Boom, Doom, & Gloom Prognostication- High Chance of Hyperinflation
CMM June 23rd, 2009
In today’s world, it has become very difficult to sift through all the information available and separate it into valuable data and drivel. Personally, I think that 95% of what we see if the latter. Economics is no exception. This dismal science has long been criticized for its reliability. After all, economists like to make forecasts based on changing only select few conditions and assuming that all others remain constant. In the end, the chaos effect typically occurs and the best designed forecasts only survive through their first encounter with reality.
On CNBC, their is a brief boom, doom, & gloom commentary on the US having a high chance of hyperinflation in the next 5 to 10 years. The premise is that large fiscal deficits and easy monetary policy leads to a sort of tipping point where inflation begins to grow exponentially overnight. In layman’s terms, if the government continues printing money and continues debt spending, the demand for the dollar internationally will decrease and the value of the dollar domestically bottoms. Traditionally, the Fed has kept inflation under control by raising and lowering the federal rate. With the federal rate already at all time lows, that instrument has been disabled. There are still some interest rate adjustments that can be done, but none are as effective as lowering the federal rate.
At this point, the economy is perilously perched on this ledge. If inflation begins to mount signs of a return, the government has little strength to keep the economy on the ledge. Underestimating the future cost of education and health care (which is driven up by very immigration and welfare friendly policy), creates a very dangerous false sense of security on inflation growth. If President Obama expects to overhaul health care and increase it as a part of government expenditure and gross domestic product, it leaves this country even more inhibited. The more mandated government spending, the less discretionary money the government has to return to the people in the form of tax breaks/incentives and the less money the govenrment has for those responsibilities really preservibed in the social contract–national defense and security. There is no such thing as a strong defense without a strong offense.
In the end, I don’t have the necessary data or training to really derive any conclusions on how to handle inflation, but I can say that things are getting so complex that few are going to have the foresight and intellgience to really anticipate the future. I fully expect that unemployment will rise in the short-term, stocks will find a leveling point, and the value of the dollar will continue to get pounded in currency exchange.
