Potential Future Hyperinflation

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By Stephen Lendman (about the author) Page 2 of 4 page(s)

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Time alone will prove him right or wrong. But given current economic conditions, the financial malpractice that precipitated them, continued mismanagement since then, and resultant dangers they created, it pays to examine his analysis. It's not for the faint-hearted and hopefully won't bear out. But it's happened before at other times in other countries, and when it hits it ruins lives and savings. Is America now headed for that type future? Williams thinks so, and here's his argument.

He sees the US economy in an "intensifying inflationary recession" heading for "a hyperinflationary great depression." He expects it as soon as 2010, maybe sooner, and "likely" no later than in a decade. Blame it on reckless monetary and fiscal policy - creating torrents of money, borrowing outsized amounts, and spending ourselves into bankruptcy by supporting short-term "big-monied special interests."

Things are so out of hand, Williams sees "no way of avoiding a financial Armageddon." We're nearly or already bankrupt; are creating money to cover our obligations; the more we print, the more we need; it's fiat currency unbacked by gold; and every new dollar created dilutes the value of all others in circulation. Double the money supply, and presto - every dollar is worth 50 cents. Double it again, and you get the point. We've been doing it for decades, especially since Nixon closed the gold window in 1971.

At some point, the music stops, the dollar collapses, it becomes worthless paper, and related dollar-demoninated paper assets go down with it. Williams quotes a law professor who experienced Weimar Germany's hyperinflation first hand. It was the worst by far ever recorded. "It was horrible. Horrible! Like lightening it struck. No one was prepared." Shelves in grocery stores emptied. "You could buy nothing with your paper money." At the trough in 1923, the mark plunged to an astonishing 4,200,000,000,000 to the dollar.

Can it happen here? It might, and rising world inflation is worrisome. Analyst Bob Chapman's International Forecaster reports current US inflation at 12.5%; China's 8.5%; Russia's 14%; Gulf oil producers on average 12%; India 8%; Indonesia 12%; Brazil 5%; Chile 8.3%; Venezuela 29.3% and Argentina 23%. This likely plays into the European Central Bank's (ECB) reluctance to cut rates and the Bank of England's holding off on further ones. It's also a factor affecting dollar weakness and rising gold prices that hedge against depreciating currencies and geopolitical uncertainties.

Williams is justifiably concerned as inflationary pressures build. First some definitions. Inflation results from a money supply increase that causes prices to rise. Williams refers only to goods and services, not financial assets like stocks and bonds. He also leaves out speculation and market manipulation that's key to understanding high oil and food prices. Markets don't move randomly. Big-monied speculators move them, but that's a separate topic from what Williams addresses.

He mentions various types of hyperinflation. They range from the double or triple-digit kind, several-fold that level, to what happened in Weimar Germany when it went to infinity. Once the genie is unleashed, there's no telling how bad things may get. Williams sees them getting pretty bad. So much so that dollars get dumped, holders flee to safety, and a downward spiral intensifies with no idea of a bottom.

In his view and others, the culprit is fiat currency, without gold backing. Its worth depends solely on the full faith and credit of the issuing government. Absent that and currencies crash. Print too much of it, and that's its future. Examine Fed policy under Greenspan and Bernanke, and draw your own conclusions.

They've been virtual money-creation machines unmindful of the history they should know. By issuing too much of a good thing for too many years, they fueled asset bubbles. When they burst, they made things worse and may now have headed the economy for collapse. In Williams judgment, America today is no different from other nations in other eras that followed similar policies. They all met the same fate, and today this country has already "obligated itself to liabilities well beyond its ability ever to pay off." Not a cheery assessment, and he's not alone believing it.

More definitions:

-- Deflation - a decrease in goods and services prices, generally from a money supply contraction;

-- Inflation - the reverse of the above;

-- Hyperinflation - extreme inflation, as explained above, to a level where money becomes worthless or nearly so; according to Williams, the coming hyperinflation is because of a "lack of monetary discipline formerly imposed....by the gold standard, and a (Fed) dedicated to preventing a collapse in the money supply (and preventing) the implosion of the (ongoing) extremely over-leveraged domestic financial system;"

-- Recession - officially defined as two or more consecutive (inflation-adjusted) GDP contracting quarters; many economists don't agree on this, and some gauge conditions by the relative strength or weakness of industrial production, payroll employment, retail sales, and so forth; add it up and clearly the US is in recession; how bad and for how long will only be known in time;

-- Depression - a recession "where (inflation-adjusted) peak-to-trough contraction exceeds 10%; and a

-- Great depression - one where the peak-to-trough exceeds 25%. It happened only once so far in US history in the 1930s.

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I am a 72 year old, retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.

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