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Too few understand just how disruptive hyperinflation in America would be.
Truth is, it would be a nightmare.
In an episode of hyperinflation, money loses value so rapidly that people spend it as quickly as possible, which only feeds the cycle of pushing prices higher and higher at a faster and faster rate.
Imagine prices at the food store and gas pump not just going up a few cents at a time, but doubling in a matter of months, weeks, or even days.
And now some economists and market experts think many of the ingredients for hyperinflation are brewing in America.
That's because years of profligate U.S. government borrowing and spending have created trillions of dollars that lurk in the reserves of foreign countries and major financial institutions. The situation escalated after the 2008 financial crisis, with the U.S. Federal Reserve's policies of "quantitative easing" creating even more money.
"The U.S. government and the Federal Reserve have committed the system to its ultimate insolvency, through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency," said John Williams of Shadow Government Statistics in his annual report on hyperinflation.
Historically, governments that have suffered bouts of hyperinflation - most notoriously Weimar Germany from 1922-1923 - have set the table by printing too much money during a time of economic contraction.
The trouble is, once it starts it's impossible to stop. Hyperinflation in America isn't here yet, but we're edging dangerously close to the point of no return.
"We're certainly at a flashing yellow alert," Art Cashin, Director of Floor Operations at UBS Financial Services, told King World News last week. "You have in place a variety of things that could begin to react somewhat domino-like."
Cashin drew attention last week when he sent out a report detailing the Weimar hyperinflationary disaster, concluding that the episode was why "many express concern about unintended consequences of each new wave of quantitative easing."
Hyperinflation in America: Where Is It?
Some may point to the moderate inflation in the U.S. now - between 2% and 3% -- and reason that hyperinflation in America is a distant possibility, if it could happen at all.
But the seeds of hyperinflation tend to be sown long before the signs of hyperinflation become apparent.
So it could be a while before any evidence of hyperinflation shows up, despite QE1, QE2 and QE3.
"Even when they [Weimar Germany] were actually printing money, literally printing, the inflationary spiral didn't happen instantly," Cashin told King World News. "It was delayed a couple of years. But once it started, it could not be taken back."
The key is that no matter how much of a currency exists, if large amounts of it remain out of circulation, inflation - and hyperinflation in particular - can't happen.
"The analogy I use is if the Fed flew over your house and dropped a million dollars in brand new bills, and you were so worried you put them in your garage, that's not inflationary," Cashin said. "It's only inflationary when you lend it or spend it."
For the U.S., the "garage full of money" is the trillions in U.S. Treasurys squirreled away in places like Japan and China, as well as hedge funds and major U.S. and European banks.
Should some sort of financial crisis cause a run on the dollar - a sudden meltdown of the long-simmering Eurozone debt crisis, or if no one blinks in Washington's game of chicken over budget and debt issues - the situation could unravel quickly.
"The Fed's initial moves to debase the U.S. dollar worked, impairing the U.S. currency's exchange rate value and triggering commodity inflation fueled by the weak-dollar policy," said Williams in his report.
"This also has helped to set the stage for a global dumping of the dollar and dollar-denominated paper assets, a rapid influx of unwanted dollars from abroad that either would collapse the financial markets or would force the Fed to flood the system with the incoming liquidity, monetizing dumped U.S. Treasury securities among other assets."
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Warning Signs of Hyperinflation
Cashin noted that hyperinflation can sneak up in that it often appears at first to be only higher-than-normal conventional inflation.
Going back to his Weimar example, Cashin used the price of a loaf of bread to illustrate this.
In 1914, before World War I, a loaf of bread in Germany cost the equivalent of 13 cents. Two years later it was 19 cents, and by 1919, after the war, that same loaf was 26 cents - doubling the prewar price in five years.
Bad, yes -- but not alarming. But one year later a German loaf of bread cost $1.20. By mid-1922, it was $3.50. Just six months later, a loaf cost $700, and by the spring of 1923 it was $1,200. As of September, it cost $2 million to buy a loaf of bread. One month later, it cost $670 million, and the month after that $3 billion. Within weeks it was $100 billion, at which point the German mark completely collapsed.
The whole time the German government kept printing more money, so much so that people burned it in their fireplaces because it was cheaper than wood.
Why didn't they just stop and try to stabilize the currency?
"When things began to disintegrate, no one dared to take away the punchbowl," Cashin wrote in his report. "They feared shutting off the monetary heroin would lead to riots, civil war, and, worst of all, communism. So, realizing that what they were doing was destructive, they kept doing it out of fear that stopping would be even more destructive."
Cashin advises Americans to keep an eye on M2, a measure of the nation's money supply, particularly how much money is in circulation. The government reports this number every week. A sudden spike could signal the start of hyperinflation in America.
And once people decide they'd rather spend their money as fast as possible, the so-called "velocity of money" - how quickly money changes hands - takes off. The faster it goes, the higher the rate of inflation.
Preparing for Hyperinflation in America
No one can predict precisely when, or even if, an episode of hyperinflation might strike. But because the consequences would be so devastating, it bears watching no matter how slim the possibility.
Hyperinflation in America would create havoc in the markets. Bonds would become toxic and stocks would plummet. But precious metals like gold and silver would soar, as would commodities like oil, copper and corn. Foreign currencies would also skyrocket against the dollar.
"If you begin to see not just the first signs of inflation, but acceleration - it will come very fast - then you have to think about how you are protected," Cashin said, advising people to make sure they're invested in hard assets like commodities or real estate.
But most of all, Cashin urges that Americans stay vigilant.
"If [M2] begins to grow rapidly, then the money that the Fed has created will be seen as moving through the system and that will create the high risk of accelerated inflation and, God forbid, runaway inflation," Cashin told King World News. And if that happens, he said, "get very cautious."
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
HYPERINFLATION AND MOB RULE
The demand for everything would crater once the economy "collapses". One of the first signs of ongoing hyperinflation is you would not be able to get any cash. The existing supply of money would be insufficient for the consuming population to purchase everyday goods and services. Gold or Vodka would become the new "money" and a disorganized barter system would evolve in the local small business community. The large chain stores would simply close down (boarded-up) , or be looted and then burned down by angry and hungry mobs. America would likely be ruled by a dictator or monarch at such a time.
No there will be plenty of cash but no goods in the market.All large scale operations will be done in.No WalMart No coupons for discounts.You would be glad to get items on your shopping list.No one will be buying new clothes because they would be unaffordable.Gaps and Sears would be gone.
Why is it then no global "core" economy ever experienced "hyperinflation" ?
Weimar is kid stuff – try the Hungarian pengo, inflated 400,000,000,000,000,000,000,000,000,000 TIMES, not percent. You don't know what this means? You're in good company, nobody does. It's fewer inches than the universe is wide, amply enough cents to buy the world and everyone and everything on it.
And there's damn all you can do. Spoilt brats, aka Americans, take whatever they're denied. Stockpile essentials or grow food and you'll be robbed. Protect your property and you'll run out of ammunition, if you're not suffocated first by rotting bodies.
Until the full horror hits, vote against every incumbent every time you're allowed a vote, it won't save you but you'll die feeling better.
So, out of that article the only thing that will save your wealth is buy Gold and Silver right? I looked back in history and every 30-40 years the paper money system collapses! And everybody reverts BACK to Gold and Silver. So start BUYING NOW…
Finally… after all these years of "silver dollar Dan" predicting problems in the you too can make money in real estate with no M2 money down… and that somehow paper gold and ETF silver never has made sense to supply side miners… well… and I shouldn't say it… "Told You So"
Barry Murray
Why is Dr. Kent Moore not giving his subscribers the stock for the russian exploration and only offers it to new subscribers?
Isabella
Worst…article…ever. Sensationalist garbage.
There are so many good comments here (and a few that seem from off this planet). Here is my take on hyperinflation.
Just to be clear… were ARE living in a state of hyperinflation right now. Though not readily visible in the commodities we consume every day (mostly because we have become comfortable with $5 hamburgers and $3 bread and $2 coffees this year and will tolerate paying even more next year), it is really evident in Trading Multiples of publicly traded companies. Just for a moment, let me just describe what may help in this understanding… the difference between rich and poor ( I hope some of you folks already get this ). Rich is a condition where everything you need is already abundantly with you. Poor is the state of the not having those things. You can't eat money… but with it and while it is taken as valuable, you can exchange it for what you need. Countries with resources are richer than those which need to import. And, companies with cash on hand and income are richer than those who don't. When companies have high trading multiples they have less revenues in support of their price in the market and are, in a sense, poorer than those with low multiples.
Here is the gist of it. When a typical private company has an income and a profit, the value of the company for beneficial sale will be some calculation about its current assets and its revenue stream forecast over a number of years to come. For a corner convenience store with a good business, that is something like 2 to 4 times its current year earnings. That value over top of the liquid assets is equivalent to the trading multiple – 2 or 4 years before a new owner is profitable. In the case of a real grinder of a public company in past years, we saw multiples of perhaps 5 to 20 times for a healthy company. But, where earnings from sales were weak and stock prices were high, multiples were large and in some cases very large (in the 100's). This a ranging band of multiples has been steadily moving higher and at a faster rate than in past decades effects more companies and creates a greater risk for shareholders.
I put to you that the reason for increased high multiples is the hyper rate of new money being injected into the economy and that companies losing, holding steady or only slightly growing profits show higher P/Es in response to these injections – more than it being caused by some irrationally exuberant buying motivation tied to supply and demand. Basically what ever neutral or negative action occurs to a company's profit (barring a whole bunch of other market noise), the multiples tend to increase until the company generates more earnings to overcome its rising costs, it gets bought into another company or de-lists/liquidates. This is because increase in money in the system makes purchasing power of more-real assets (like company shares or commodity inputs) increasingly costly. But, here comes the rub… if trading multiples are scaled against high-demand commodities like gasoline or metals, which have also increased in price for decades, then the trading multiples don't look so severe after all. What can be seen in what I call struggling 'hand-to-mouth' companies is a demonstration of trading multiples related its performance reports resulting from net revenues and actual profits. Because they are struggling, the effects of higher input costs are more easily seen.
What I hope to show with this example is that we are and have been experiencing hyperinflation for as long as we have been loading money unfettered into the economy. The rate of change of the multiple results from a range of factors, but the huge one is the injection of money that has been separated from it value to buy commodities. People and companies consume commodities. This separation effects all of us because we use money to exchange for essential goods, but which are subjected to higher costs. For some of those goods, we will settle for imported lower price/lower quality items because they may be 'good enough' for our needs. Wages have risen in response to the higher costs. They are not as high as they were few very years ago, but are still enormous when compared to the incomes of our parents generation and the one before that. The wages we get are big, but not big enough because they buy a lot less.
People could demand more money and employers could use more foreign content in their inputs, but both of these actions add to the cycle. Discussion about the hows and whys of stable growth rates are better for another time, but for now you should take away the notion that these are hyper-inflationary times and if the economy does not get a big reset, you can tell your grandchildren how much better and cheaper things were when you were their age.
This currency will disappear. It has been out lawed in Russia. Where or who is the next country that eliminate the use of Bitcoin?
Any answers for this question?