Hyperinflation - Hur då?

The US Dollar has already been hyperinflated monetarily but it isn’t visible yet in terms of consumer price inflation as the excess money created has been saved rather than spent on consumption. As long as the (non-US) world is buying roughly the same amount of US Dollar investments as the US trade deficit, there’s no price inflation.

Capital flows can and will turn on a dime though. Just imagine how much (little) the US Dollar would be worth if the US Dollar depreciated to balance the US trade deficit.

The absence of price inflation is incorrectly interpreted by central banks as too little money supply when there is already too much. Their knee-jerk reaction is to lower interest rates further and inject even more money through QE, thus increasing the underlying problem even more. Banks are complementing this by lowering lending standards to expand their fractional reserve lending as much as possible.

The problem of too much credit competing for a limited pool of credible borrowers can’t be solved by lowering lending standards and flooding the market with even more credit.

The credit must find vehicles to be hoarded into. This is creating massive demand for passive investments without adding any sort of productivity or innovation to the economy – a more realistic determinant of the health of the economy. Instead – to the detriment of the economy – we get bubbles, malinvestment, misallocations, debt saturation and unprofitability. Entrepreneurs which would have been successful in a sound meritocratic economic system are punished. Creating new innovative products have become secondary to putting companies on the investment markets. Companies even operate at a loss just to service debt, often with government stimulus as a substitution for keeping people off the dole.

Hyperdeflationary head fake

Governments around the world are fighting deflation labelled as evil. We are nowhere close to hyperinflation, right?

Wrong.

Hyperdeflationary pressure precedes hyperinflation. It’s the loss of confidence in a deflation that triggers the hyperinflationary phase. In terms of gold as a unit of account, what’s called a hyperinflation in a fiat money terms, is actually deflation, as gold typically strengthens its purchasing power when fiat currency hyperinflates.

The only reason the US Dollar is still holding up at this point, is its demand as a form of a savings instrument from the private sector. It used to be central banks providing structural support for the US Dollar but this structural support has ended. Surplus countries like China and Russia are no longer interested in accumulating any more US debt. They know it’s worthless. Instead, they try to diversify as much as they can without imploding the value of their existing US debt holdings. They know the monetary system is going to reset and they are planning accordingly by accumulating real tangible assets generally and gold specifically.

So yes, deflationists are right in their analysis of the current environment but miss what follows next.

It’s when the confidence in the economy is lost on a broader scale that hyperdeflation turns into hyperinflation with governments monetizing debt at all costs.

But what if they don’t?

They will.

No country outside the gold standard has ever allowed a depressionary deflation to run its cause. The primary objective for a government is to get re-elected. If they can kick the can forward, they will. Sure, the coming hyperinflation will be destructive, but a hyperinflation may be less visible to the general population than a deflationary depression with immediate economic failure.

Den tyske filosofen Arthur Schopenhauer sade en gång att alla sanningar genomgår tre stadier. Först blir de förlöjligade. Sedan blir de våldsamt motarbetade. Slutligen blir de accepterade som självklara.

Gold: "gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939 but civilized people don't buy gold - they invest in productive businesses."

Just imagine how much (little) the US Dollar would be worth if

The absence of price inflation is incorrectly interpreted by central banks