March 28, 2013 – If the conditions for hyperinflation presented themselves to a brain-dead populace, would hyperinflation occur?
By The Cerebral Aesthetic Vagabond
For a long time I and others who think as I do have believed that the policies of the monetary authorities in America are on a course that will eventually induce hyperinflation of the U.S. Dollar. But is hyperinflation even possible in America today? A good argument can be made that hyperinflation will not happen, even though history and present day observations tell us it ought to.
The “authorities” (i.e. the fascist alliance of government and corporations) have demonstrated remarkable acumen in postponing the consequences of their misguided monetary policies. It appears that these authorities have successfully taken control of nearly all the levers that govern the economy, in particular, all the various markets that the economy revolves around, including the stock, bond, currency, precious metals, commodity and real estate markets, not to mention the mainstream media and the educational system.
With the aid of high frequency trading computers that permit the authorities to more or less “dial in” any desired price in any of these markets, the authorities have demonstrated adept management of these markets. Augmenting the authorities’ practical control over the markets, a vast number of laws, many of the more draconian of them having been recently introduced, give the authorities legal cover for their immoral rigging of the economy. The mainstream media and educational system admirably execute their directive to brainwash the populace into believing that either manipulation is not occurring or that it is “for our own good.”
Control over the domestic economy is buttressed by aggressive efforts to exert control externally, first through subversive economic and financial policies exercised against other countries, and ultimately by resorting to military force when necessary, as in the recent case of Libya, which was on the verge of introducing a new currency that would have competed with U.S. Dollars in North Africa and the Middle East.
The U.S. Dollar enjoys a historically unique advantage that buffers it from the threat of hyperinflation, in that it is the world’s “reserve” currency. Not only do many countries hold U.S. Dollars as a store of wealth (i.e. “reserves”), but they use dollars for settling international trade in goods and commodities, especially oil (hence the term, “petrodollar”). Since the demand for dollars is so great, internationally, the U.S. Government can liberally increase the supply of dollars without inducing hyperinflation domestically because the rest of the world acts like a sponge, absorbing most of the extra money supply. Were the dollar’s use confined to the domestic U.S. economy, the excess of printed dollars would have a more profound effect domestically, as has been the case in many examples of hyperinflation, notably in Zimbabwe of late.
Zimbabwe One Hundred Trillion Dollar Note (now selling on Amazon for $1.49 US)
Hyperinflation of the U.S. Dollar would probably never occur unless the majority of countries currently using dollars for reserves and trade ceased doing so, a process that is in its incipient stages right now. Should the nascent trend of abandoning the U.S. Dollar snowball and attract the majority of the world’s countries, then the dollar could be in grave danger of hyperinflation, which might be triggered by the repatriation of all the dollars already in existence, for as countries cease using dollars, those dollars have to go somewhere, and that somewhere is back to the U.S.
Until a critical mass of rejection is reached, however, the debasement of the U.S. Dollar is likely to continue at a steady or moderately accelerated pace, but stopping short of hyperinflation. As the currency is debased, countries will face a growing incentive to cease using dollars for reserves or trade, creating a positive feedback loop of debasement and rejection.
The most significant reason why hyperinflation of the U.S. Dollar may not be likely lies in the anticipated atypical reaction of the populace.
Hyperinflation is largely a psychological phenomenon driven by fear of money losing its value. Hyperinflation is less a result of inflating the money supply – at least initially – and more a result of the velocity of money increasing, that is, the speed with which money changes hands. During hyperinflation, people seek to exchange their currency notes for useful goods as rapidly as possible. In famous examples of hyperinflation, such as that of Germany in the 1920s, working people were sometimes paid twice a day and given the opportunity to go out and spend their money before it lost too much value. In such situations, the velocity of money grows almost exponentially, triggering a reaction by the money issuing authority to print new notes in ever larger denominations in a hopeless effort to keep up with rising prices. The product of the quantity of money, which increases exponentially every time the money printing authority adds another zero to its currency notes, and the velocity of money represents the effective quantity of money. When these two variables begin increasing at exponential rates, so do prices, and hyperinflation becomes painfully evident.
Thanks to the near total success of the government, school and mainstream media efforts to brainwash the populace, much of the American populace is incapable of critical thinking or synthesizing independent thoughts, but instead is only capable of assimilating thoughts implanted in its collective mind by the government and the corporations. Furthermore, the populace is no longer capable of recognizing what is, or is not in its self interest and is thus incapable of responding to a threat, such as a currency crisis. Consequently, it’s possible that even today much of the American public does not recognize that the nation’s currency is losing value, which is a prerequisite for hyperinflation to occur.
I honestly don’t believe the American masses have the wherewithal – the historical knowledge, an understanding of economics and an instinct for self-preservation – to even recognize a currency crisis. As with everything else, the American populace will practice willful ignorance, disregard its own observations and wait for someone in “authority” to interpret the landscape for them and tell them what they’re seeing and what to think.
As money becomes increasingly worthless we may see intensified propaganda efforts aimed at reassuring the masses that the money is not worthless, and the masses will probably believe that propaganda and behave accordingly, that is, by not rushing out and spending their money on real goods.
Instead of recognizing the worthlessness of the currency and responding to it – correctly – in a manner that will produce hyperinflation, the American public will likely swallow another handful of antidepressant pills and remain incapacitated, like a deer in the headlights, and wait helplessly for the government to “do something.”
Finally, since so much of the money Americans spend today comes from entitlements, which are doled out by the government, the government is in a position to effectively regulate how much money people have to spend, which is another damper on the velocity of money getting out of control. Americans, more so than people in other times or places, have little in the way of savings. Most Americans live paycheck to paycheck, or entitlement to entitlement, so they are not in a position to pull their money out of a bank account or from under a mattress and rush out and spend it, but instead are limited to spending the periodic “allowance” they receive from their employer or the government. Besides, the government has total control over the banking system and can easily close the banks, thus preventing people from removing what little money they do have, or it can institute withdrawal limits, thus limiting how much people can spend; that exact pair of governmental control measures is playing out right now in Cyprus, in what appears to be an experiment, which once it’s fine tuned in Cyprus, will be used as a “template” elsewhere in the world, including right here in the U.S. one day.
History is littered with examples of failed currencies and their hyperinflationary demises, so it seems inconceivable that a powerful government, such as that of the U.S., will sit idly by and permit hyperinflation to unfold. Some might argue that, once “in the cards,” hyperinflation cannot be avoided, even by a government as powerful as the U.S. Government, but I wonder. A powerful government that presides over the “international currency” is particularly well suited to prevent hyperinflation by undertaking drastic measures that are unavailable to weaker governments that are in control of a domestic-only currency.
For example, as a drastic exit strategy to preempt hyperinflation, the U.S. Government could simply declare all U.S. Dollars and dollar-denominated assets outside the U.S. to be worthless, while giving people within the U.S. a brief time frame in which to exchange their dollars for a new currency. Of course, such a drastic tactic would be tantamount to an act of war against the rest of the world, but so what? While the other countries of the world might seethe with anger over the U.S.’ unilateral destruction of their dollar-denominated assets, would they be willing to wage a hot war against what is arguably the most militarily powerful country in the world? I doubt it.
More than likely these justifiably angry countries would resort to in-kind retaliation consisting of financial attacks, trade wars, sanctions, nationalization of U.S. assets and so forth. However, in this hypothetical exit strategy the U.S. would have a new currency that would be domestic-only at first, so foreign countries would have difficulty attacking the currency. The U.S. is a huge net importer of goods from the rest of the world, so if foreign countries were to impose trade sanctions on the U.S., those countries would be harming themselves more than the U.S., while forcing the U.S. to reconstitute its own industrial base, for which it has ample resources. Foreign governments would probably nationalize all U.S. assets that reside in their respective countries, but while that might make life in the U.S. difficult due to a lack of imported resources and goods, the U.S. still possesses enough natural resources to be largely self-sufficient, like it once was, albeit at a reduced standard of living, like it once had. However, I think that sort of austerity would be healthful for a country that has grown fat, lazy and stupid from overabundance and overconsumption, and which has distanced itself from its traditional values of frugality, a hard work ethic and an appreciation of hard-earned private property, in favor of the collectivist, “free” wealth gained from redistributive policies, including wealth “redistributed” from other peoples’ countries.
Unless the rest of the productive world wishes to shun one of the largest consumer markets in the world, which would be even less plausible following the evaporation of the world’s dollar-denominated assets, the rest of the world would probably grudgingly accept the “haircut” and continue trading with the U.S., eventually accepting its new currency in trade. Although the introduction of a new currency alone would not alter the fundamental factors that threatened to produce hyperinflation in the currency that preceded it, the introduction of a new currency would buy time by “wiping the slate clean,” by erasing of all the U.S. Dollar-denominated debt obligations held by foreigners. In fact, such a step might trigger the immensely beneficial consequence of a global debt jubilee. By unilaterally canceling all its externally held debt, the U.S. might inspire (provoke) other countries to do the same. Once all external debt is canceled, worldwide, countries might begin to look inward and cancel all domestic debts as well, and the practice might reverberate around the globe, ultimately resulting in all debts being erased. Releasing the people of the world from their debt chains would probably result in a vibrant explosion of real economic activity that is all but impossible today because of the debt burden weighing down the economy.
I don’t wish to sound like a proponent or apologist for any particular outcome; I consider myself an impartial observer who enjoys speculating on future possibilities, especially when I get a chance to be a contrarian. Although many experts seem to believe that hyperinflation of the U.S. Dollar is inexorable, I’m not so sure. I think the U.S. Government has tremendous control over most, if not all the markets, which are the key signaling mechanisms for the dollar’s loss of value. Many countries around the world have “trillions” of reasons to preserve the value of their dollar-denominated assets and will do almost whatever it takes to prevent the U.S. Dollar from suffering hyperinflation. For example, whether intended or not, the competitive global currency debasement that’s going on is helping to conceal the debasement of the dollar. The American public is ill-equipped to recognize or properly respond to the ongoing loss of value in the U.S. Dollar, and is thus unlikely to trigger hyperinflation. Finally, the U.S. Government is powerful enough to get away with employing drastic measures to preempt hyperinflation. That said, I concede that hyperinflation is still a possibility, particularly if customary human stupidity prevails. Even in the absence of hyperinflation, the run-of-the-mill, high inflation I observe every time I have to buy something is plenty painful, in spite of the government’s rigged statistics telling me otherwise.