The Path to Hyperinflation
by Jordan Roy-Byrne
May 27, 2010
As we’ve discussed recently, persistent deflationary forces do not augur for a repeat of Japan circa 1990s or the US in the 1930s. Instead, because of the inability of government’s to finance their current and future debt burden (there is a dearth of domestic savings and global capital), deflationary forces will ultimately lead to severe inflation or hyperinflation. In today’s missive, we explain how this will happen but in various stages.
In the first stage, the economy enters a recession after a large credit bubble. The recession and end of the credit bubble lead to deflation. As a result, the US Dollar and US Treasuries outperform. Think 2008.
Policy makers (a term for interventionist bureaucrats) then provide stimulus via monetary easing and deficit spending. Gold and gold stocks outperform with silver not far behind. Think late 2008 to early 2009.