, I can sell IOU’s for computer chips. I can produce 1,000 chips, sell 500 chips and 500 IOUs, and stockpile the remaining 500 chips, and if my customers call for their chips, I have them. Suppose now that I decide I can make 1,000 chips, sell 1,000 chips and 1,000 IOUs for chips… it doesn’t take long before my customers doubt my ability to honor their IOUs, and start asking for them, then calling for them, and the value of my IOUs begins to crash. When all my customers call for their IOUs all at once, and I have no chips in the warehouse, and I can only produce 1,000 a month, the value of my IOUs crash, and we have something like hyperinflaiton. It’s not just debt, and it’s not just normal economic factors… it’s all about a loss of confidence.
Welcome to the forums. I liked the computer chip analogy. Except that the government does not produce anything any more and there are about a hundred chip IOUs in circulation per capita. The only reason people still want them is that other people want them, but as soon as they start noticing their real value they are going to be worthless.
Thanks, Nero. You all have a good forum here, so I’m happy to contribute. Yeh, my chip analogy is a little oversimplified, like most economic analogies. I agree that the situation on the ground is much worse than that. When I consider the confidence factor, I wonder what’s keeping our creditors from just pulling the plug already. It’s as if they all know what’s happening, see the danger, and are trying to back up incrementally to minimize the damages… lest they get sucked into the black hole that will be formed when our currency implodes.