Hyperinflation Coming?

In today’s article, I want to discuss why I believe hyperinflation could come and come in the next 5-10 years in the US. Many of the experts scoff at the idea that we could experience it because they say that if it were to happen that the Fed would just raise rates and kill consumer demand. 

So, let’s dissect this argument and why the logic is faulty. Let’s say inflation starts running away and jumps from 7, to 15, to 30%. The Fed responds by raising rates at three consecutive meetings to try and kill consumer demand. But we’ve seen historically that debt, massive debt and consumer confidence is what drives hyperinflation. In Weimar Germany when hyperinflation occurred, the German govt began printing money, or issuing bonds, so that they could pay their war reparations. As Germans began to notice that the value of their money decreased, they started spending it quicker and quicker increasing monetary velocity which ultimately led to higher prices. A death spiral ensued and hyperinflation followed. If we connect these events to the United States now, there is a common link- massive national debt. Now what hasn’t happened is the loss of confidence in the dollar by the people. 

However, there are several reasons to think this will happen although I don’t see it happening just yet. That said, it’s a great time to start planning, buying real assets like gold, silver and land. That way when it starts becoming more evident, you can be in a position where you have a lot of real assets on hand, which retain their value. 

The reasons that I believe this will happen are the following: 

1. Social Security is going bankrupt; in about ten years it is said that benefits will have to be reduced 77%. Much of the shortfall will have to be made up by issuing more bonds and hence adding more to the national debt. One other thing is that there is almost no tolerance for cutting benefits right now, so with less workers funding more retirees it’s very possible it could be depleted much faster. Other things like the gig economy and people working side hustles where they don’t pay ss taxes will lower the fund amount too. 
2. No appetite to cut fiscal spending. There’s simply no motivation to cut spending as politicians want to get elected or reelected. When was the last time someone really pushed this idea?
3. The Government has too many workers and its expensive to run. In addition, it’s getting bigger and bigger.
4. International investors will begin abandoning buying T-bills. This has already started but should get progressively worse. As overseas investors stop buying as many T-bills, the government won’t simply be able to pay off the bond by issuing another bond. The only way to entice more bond buying is to offer a higher rate, and again this adds more debt to the system.
5. Energy- It has helped push up prices the last few years as gas has gone up and those costs were pushed onto consumers. There’s been a massive push into green energy and the fact were not ready yet. I’m sure many of you saw the photos of people charging their car in the snow with no heat. Does that sound like something people want? Even Hertz is selling many of their Tesla’s. So, if natural gas, coal and other fossil fuels are restricted and there are no incentives, this is going to add more to the debt. 
6. War – there’s good reason to believe we could draw into a serious and expensive conflict in the Middle East. The situation is very fluid, and some say we are already there.

As you can see all my reasons tie to increasing the debt and essentially making the dollar worth less and less. Hyperinflation might not happen this year or the next few, but I personally believe it’s coming and something that real assets can protect you from. 

The issue here is that as this is happening the average joe and jane, will start to lose confidence in the dollar and that’s what hyperinflation is really about, perception, or loss of confidence.

Social Security – There’s Not Much Time Left