The US is going into hyperinflation(seekingalpha.com)
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The US is going into hyperinflation
https://seekingalpha.com/article/4371490-united-states-is-going-hyperinflation
17 comments
Hyperinflation usually occurs for one of two reasons:
1. Supply-side shocks such as disruptions in oil production, food production, etc. that cause shortages, leading to massive spikes in price. This happened in the 1970s during the oil crisis and led to stagflation. Zimbabwe had a crisis in food production, leading to hyperinflation.
2. Lots of foreign-denominated debt. Latin American countries experience hyperinflation because their debt is usually in USD rather than their domestic currency. Printing money to service foreign debt leads to hyperinflation. Weimar Germany had this problem when attempting to pay back the foreign-denominated debt reparations.
It's very rare to see demand-induced hyperinflation. That occurs when countries print way beyond the capacity of their economy to handle. If the US was at full capacity utilization and full employment, then an increase in the money supply beyond that would lead to inflation. But currently, the US is nowhere near full employment or full capacity utilization, so the threat of high inflation/hyperinflation is - to put it bluntly - nonsense.
You could make the argument that the stock market is overvalued because of current policy, but that is not hyperinflation.
1. Supply-side shocks such as disruptions in oil production, food production, etc. that cause shortages, leading to massive spikes in price. This happened in the 1970s during the oil crisis and led to stagflation. Zimbabwe had a crisis in food production, leading to hyperinflation.
2. Lots of foreign-denominated debt. Latin American countries experience hyperinflation because their debt is usually in USD rather than their domestic currency. Printing money to service foreign debt leads to hyperinflation. Weimar Germany had this problem when attempting to pay back the foreign-denominated debt reparations.
It's very rare to see demand-induced hyperinflation. That occurs when countries print way beyond the capacity of their economy to handle. If the US was at full capacity utilization and full employment, then an increase in the money supply beyond that would lead to inflation. But currently, the US is nowhere near full employment or full capacity utilization, so the threat of high inflation/hyperinflation is - to put it bluntly - nonsense.
You could make the argument that the stock market is overvalued because of current policy, but that is not hyperinflation.
As long as it can print its own money without a serious devaluation (because the dollar is the standard international currency) it shouldn't happen.
The money won't lose its value. International goods will keep their prices in dollars, won't be an inflation on that side, so anything from outside won't get more expensive.
Trillions has been suddenly printed, in 2008 and this year, without making a big change in how expensive are things. If you try that, in those numbers, in any other country, you may face a big surge in inflation.
The money won't lose its value. International goods will keep their prices in dollars, won't be an inflation on that side, so anything from outside won't get more expensive.
Trillions has been suddenly printed, in 2008 and this year, without making a big change in how expensive are things. If you try that, in those numbers, in any other country, you may face a big surge in inflation.
> without making a big change in how expensive are things
Stocks beg to differ.
Stocks beg to differ.
This is debatable. The end of our monetary path is probably not great. But with every major currency doing some form of QE, the ultimate outcome is uncertain. The current velocity of money seems to point to deflation in the near term. If inflation picks up, the Fed has a number of tools at their disposal. I distrust anyone who speaks confidently of the future in this arena.
Exactly right. Macro economics 101 provides the identity
So it's true that if you hold V and Q constant, then an increase in M will lead directly to increasing prices.
But in the chart linked below, you can see that the V fell off a cliff at the same time M increased.
https://fred.stlouisfed.org/series/M2V
Looks more deflationary than inflationary to me.
MV = PQ
So it's true that if you hold V and Q constant, then an increase in M will lead directly to increasing prices.
But in the chart linked below, you can see that the V fell off a cliff at the same time M increased.
https://fred.stlouisfed.org/series/M2V
Looks more deflationary than inflationary to me.
I'm not fully convinced about a hyper inflation along the lines of Weimar Republic or Venezuela or even Argentina levels inflation for that matter.
However, I understand that this is only and only because of US dollar being the global reserve. The real outcome of this is that all countries that handled covid better and are back on track economically, now are richer, because the US dollar is poorer. They can either choose to provide more liquidity in their system, thus raising their GDP or just stay rich with higher currency values.
Either way, Americans are poorer. And maybe deservedly so given the mismanagers that have been running the country.
However, I understand that this is only and only because of US dollar being the global reserve. The real outcome of this is that all countries that handled covid better and are back on track economically, now are richer, because the US dollar is poorer. They can either choose to provide more liquidity in their system, thus raising their GDP or just stay rich with higher currency values.
Either way, Americans are poorer. And maybe deservedly so given the mismanagers that have been running the country.
> However, I understand that this is only and only because of US dollar being the global reserve.
No, historically it's because the US dollar supply is actively managed with moderate inflation as a key goal. Now, the range of other policy options enabled consistent with that, yes, has benefited from the US dollar being a global reserve currency.
The Fed has recently made announcements that seem to indicate that it is weakening focus on the price side of it's mandate to do more on the employment side (to, in effect, compensate for Congress’ failure to marshal fiscal polict to deal with that.) If there is unusual inflation, that active choice of monetary policy priorities—not debt or deficits—will be the proximate cause.
But even in that scenario, hyperinflation is unlikely unless the Fed completely abandons the price level side of it's mandate in setting monetary policy.
No, historically it's because the US dollar supply is actively managed with moderate inflation as a key goal. Now, the range of other policy options enabled consistent with that, yes, has benefited from the US dollar being a global reserve currency.
The Fed has recently made announcements that seem to indicate that it is weakening focus on the price side of it's mandate to do more on the employment side (to, in effect, compensate for Congress’ failure to marshal fiscal polict to deal with that.) If there is unusual inflation, that active choice of monetary policy priorities—not debt or deficits—will be the proximate cause.
But even in that scenario, hyperinflation is unlikely unless the Fed completely abandons the price level side of it's mandate in setting monetary policy.
What makes you think other countries with rapid inflation don't manage currency supply?
If the monetary base suddenly doubles, the money will trickle down soon enough.
In US dollars case, it will trickle down to people and almost all other countries. Those countries will have more dollars in reserve, thus raising value of their currency or giving them low interest rates or ability to print even more.
This is extremely evident in the case of emerging markets like China. They will now get even more printed dollars in reserve and the only way to absorb it all is to print more yuan and allow more money to flow through China's economy, thus increasing wealth of the hundreds of millions still in poverty.
If the monetary base suddenly doubles, the money will trickle down soon enough.
In US dollars case, it will trickle down to people and almost all other countries. Those countries will have more dollars in reserve, thus raising value of their currency or giving them low interest rates or ability to print even more.
This is extremely evident in the case of emerging markets like China. They will now get even more printed dollars in reserve and the only way to absorb it all is to print more yuan and allow more money to flow through China's economy, thus increasing wealth of the hundreds of millions still in poverty.
> What makes you think other countries with rapid inflation don't manage currency supply?
They do. But on the (fairly rare) occasion of hyperinflation, they aren't managing it focussing on price levels, but some other objective, usually one or both of juicing short-term economic performance without regard to price levels or monetizing debt.
They do. But on the (fairly rare) occasion of hyperinflation, they aren't managing it focussing on price levels, but some other objective, usually one or both of juicing short-term economic performance without regard to price levels or monetizing debt.
The US has been hiding it's inflation for a while now. If you compare the quality of products vs the price of europe compared to the US, it's not even close.
I am not sure if I follow your logic about quality of products and what that has to do with inflation.
Imagine if it costs $2.00 for a 200g Kit Kat bar and ten years later it still costs $2.00 for a Kit Kat bar but they’ve shrunk the size to 160g. Size is an attribute and companies are working feverishly to alter attributes while staying as close to a price point as possible (consumers are much more focused on objective price point than subjective attributes and largely ignore objective measures like grams in a chocolate bar).
There is massive inflation, just not in first order pricing but rather in second order pricing-to-[insert attribute] ratio.
I think even casually observing your purchases over time will yield a conclusion that you are spending approximately the same for “less” in most (but not all) areas of your life.
There is massive inflation, just not in first order pricing but rather in second order pricing-to-[insert attribute] ratio.
I think even casually observing your purchases over time will yield a conclusion that you are spending approximately the same for “less” in most (but not all) areas of your life.
If I buy a burger in the US for a dollar, but it's half cardboard, and I buy a burger in the EU for $1.50 but it's a quality cut of meat, you might say that the true value of the burger in the US is maybe $.10 but the true value of the burger in EU is $1. But if I wanted to buy that EU burger in the US, I would have to pay $15.
So the dollar burger is an illusion. The burger is actually $15, and is hyper inflated all along.
So the dollar burger is an illusion. The burger is actually $15, and is hyper inflated all along.
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