Peter Schiff is an investor and fund manager who is famous for accurately predicting the eventual 2007-2008 financial and real estate market crashes, especially as a minority voice who wrongfully took a lot of derision for his courage. His podcast channel is also among my recommended sites, especially for understanding the nature of the economy and financial markets, and how both are rigged against the common person and destructive to liberty.
On many of his podcasts, blog posts, and interviews such as this one, he, along with a host of others well-educated in real, Austrian School, economics like Marc Faber, warns about impending hyperinflation. It is true that inflation is not only wicked and has been in effect for the past several decades, destroying the value of people’s earnings, savings, and other investments. It is also true that other countries in history that have committed the cardinal sin of fiat money like Weimer Republic Germany, Zimbabwe, and Argentina, have all experienced hyperinflation, resulting in widespread supply shortages and mass poverty. However, hyperinflation is quite unlikely to actually hit the United States. I will start by defining hyperinflation and then explain why it is quite unlikely to happen in the United States.
Inflation, the smaller degree of hyperinflation, is simply the increase in the money and/or currency supply; that’s it, nothing else. While increased consumer prices may be defined as inflation, such a disaster is the effect CAUSED by inflation, not the essence of inflation. Hyperinflation is an increase in money supply to a much higher level than the existing level at the time of committing hyperinflation. This point is critical because right now, as Joel Skousen explained in the February 14, 2014 publication of his World Affairs Brief commentary, “There has to be a huge percentage inflation of the money supply to cause hyperinflation, and the base of dollars worldwide is at least 10 times larger than any other currency—at least $200T in and out of circulation (the US only counts the dollars in circulation). That means the US could create $20T per year(roughly the total amount of the national debt to end the year 2019) and it wouldn’t exceed the 10% monetary inflation level—that’s hardly hyperinflation, and the US is creating only about $3T per year, so they have a lot of room to maneuver still.” Printing of fiat money is the only one out of two required conditions for hyperinflation to become reality.
In the United States, people have had time to adjust to the consistent 5-9% inflation in effect for the past several years, and decades. In order for hyperinflation to take effect, inflation would have to exceed levels higher than 20%, instead of 5-9%; if that did happen, then that’s when the cascade of panic buying, supply shortage, and third-world poverty such as that in Zimbabwe and Venezuela would reach American shores. However, if inflation did exceed 20% and caused consumer prices to skyrocket, then as a citizen in the economy, if you can’t raise your salary or other earnings to keep up, you would have to curtail your spending, which is the deflationary effect that would preclude hyperinflation. At that point, people realize the inflationary damage and start demanding the government to take actions. What actions? Direct payments, like Universal Basic Income and even the COVID-19 bailouts, and demanded forced salary raises. As the companies that can raise salaries per mandate do so, workers can now keep up with rising prices due to inflation, start spending again, and ONLY THEN, with INCREASED SPENDING ACCOMPANYING INCREASED MONEY SUPPLY, does hyperinflation become a reality.
Without an automatic increase in income payments, there can be no hyperinflation. In Weirmar Republic Germany, as Skousen also explains, “the government actually took over a large portion of wages in the industrial districts after France commandeered all production in order to pay war reparations that Germany had defaulted on. Then they implemented welfare, automatic pension increases, unemployment compensation and so forth.”
With a much lesser amount than 20% of the overall GLOBAL supply of U.S. dollars, the Federal Reserve has been able to bail out Wall Street Banks, insurance companies, and other inherently socialist and reckless institutions. Other currencies don’t have nearly as large a base as the U.S. Dollar, and so those currencies are far more subject to the hyperinflation risk, but again so long as wage indexing is also practiced in countries where those other currencies are conventional money.
While there is a major bubble, the massive derivates market. which amounts to $500 trillion as of 2014, that if popped, could cause a significant loss of confidence in the U.S. dollor, even that isn’t likely. Skousen explains how/why:
“These two bubbles could create a panic of confidence, but even that isn’t likely given that the monetary powers control the regulators. They successfully defused the first derivatives crises in 2008 when they bailed out AIG. With insider control the regulatory powers they have the sole discretion to declare a default. Without a declaration of default the derivatives insurance contracts (CDS) don’t kick in. For example, when they forced Greek debt holders to take a 50% haircut, the EU bankers had the audacity to say Greece was not in default—thus depriving investors of access to the derivative insurance contracts they had purchased. Slick.
In summary, in order to have hyperinflation, you not only need to significantly increase the existing money supply, you also have to raise people’s wages to create the essential spending in order for hyperinflation to become a realty, neither of which would be easy to do regarding the U.S. Dollar.