Why isn’t the United States going to suffer from hyperinflation as outlined in the article below?
http://www.shadowstats.com/article/hyperinflation-2010
(Rather than just slam the author as being some kind of nut. Could someone actually refute the actual content of the article? or is that too much to ask?)
Granted its a long article, but please read it before commenting on it.
Moving from General Questions to Great Debates.
samclem, Moderator
That’s far longer than I care to read but I’ll presume that they just continue to parade around the idea that the government borrowed/injected so much money into the economy “that [it] never could be covered through raising taxes and/or by severely slashing government spending that had become politically untouchable.”
That’s impossible. To say that there isn’t enough money to be taxed is ignoring that all of the money that was injected is now sitting there in the economy waiting to be taken back via taxation.
Basically the way that a stimulus works is that as people stop spending money and save it instead, the government pushes an equal amount of money in as the people used to spend, so that demand stays the same and people aren’t put out of work. Of course, as people stop saving their money and start to spend again, you’ve got all that money plus all the money that the government added, together, causing inflation. So at that point the government raises taxes enough to take all the money they put in, back. Overall, the amount of money being spent in the economy stays the same and so prices stay the same. It’s just a question of who’s doing the spending at any given moment.
The only case where this wouldn’t be true is if all money that was injected into the US economy was immediately exchanged to another nation for food or some other destructible object that you can’t resell after use. It’s pretty hard to flush money out to some unreachable place, generally.
Couldn’t the Fed raise reserve requirements of banks to cut down on inflation once spending ramps up?
Well, we do have the benefit of seeing into the future, from the perspective of this article.
It’s updated to December 2009, and promises hyperinflation in the “year to come.” It’s now December 24, 2010, and it hasn’t happened.
But I did read through it, and sure eough, Sage Rat is right; the claim being made is that stimulus can’t be pulled back in as taxation, which betrays a systemic ignorance of economics so vast that it’s almost difficult to begin explaining why it’s wrong.
I read the article. Though some of the facts in the article are accurate, they are mixed indiscriminately with pure superstition and fantasy. To give just a few examples:
**“The era of the modern fiat dollar generally has been one of persistent and slowly debilitating inflation.” **False. Since the 1980s in the United States, the fiat dollar has had either a stable growth rate or even persistent disinflation. The end of the Reagan years was characterized by an inflation rate of around 4 percent, which is more than double the current rate. What’s more, core inflation is now the lowest it’s been in 50 years, more than my entire lifetime. He’s complaining about hyperinflation and the Fed debauching the dollar, when the inflation rate is lower than most of the population of the US has ever seen.
**“Ralph T. Foster… details the history of fiat paper currencies from 11th century Szechwan, China, to date, and the consistent collapse of those currencies, time-after-time, due to what appears to be the inevitable, irresistible urge of issuing authorities to print too much of a good thing.” **As opposed to what? Every single gold standard in world history, a full 100%, has failed. Metallic coinages have been continually debased. There is no currency in history that has ever been permanently stable. The focus on fiat money is deliberate, and dishonest, historical cherry-picking.
**“Unlike the untapped economic potential of the United States 145 years ago, today’s U.S. economy is languishing in the structural problems of the loss of its manufacturing base…” **False. US manufacturing has declined because we’re in a massive recession. Before the recession, US manufacturing output was at a historical high, despite the drop in manufacturing employment. We haven’t lost the base, it’s just not being used because there’s insufficient AD.
Mangosteen, we actually know what causes hyperinflation. It is not a mysterious force. It is caused, quite directly, by a government monetizing its debt, which the US has not begun to do. Though it is not technically impossible for such a thing to happen, what we are experiencing now is disinflation. We are experiencing the exact opposite of what your writer is concerned about.
If you have specific questions about specific claims that your cite makes, we can answer them (sometime next week after the holiday weekend for me). In the meantime, my suggestion is that you not rely on that website for information.
Hyperinflation? Seriously?
Even if you have all the debt monetization in the world, what kind of hyperinflation would you have without an attendant resource shortage?
Gasoline and other imports will be impossibly expensive, but it’ll mean an explosion in the number of apple trees and gardens. What’s the grocery store gonna do, come and charge me $1000 because I plucked one off my own tree? 
It may be a minority opinion but I think there’s a good chance U.S. will endure “deliberate” highish inflation at some point over the next decade; for one thing that’s the only straightforward way to achieve negative real interest rates.
But inflation is not hyperinflation. According to Wikipedia, thresholds for the latter range from “the International Accounting Standards Board’s a cumulative inflation rate over three years approaching 100%” to Cagan’s (1956) “inflation exceeding 50% a month.”
Thus it’s easy to conclude that in the article “hyper” was simply affixed to “inflation” as a scare tactic. That should cost it credibility.
I sure could use some good old fashioned hyperinflation right now. Inflate my bad property investment away, PLEASE OH PLEASE!
I think we are already seeing inflation (the beginning) anyway-take food prices-milk up (in my area) 65% over last year-beef-up about 40%. Gasoline is up a good 18% (in 3 months). I do think the enormous amount of fiat money created (by the stimulus/porkulus programs) will beging to take effect in the next 36 months.
Will we have hyperinflation? Probably not, but I can see substantial inflation (>10%/year). The claims about deflation are hogwash-I don’t see that.
Looking at data linked below, prices for milk haven’t gone up anywhere that much. Even if they rose that much in 2010, they dropped “catastrophically” in 2009. (Last link). They were around $12/cwt in 2009 and $15 or $16/cwt in 2010. In 2008 it was $18/cwt. The large variation (but still more like 50% than 65%) over two years is probably a good way to show that watching one commodity is a bad indicator for overall inflation, too. The low price of milk also means a small swing in terms of dollars is a large percentage swing.
http://future.aae.wisc.edu/tab/prices.html#19
http://future.aae.wisc.edu/outlook/cropp_dec_10.pdf
http://www.the-daily-record.com/news/article/4729703
It certainly is too much to ask, for a long article. Summarizing the article in the OP is your job.
How much time are we supposed to waste? I just scrolled the very long article to its very end and saw a graph intended to be scary that did not use a logarithmic scale even though such a scale was *** clearly appropriate***. Either the author deliberately misleads, or is too stupid to know logarithmic scales are appropriate to show price compounding.
I’ll stipulate the plausibility of inflation, but your author writes hyperinflation. In other words, he thinks U.S.A. will “pull a Zimbabwe.” Might happen, perhaps, if the farcical nature of American politics worsens, but … to claim it as the inevitable result of present problems? Sounds doubtful; can you summarize his argument?
For me, when it comes to these screeds the big giveaway is always that, at some point they say “Oh noes!! A dollar today is worth only what a nickel was in 1907. We’re going to hell in a handbasket!” Welcome to the modern world. A century ago, many if not most of the world’s advanced (and not so advanced) nations had a currency unit, one of which could out-purchase several pocketfuls of today’s dollars, pounds, or even Swiss Francs. The United States is not alone in this respect, and neither is it alone in the fact that our currency is an obligation of the central bank which is not redeemable in any tangible asset.
I do think our import and consumption based economy (or at least so it seems to me) does make us more vulnerable to ordinary inflation, and I don’t suppose trips to Europe will ever come back into reach of middle class vacationers who don’t want to travel rough, but these things do not hyperinflation make. Another troubling factor, IMHO, is too much population growth, but that too is a contributing factor only, and not a trigger for hyperinflation in the manner of Zimbabwe or Weimar Germany.