Hyperinflation Signs

There are a few more signs of currency hyperinflation coming to the US and the world. For background see recent posts about Hyperinflation 2013, and Scared about hyperinflation.

–Update: Latest post on Global Hyperinflation

First, from a global perspective, the Wall Street Journal says even the Swiss are printing money now:

The nation’s central bank is printing and selling as many Swiss francs as needed to keep its currency from climbing against the euro, wagering an amount approaching Switzerland’s total national output

When even the staid Swiss are printing money, this is a dark sign of not just US hyperinflation, but something we’ve never seen before – a global hyperinflation, with hyperinflation across several (or all) of the major currencies and countries.

Also from a global perspective another WSJ article echoes widely reported news that foreign investors are buying up US treasuries.

Private foreign investors bought a net $60.9 billion in long-term U.S. securities, triple the amount bought in October, according to the Treasury’s Department’s monthly international capital report.

The accumulation of dollars increases the risk of a massive deleveraging when those holding the dollar begin to fear inflation. Because there are so many dollars being held by various investors, there is that much more that will flood the economy and cause inflation to spike.

Hyperinflation is fueled by inflationary expectations. If people think that prices are rising, there are dual effects of those expectations. On one side sellers raise prices further in anticipation of higher prices the next day. On the other side those who hold money realize it will buy less tomorrow so they spend the money more quickly. Both of these accelerate the inflation.

Now add into this that there are certain entities holding large piles of cash. An example is the foreign currency reserves held by certain countries. At the top of that list is China’s foreign reserves, holding over $3 trillion, including roughly $2T in “dollar-denominated assets.” There are also reports of companies sitting on cash (“$1.5 trillion for the Standard & Poor’s 500″), and banks with piles of cash.

What will these entities do if they start smelling inflation? If they’re smart, they’ll start spending the cash, buying up assets that will hold their value. If it happens quickly, we end up with a massive deleveraging of cash positions and money flooding into the markets. The increased supply of money will reduce the value of that money – or in other words, it will raise prices in dollar terms.

So we have some signs now that hyperinflation is closer to happening – such as the idiotic trillion dollar coin idea, amount of money the Fed has been printing and now even the Swiss doing it. At the same time the floodgates are ready to burst at any time unleashing torrents of cash into the markets.

In some ways watching for hyperinflation is like being Chicken Little. A lot of us are sure hyperinflation is coming, but no one believes it until the sky crashes down on our heads.

Update – 2/5/2013:

Two articles in today’s Wall Street Journal go further into concerns about hyperinflation brewing. Both are on the front page of the Money & Investing section, right next to each other.

First, Currency War Has Started relates directly to the point above about the Swiss printing money.

The world isn’t “on the verge” of a currency war … but right in the middle of one. … As developed countries like Japan and the U.S. try to kick-start their sluggish economies with ultralow interest rates and binges of money-printing, they are putting downward pressure on their currencies. The loose monetary policies … spill over into the currency world. … These moves … are stirring the pot in Europe. The euro zone … now finds itself in the invidious position of having a contracting economy and a rising currency. … The dirty secret is that using monetary policy to weaken a currency … is a shortcut to avoid unpopular decisions on fiscal and budgetary issues. … How will it end? There are two binary results: apocalypse or redemption. James Rickards … predicts the former. “People ask me who’s winning. I say nobody,” he told me. “I expect the international monetary system to destabilize and collapse. There will be so much money-printing by so many central banks that people’s confidence in paper money will wane, and inflation will rise sharply.”

And in the next article, Money Funds Beset By Cash, we see the money that’s been printed looking for somewhere to go.

The flood of money is prompting the funds, which buy short-term, top-rated debt, to seek higher returns in investments that until recently were seen as too risky, including French bank debt. … Some investors could pull cash from money funds, weighing other opportunities if the economic outlook improves. But many investors have stuck with money funds despite years of paltry returns. And yields are unlikely to rise significantly as long as the Federal Reserve is purchasing Treasuries under its latest stimulus measure, which is widely seen continuing into 2014.

The threat of hyperinflation is looming larger. And we can see where this might be heading as we look at an article in Forbes Magazine about Inflation in Argentina.

Argentina … has ordered a price freeze on food products …. The price freeze applies to the largest food retailers, which account for seventy percent of the market. … Market demand will spill over to small retailers who cannot satisfy the demand for food products. Their prices will rise …. Customers of large retailers will stand in line hoping to buy at the frozen price. There is no assurance that there will be anything to buy when they get to the front of the line. … black market sellers will offer customers goods at much higher prices. … Corruption will spread throughout the economy and into government ….

Are we far behind Argentina? Or is Argentina just the start of global hyperinflation? Sadly, we are going to find out rather soon.

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