Bond Market Crash Is ‘Inevitable’ And Hyperinflation Will Happen: Hyperinflation Happens When Government Debt Is Over 80% Of GNP & The Deficit Is Over 40% Of Government Spending. The US Is At Or Near These Numbers.
October 26th, 2012
Frequently Asked Questions on Hyperinflation
The following are frequently asked questions or objections common among hyperinflation skeptics. The statements or questions in bold below are things hyperinflation skeptics say and my responses follow.
How is hyperinflation defined?
The International Accounting Standard of IAS 29 says there is hyperinflation when “the cumulative inflation rate over three years approaches, or exceeds, 100%.” This works out to 26% per year. There are many other definitions for hyperinflation but they almost all have something like “inflation over X per year” or “inflation over Y per month.” People pick some level of price inflation as the cutoff between regular inflation and hyperinflation. It is just the values for X or Y that differ. Note that hyperinflation is not defined in terms of the moneysupply alone, since the velocity of money and GNP are also key factors in the price level during hyperinflation. Hyperinflation is a process, a positive feedback loop, that once entered is very hard to get out of. This process can go on for years.
Is there a real chance the US dollar could get hyperinflation?
Hyperinflation happens when government debt is over 80% of GNP and the deficit is over 40% of government spending. The US is at or near these numbers, so the danger of hyperinflation is real. What happens is that the more the central bank prints money and buys bonds the less other people want to hold bonds. But the less other people hold bonds, the more the central bank has to buy them so the government has enough money to spend. You get a positive feedback loop or death spiral.
The government or central bank would never decide to have hyperinflation.