Long but entertaining read on The Atlantic about how unlikely hyperinflation is to occur in the States.
Hyperinflation isn't always just a matter of government incompetence. It's a matter of desperation. It typically begins with an economic implosion. War and revolution are the usual suspects -- or, in Zimbabwe's case, an ill-advised land reform. The economic collapse begets a collapse in tax revenues. Perversely, this makes the government look like a terrible credit risk. Cut off from international lenders, the government is left with a gaping hole in its budget, and no way to fill it. The choice is between pain today from austerity or pain tomorrow from printing money.It gets worse. These governments usually have piles of foreign debt to pay off, too. Whether it's from reparations or excessive borrowing doesn't matter so much. What matters is that big chunks of what cash the government does have is earmarked for foreign creditors. That's politically toxic in a society going through a collapse. For politically weak governments, the temptation to substitute an inflation tax for actual taxes is enormous.
The author's argument that the Fed isn't really "printing" money since it is all held by banks seems so weak to me. Sure, banks aren't lending this money out right now, but this could change. The author tries to address this point by saying "oh no big deal, the Fed will just jack up interest rates"...isn't this a potentially dangerous line of thinking? Isn't the whole point of these securities swaps to give banks $ to lend?
What do you guys think? If things get out of hand, can the Fed just slam the breaks and everything goes back to normal? Seems dubious to me.
In before angry Zero Hedge rant
It was highly unlikely that the real estate market was going to crash, too, brother. You've got to think for yourself on these things, that's what makes the greatest traders/investors. That's how you become the next John Paulson or whoever makes you blow your load.
FYI the Atlantic is basically a more liberal/socialist version of the Onion: http://static5.businessinsider.com/image/4f608c2569bedd8e3700006a-900/a…
[quote=JeffSkilling]FYI the Atlantic is basically a more liberal/socialist version of the Onion: http://static5.businessinsider.com/image/4f608c2569bedd8e3700006a-900/a…] ok, but do you think they're right or wrong about this?
I can't say for sure if there is going to be hyperinflation or not. I think it's safe to say there is going to be much higher inflation in the years ahead (It's already running well above what the government admits). The key to hyperinflation is not only the money supply, but more importantly velocity. It's almost impossible to determine when we could see a spike in velocity, but if it does spike there will be problems. But to claim there is absolutely no risk of hyperinflation from QEx is extremely naive. We have entered uncharted waters in terms of central bank intervention in the last few years, and there really is no blueprint for this so anyone that says they know for certain what is going to happen is being disingenuous.
I am far from an expert, and I'm still a student, but I think hyperinflation isn't as far off as some people think. If we double dip into recession again, then I will be very worried about it. I think we've got a lot issues with our economy right now and we're not fixing the issues at the base of the problem. We're putting band-aids on the issues, at best. The people in this country need to start being more responsible, otherwise 50 years from now, we'll be fucked no matter what. And, frankly, that's all that matters. Everything you do today (well, for most people) is so that someday you can have a family and pass on your bloodline, knowledge, and experiences. Please, please, please keep that in mind if you get that coveted spot on Wall Street.
Long story short: hyperinflation is a possibility, but I don't see it happening anytime soon.
Theoretically? It's possible. But it's highly improbable. I wonder what my boy Greggy Mankiw would say about it.
Ok, so here is the author's 3 main points as to why the US is safe from hyperinflation risks:
"The three-part answer is: (1) we don't have any problems selling our debt"
Terrible argument, our standing as a credit worthy issuer can literally change in a matter of days, if not hours. In 07/08, Greece's debt traded as if it was the same quality as German or US debt. Couple years later the country defaults. Italy went from being a pillar of the EU at 5% rates to a full on crisis at 6%, so it took only 100 basis points to transform Italy from secure to crisis. Just because we can sell our debt now doesn't mean we will sell it forever. In fact the only reason people are buying our debt right now at negative real rates is because they are terrified. Bonds right now represent return-free risk, that's not sustainable.
"(2) we aren't actually printing money"
This is why I keep saying the Atlantic should not be taken seriously. Just because you aren't literally printing more dollar bills does not mean you aren't expanding the money supply at an unprecedented rate. Only like 3% of the actual money supply is circulated bills. The argument this clown is making here is something I would expect to see on reddit or something.
"(3) the United States is a highly productive economy that is nothing like bombed-out Budapest."
Not exactly sure what planet this guy is living on but if you take 5 seconds to look at our monthly trade deficit numbers you would see we are the opposite of a productive country. If the USA was a corporation, it would be posting $50 billion losses every month.
Reading this article actually made me think hyperinflation may be more likely than I think. If this is really the counterargument then we seriously might be fucked.
Lol the idiots at the Atlantic can not do simple math. They use the term "hyperinflation" yea I am pretty sure that inflation of 50% a year is unlikely in the USA. But they write the article in a way to make it seem like there will be zero inflation. Back to their inability to do math, something costs a dollar today in a year it costs 1.10 that is 10% inflation. What! 10% that's crazy!?!? The FED says inflation is 2%, the FED and the government is full of shit when it comes to inflation. The fact of the matter is that real inflation has far exceeded the official inflation rate for decades.
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