Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Two Reasons Hyperinflation Is Unlikely

Economics / HyperInflation Jun 27, 2021 - 05:41 PM GMT

By: Kelsey_Williams

Economics

The correct definition of inflation is “the debasement of money by government and central banks“.  

The effects of inflation show up in the form of higher prices for all goods and services.

Hyperinflation is defined as “out-of-control general price increases in an economy, …typically measuring more than 50% per month.”  (source)

There are two specific reasons why hyperinflation re: out of control general price increases for all goods and services, possible US dollar collapse, etc., is unlikely.


REASON NO. 1) FED INFLATION IS LOSING ITS INTENDED EFFECT

For the past century, the Federal Reserve Bank of the United States has been debasing the US dollar by continually expanding the supply of money and credit.

The effects of that inflation are represented by a loss in purchasing power in the US dollar of ninety-nine percent.

The inflation that is created by governments and central banks is intentional and ongoing. The Federal Reserve and other central banks expand the supply of money and credit so that member banks can lend money perpetually.

Problems arise when governments and central banks cannot keep the effects of inflation in check. Historic examples of hyperinflation are France in 1790s and the Weimar Republic (Germany) in the 1920s.

A different (deflation rather than hyperinflation) example  of a central bank being unable to manage the effects of its own inflation is the Great Depression in the United States during the 1930s.

Here is a chart (source) that shows annual CPI rates dating back to 1914…

Note that the chart begins with the year 1914, one year after the inception of the Federal Reserve. A cluster of double digit increases (green bars) in consumer prices ends in 1919.

What history refers to as the Roaring Twenties was ushered in by a collapse in commodity prices and an economic depression so severe that it lasted for almost two decades. Only in the cities and for the wealthiest people were the effects seemingly non-existent.

The cluster of red bars reflects the extent of price deflation that occurred during the 1920s and 1930s.

In 1941, the year the United States entered World War II, the CPI rate shot up to 10% and stayed at relatively higher levels for another decade.

Then in the mid-1950s, the CPI began a 25-year run of increasingly higher rates, peaking in 1979-80 at 13.29% and 12.52%; at that time the highest rates in more than thirty years.

Since 1980, CPI rates have declined steadily. Recent upticks notwithstanding, the CPI rate been trending down for more than forty years.

The last double-digit rates of increase for the CPI occurred in 1979 and 1980. Also, the average annual rate of inflation as measured by the CPI has declined in every decade since the 1970s.

Furthermore, the actual annual CPI rate has been below 4% every year since 1990 except 2007, when it came in at 4.08%.

This seems somewhat incongruous in light of the fact that the biggest and most brazen money creation by the Federal Reserve has come in the past two decades.

It is not so much important as to why this is occurring. What is important is that it is occurring and that the effects are a century old in the making.

Now think back a few years to the attempts by Fed officials to “talk up” higher inflation rates post 2008-2010. (see The Fed’s 2% Inflation Target Is Pointless)

And, remember how more than just a few people expected hyperinflation and much higher gold prices after 2011?

Regardless of any reasoning, conjecture, and analysis to the contrary, the facts are clear that the effects of inflation are not meeting expectations.

REASON NO. 2)  FED INFLATION IS FUELED BY CHEAP CREDIT 

In late 18th century France and in early 1920s Germany, inflation was practiced the old fashioned way – they printed the money into existence.

That led to absurd levels in pricing for various goods and services. This was evidenced by the fact that the price of one loaf of bread in Germany went from 14 marks to 200,000,000,000 (200 billion) marks in just three short years.

Today, most of money supply expansion by the Fed is digital in nature and credit based. This accomplishes the inflation creation more conveniently. It has also allowed the Fed to respond to financial and economic crises in startling fashion.

As a result, the entire world economy is awash in cheap credit. Companies and entire industries function on cheap and easy credit. Most of them would not be able to stay in business otherwise.

Unfortunately, the dependence on cheap credit has increased the vulnerability of our financial system.

When you consider a fractional-reserve based banking system, and retail sectors such as housing, automobiles, student loans, small businesses that are all funded with credit, the numbers are mind-boggling.

The situation is much worse when factoring in derivative investments that are priced  exponentially disproportionate to underlying investments of nominal or token value.

The use of leverage, i.e., borrowed money, dwarfs any underlying value, whether it be a house, a car, ETF, uncovered options writing, junk bonds, etc.

There is historic precedent for financial collapse following an abundance of easy credit by the Federal Reserve. The prominent example is the stock market crash in October 1929.

See the chart (source) below…

From its peak in August 1929 at 380 to its nadir in July 1932 at 44, the Dow Jones Industrial Average lost almost ninety percent. Most individual investors lost everything.

Buying on margin became so popular that by the late 1920s, “ninety percent of the purchase price of the stock was being made with borrowed money.” Not only that … the U.S. economy had come to depend on that activity. Before the crash, nearly forty cents of every dollar loaned in America was used to buy stocks.” – www.awesomestories.com – Oct 24, 2015

CONCLUSION

Extensive use of credit for speculative ventures is considered normal today. Any lessons learned after the events of a century ago have been mostly forgotten. For those who care to know…

  1. The risk of a multi-asset price collapse is greater today than any risks associated with hyperinflation.
  2. Historically speaking, long periods of entrenched inflation always end in economic collapse. 
  3. An economic collapse can happen either with (Germany 1918-23), or without (United States 1930s) experiencing hyperinflation. 

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2021 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in