Hyperinflation is defined as a very high rate of inflation or inflation that has gone out of control. There are several definitions, on the low-end it's defined as a consecutive accumulation of inflation over a three-year period averaging 26 percent annually reaching 100 percent by the end of the third year. While on the high side, inflation can exceed 50 percent per month. Even lower degrees of inflation will still wipe out savings and purchasing power within a short duration of time.
Many government economists view the official Consumer Price Index or CPI numbers with skepticism believing the US economy is not suffering any inflation at present. However there are also those outside the government viewing the same CPI numbers who strongly believe were already experiencing the early effects of high inflation.
It does not take a rocket scientist to figure out everyone who purchases food, fuel even medical costs sees were paying more today than we were a year ago. If you reflect upon that, you will also come to realize you were paying more last year than the previous year as well.
Below are four current problems with serious potential to create devastating inflation within America.
Monetizing debt and deficits -
As Federal Government expenditures continue to increase, there comes a point where excessive expenditures will reach a level that will exceed revenues. From this point ensuing deficits will become unfundable by normal or conventional means. Normally this is where the central bank would step in and fund any monetary differences by re-starting their printing press to create more money out of thin air.
Unfortunately further monetization will only increase and prolong problems within the economy. Whats really needed now is a cure, a medicine that will attack the root causes of economic failures, capable of reversing their course to turn the un-sound economy back around. This medicine is called austerity; it can be a very powerful tool to rebuild a failed economic system. With austerity however comes lots of pain and sacrifice.
Politicians would want to avoid this medicine at all costs because it's not likely to meet with any public approval. Concerned citizens within every politician's district will rise together, to threaten all of their cushy jobs, once at the polls. As the central bank starts their massive open-ended monetizing campaign (think QE 3, QE 4) it will lead to the "house of cards" becoming so unstable that the economy will eventually collapse upon itself.
Reduced capacity to effectively handle the crisis -
As every boom and bust cycle that's been created by government stirs up our society, it also robs every one of capital stock. This eats away at the very core of society. During the years of the Great Depression, America still had vast manufacturing plants capable of building almost anything from raw materials and could still export these products to foreign markets. Today those once great manufacturing plants have gone to countries like China who now control the majority of global manufacturing. The physical ability for the United States to "get by" has been severely reduced. For this reason, a crisis of this size will be even harder to manage, it will morph into a massive event, far greater than what American's witnessed during the Great Depression.
A completely bankrupt banking system -
Regardless what gets reported by the mainstream media, on economic reforms, the truth is all the western banks are mired in huge amounts of debt. For banks to turn profits these days, the entire banking system requires credit that is both cheap and easily accessible. The entire financial sector would be in dire straits should the Federal Reserve ratchet up their short-term interest rates. Banks would then be stripped of their abilities to generate profits any longer.
The possibility of a bank-wide collapse could actually become reality, should the Fed increase their ultra-low lending rates that only these large banks can receive. The highly publicized banking system "stress tests" that the Federal Reserve made public earlier conveniently skips over higher interest rates. The big reason for "looking the other way" is because if these banks had to be tested for this, they would all fail. Therefore to shield the entire banking system from past negligence, the Federal Reserve is prohibited from shutting down its printing press, even if real growth within the economy returned.
Debt expansion over economic expansion -
The reason any business borrows money is to invest that money properly within the business and come out with greater profits. In-turn they pay back the borrowed money, while still maintaining a positive cash-flow. Fundamental business principles in the United States for decades now have dwindled; it seems now that these principles are lost. It is generally believed these days that the US economy needs an ever-increasing quantity of debt just to sustain the current rate of growth. From 2008 until now the US debt has increased 67 percent but that is not all. The real GDP during the same period has run sideways.
Lenders will not close loans when they see that growth turns out to be reliant upon ever-increasing debt, they rather walk away. Sadly for the United States this practice is already in progress. Lender's such as China used to be the largest buyers of US Treasuries, more so then even the US itself. Now they have sold off those Treasuries reducing their exposure to American debt. So now the Federal Reserve has had to step in with elaborate bond programs such as QE 1 and QE 2. Thus buying massive amounts of Treasury bonds just to make up the difference where China basically stopped borrowing. The fondness for debt now exceeds real economic growth.
Is hyperinflation on the horizon? Once inflation is finally clear to everyone it will simply be too late to stave it off for two key reasons:
1. The price level is a key indicator. Printing excess money is the first thing to happen; from there we go to higher costs.
2. The masses will finally notice consumer prices for all common goods and services skyrocket. The reason for prices going vertical will be because all consumer prices will have been reevaluated. This means they have been converted to their real value, that of hard assets such as gold or silver. This is how investors find protection, in assets that naturally hedge inflation.
Many of your family, friends and relatives will not be worrying at a time like now, they don't see the signs. This is the time where they should really prepare. These could also be the same people who missed the warning signs on the housing bubble collapse, and the banking system which was on the verge of self-destruction a few years back. Once talking about inflation becomes common gossip, both the Fed and you will not be able to do anything to stop it. Instead, you will be watching your existence and standard of living going down the toilet.
Hyperinflation is resting upon an economic house of cards in America. The risk of one card getting knocked out by the constant mismanagement from Government and the Fed is too great. That house is about to collapse, so get yourself prepared today while time is still on your side. Invest in hard assets such as physical gold and silver and hedge your assets against massive inflation and ultimately the destruction of paper money.
Tom Genot -