4 warnings of Hyperinflation from credible sources!

Ok, so you think we are in a deflation in the US, and Hyperinflation is a remote possibility.  Well things are not so simple.

Inflation and Hyperinflation are two very different things. Inflation relates to excessive economic growth, while Hyperinflation relates to a loss of faith in the currency.

At this time, the Federal Reserve is buying US Treasuries if there is no demand for them. All it will take is a run on treasuries, that will trigger the Federal Reserve to raise the rates offered on US Treasuries to stop a run. Unfortunately , any increase in interest rates will create a severe fiscal problem as the US Government will then see significant increases in their annual deficits.

This is the most basic scenario that could lead to a loss of confidence in the US dollar (aka-- hyperinflation).

Currently inflation in the US is running above 5% (that is the measured reality, unfortunately the official number is much lower).

Without getting into too much economic Jargon:

The US Monetary base (ie: notes in circulation, what is often called "base money") has been stable at around 1 Trillion for the past 10 years. Since 2008 it has more than doubled to 2 trillion.

The Monetary Base has doubled since 2008 (grey).

In our fractional reserve system, this money is then lent out to banks, and through repeated cycles of lending becomes the money supply whose measure is M3.

The Federal Reserve stopped publishing M3 the broad measure of money in circulation in 2006. It can be calculated indirectly and the above chart shows what is happening.  Since 2008 M3 has gone from from 15 Trillion to nearly 20 Trillion.

Not since the great depression, have we seen a contraction in M3 as it has since the middle of 2009 contracted back to 17 Trillion effectively indicating a decline in money stock, even though base money has been increased.

So right now the US is in a deflation, but with all of the increases in base money, inflation will pick up in the long run (ie: 3-5 years from now).

If there is a loss of faith in the US currency, then Hyperinflation will occur. That risk is increasing now as we enter the second leg of this crisis.



Over at Zero Hedge:

Zero Hedge Article on Hyper-inflation


Over at Market Watch:

Market Watch commentary on warning by Schulz

and Shadow Government Statistics has issued a full warning:

SGS Special Report on Hyper-inflation

Alan Sinai

Bloomber Interview with Alan Sinai



I am currently researching the US Budget , and will be posting Part 2 of what caused this crisis, in a few days.