The Case for Hyperinflation in the US

By: Jeff Berwick | Tue, Sep 20, 2011
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Earlier this month, Gary North penned an article on LewRockwell.com entitled, "Mass Inflation, Yes; Hyperinflation, No".

In it he stated the following:

"The United States is not going to get hyperinflation unless Congress nationalizes the Federal Reserve System.

It will get mass inflation at some point: anywhere from 15% per annum to 30%. But it is not going to get 50% or 100% or more.

Why not?

  1. The temporary nature of the payoff
  2. The fear of getting blamed
  3. The boom-bust cycle

While he makes good points for each, we take exception based on historical precedent, common sense and factual data.


1. The Temporary Nature of the Payoff

Gary North states:

"Hyperinflation lasts only a few years. People in the hard-money camp ought to know this, but they tend to forget.

Those economic forecasters who keep telling us the dollar will fall to zero forget the obvious: big banks are creditors. Bankers lose when a currency falls to zero."

And, yes, that is correct. The bankers (who are all artificial, non-free market entities in this non-free market financial system) would lose everything if the currency goes to zero.

However, that has never stopped them before. In fact, during many of the hyperinflations of our time, including Weimar and the ongoing hyperinflation in Argentina, the last people to see the causes of the hyperinflation (money printing) are the central bankers and the economists of the banks.

Remember, they've all been brainwashed with modern day Keynesian economics, which is witchcraft and delusionary. They actually believe that inflation is caused by prosperity... and not money printing. That's why the following quotes were made during the Weimar Republic hyperinflation after they had already had thousands of percent gains in prices:

Germany Weimar Hyperinflation

And, even when the US dollar goes to zero, it does not mean the banks are out of luck. Not if they were like the French banks in the beginning of the 20th century. In a book published in 1912, called "Fiat Money Inflation in France", Andrew White recounts how the government changed the rules and stated that all debts increased along with the issuance of further currency, so that for every so many additional assignats printed, one's debts increased by 25%.

The US Government owns all the guns. It would not be beyond them to state that all debts held in dollars are now held in the New Dollar. Or, what they will likely name, the "Patriot dollar".

As Congressman Pete Stark stated, "The Federal Government can do most anything in this country."


2. The Fear of Getting Blamed

Here, Gary North states that thanks to the internet and Ron Paul, too many people understand what the Federal Reserve does and they won't allow them to go into hyperinflation.

He makes a good point here that the public is more aware than ever about the Federal Reserve criminal enterprise.

However, in order for Ben Bernanke to stop he would have to admit that everything he has focused on for his entire life and achieved has all been a lie. Not many people have this kind of ability to admit complete error in their ways after having their entire persona based on the false information.

Plus, the entire US media propaganda organization stands as ready and willing as ever to back the Federal Reserve until its dying days. Paul Krugman at the New York Times has been wrong for years and years about absolutely everything yet he is still thought of by many people as being a "smart" economist - despite his calling for a housing bubble after the tech bubble and now having resorted to stating that the best way to get the American economy on track is through a massive, fake alien invasion.

Krguman

Remember, that almost every US economics PhD, every major economist at most banks and people like Bernanke and Krugman will all have to admit they were all fools in order for them to stop with their Keynesian witchcraft. Most white, older men who look in the mirror and see they are monsters rarely admit their flaws... they tend to take us all down into hell with them rather than, as the Japanese say, "lose face".

In Japan, at least, when a finance minister realizes his policies haven't worked he usually kills himself. We can only hope for the same from Krugman and Bernanke.


3. The Boom-Bust Cycle

Here, Gary North states that because of the boom-bust cycle, the US will be forced to stop printing money before entering hyperinflation. As example, he states how Volcker was forced by rapidly rising prices to slow money printing and allow T-Bill rates to rise to 22% to stop the inflation.

There is only one problem with this. The US Government debt in 1979 was hardly anything as it had only been 8 years since Nixon delinked the dollar from gold. Today, however, the US Government (and most western governments, ask Greece) have had plenty of time to build up mountains of debt.

Today, as we showed here, an interest rate of only 11.1% will effectively take all real income of the US Government just to pay for the interest alone.

US Treasury Bond INterest Rate Historical Chart

In other words, raising the interest rates to even 11% this time around will destroy the US Government.

That's why Paul Volcker, who was on a "panel of experts" advising Barack Obama already quit and left town on January 5th of this year. He took out his calculator, punched in a few numbers, looked around and decided it was time to retire.

Greenspan left on similar premises right before his housing bubble burst.


CONCLUSION

Gary North makes some good arguments. And he very well could be right. But historical evidence, common sense and the amount of current US debt makes stopping this train towards hyperinflation a lot tougher job than it looks.

We aren't counting on it. Even if all we have is "mass inflation" our portfolios, heavily laden with gold and gold stocks will do very well. If we do get US hyperinflation, many dollar vigilantes are also prepared for that as well, having left or in the process of moving assets outside of the US, getting a second passport (like here in the Dominican Republic) or expatriating outside of the western world.

Hyperinflation isn't fun. And we aren't as convinced as Gary North that it is so impossible.

 

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Jeff Berwick

Author: Jeff Berwick

Jeff Berwick
Chief Editor
The Dollar Vigilante

Jeff Berwick

Anarcho-Capitalist. Libertarian. Freedom fighter against mankind's two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world's freedom, investment and gold conferences as well as regularly in the media including CNBC, CNN and Fox Business.

Jeff's background in the financial markets dates back to his founding of Canada's largest financial website, Stockhouse.com, in 1994. In the late '90s the company expanded worldwide into 8 different countries and had 250 employees and a market capitalization of $240 million USD at the peak of the "tech bubble". To this day more than a million investors use Stockhouse.com for investment information every month.

Jeff was the CEO from 1994 until 2002 when he sold the company and still continued on as a director afterwards until 2007. Afterwards, Berwick went forth to live on and travel the world by sailboat but after one year of sailing his boat sank in a storm off the coast of El Salvador. After being saved clinging to his surfboard with nothing but a pair of surfing shorts left of all his material possessions he decided to "live nowhere" and travel the world as spontaneously as possible with one overarching goal: See and understand the world with his own eyes, not through the lens of the media.

He went on to visit nearly 100 countries over four years and did and saw things that no education could ever teach. He met and spoke with a plethora of amazing people, from self-made billionaires to some of the brightest minds in finance - as well as entrepreneurs from a broad range of backgrounds and locations from tech companies in southern China to resource developers in Mongolia, Thailand, Russia and Chile. He also read everything he could find on how the world really works... politically and financially. A pursuit he continues to this day.

He expatriated, long ago from his country of birth, Canada, and considers himself a citizen of the world. He has lived in numerous locales since including Los Angeles, Hong Kong, Bangkok and currently lives in Acapulco, Mexico and is building a home in Cafayate, Argentina. In essence, everything he writes about here for TDV he has done or is doing.

As well, during his travels, both real and virtual (through the internet), he met some amazing people who have a similar shared vision of what is currently going on in the world and enticed them to come aboard TDV and provide their own brand of analysis.

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