Hyperinflation is Not Coming Soon...Here's Why
James Bibbings, April 23rd, 2009
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Now that you have been able to see the charts above and listen to the argument as presented by Peter Schiff, I'll briefly explain why I think the thought of US Dollar hyperinflation is currently misplaced.
Why You Shouldn't Be Concerned About Hyperinflation
There are three major reasons why hyperinflation will not be playing at a theater near you anytime soon.
1. There has never been a period in US history when home prices have been falling and we have had real inflation. Currently, prices on everything, everywhere (almost) are falling. Even more importantly in the US home prices are still plummeting, so unless there was some sort of abrupt and magic end to this global and domestic price free fall, statistically by all historical accounts, inflation is all but impossible at the current time or in the near future. If hyperinflation can't be happening right now what is occurring? Deflation - A sustained fall in the general price level of goods and services; read up on it because the word will be in the news more and more frequently in the coming months.
2. Hyperinflationists, in general, only point to one side of the monetary argument when they discuss the "printing presses." In almost all hyperinflationary arguments the discussion of the rate at which global wealth is being destroyed, relative to the amount of currency being printed is never fully reconciled. This is problematic to the hyperinflationists argument because they only take into consideration one component of monetary policy; creation of money not destruction. Institutions, small businesses, and average Joe's the world over have witnessed wealth destruction in the form of massive real and/or paper losses in almost all asset classes. This loss of wealth far outstrips the amount of money which has been printed in the US and points us further away from the idea of hyperinflation on a sheer creation replacement basis.
To illustrate wealth destruction I wish that there was a simple graph which I could use to represent the "print to destruction ratio" I am trying to explain. Unfortunately, given the difficulty of determining how much wealth has been destroyed (there is no government stat for this) the best we can do here is use this projection from the Wall Street Journal and the IMF. They say:
"The report [from the IMF] indicated a significant deepening and spreading of the crisis beyond the mortgage-related assets in the U.S. responsible for sparking the turmoil. The IMF now projects that worldwide financial losses could top $4 trillion through next year, with the estimated damage from U.S. assets alone increased to $2.7 trillion from a previous forecast of $2.2 trillion in January."
Recall form above (see adjusted monetary base graph), the money supply recently rose in the US from approximately $800 Billion to around $1.8 Trillion (Read: $1 trillion hot off the "printing press" which is indeed staggering). Now, according to the IMF, it is estimated that we have lost $2.7 trillion in the US alone; a difference of approximately $1.7 trillion dollars. Keep in mind that this does not include the amount of US Dollar denominated losses abroad.
