10 Reasons Hyperinflation is Unlikely in the U.S.

Most people don’t understand much about inflation, other than knowing that prices tend to rise over time.  They tend to give little thought about the reasons that the general price level rises.  Some will blame it on greedy corporations and capitalism, while there is a minority that will correctly link rising prices to monetary policy.

The definition of inflation has changed over time, and we can credit the statists for this trick.  Inflation, which once meant an increase in the money supply, is now defined by one of the consequences of inflation, which is rising prices.

Aside from the central bankers themselves and a few of the elites who benefit from having a central bank, most people don’t understand the process of creating money out of thin air and the consequences.  It is actually the critics of central banking who tend to have the greatest understanding.  This is why they are the critics.

With that said, there are some who travel in libertarian circles who are predicting hyperinflation at some point down the road.  I certainly don’t think this is impossible, even in the United States, but I do think it is unlikely.

For the purposes of this post, I’ll define hyperinflation as an increase in the general level of consumer prices of at least 50% per month.  For consumer price inflation to rise at this level, you would almost have to have a massive increase in the money supply (much bigger than QE1, QE2, and QE3), and there would have to be a severe lack of trust from the general public.

Here are 10 reasons that I think hyperinflation is unlikely in the United States.

  1. The central bankers and politicians have their savings and pensions denominated in U.S. dollars.  Unless they are secretly buying massive amounts of gold for themselves, they are not going to want to wreck their own retirement plans.
  2. The central bankers would lose much of their power if we had hyperinflation.  They depend on their control over others by controlling the currency.
  3. While we speak negatively of lobbyists in the U.S. (as we should), they do serve a purpose of keeping things from getting out of control, at least in some aspects.  The central bankers and politicians aren’t going to ruin the dollar at the expense of all of the lobbyists who line their pockets.
  4. While inflation can mitigate the debt in a sense, it does nothing to solve the biggest fiscal problem, which is the unfunded liabilities.  The government could reduce Social Security benefits by understating the cost-of-living increase for benefits, but it probably already does that.  And for Medicare, all of the medical costs would rise uncontrollably in a hyperinflation scenario.  Inflation doesn’t solve these unfunded liabilities.  It can only change the nature of the default.
  5. The U.S. dollar is still considered the world’s reserve currency.  While this won’t last forever, there are no other major currencies that are in good shape.  If you think we will see hyperinflation because of the national debt and a bubble economy, take a look at China, Japan, and much of Western Europe.  All of these places are in even worse shape than the U.S., economically speaking.
  6. The U.S. government and the U.S. consumer are subsidized by foreign central banks buying U.S. government debt.  And while this may not last forever, there is little indication that things are changing any time soon.  The U.S. government enjoys this subsidy, and the mercantilist foreign central bankers keep providing it.
  7. Since Ron Paul ran for president in 2007/ 2008, there are more critics today of the Federal Reserve than at any other time in the Fed’s existence.  These critics help keep a check on the Fed.
  8. To go along with number 7, today we have Facebook, Twitter, and many other forms of social media.  While your friends probably aren’t posting about the Federal Reserve (unless you have some libertarian friends), things would change quickly if price inflation ticked up into the double digits.  You would start seeing more links about inflation and how the Fed creates money out of thin air.  More Americans would become aware of the Fed and its damage if inflation really started to impact them in an apparent way.
  9. In U.S. history, except during wars on U.S. soil, consumer price inflation was at its worst in the late 1970s.  Jimmy Carter got Paul Volcker in at the Fed to severely tighten monetary policy.  This was approved by the establishment.  The people in power will not willingly allow hyperinflation and a total loss of the dollar.  At some point – maybe a 20% CPI – even Paul Krugman might say “enough”.
  10. Hyperinflation would mean a drastic reduction in the division of labor and a possible implosion of the banking system.  It would put most Americans into severe poverty.  Politicians and central bankers like to eat out at nice restaurants.  They enjoy their smartphones too.  They are probably not stupid enough to risk all of that, let alone their livelihood.

Again, hyperinflation is not impossible in the United States, but it is highly unlikely.  A more realistic possibility is that we have something similar to the 1970s again, where consumer prices are rising in the double digits on an annual basis.  This is something that you can more realistically prepare for, and something you should prepare for.

Leave a Reply

Your email address will not be published. Required fields are marked *