One of the great, albeit, lopsided debates that has taken place the last few years amongst those keenly interested in finance and economics has been over whether the forces of deflation or inflation would ultimately dominate. So far, the deflationists have held the upper hand. Employment has been moribund for years, ditto the share markets, and in most areas of the country, housing prices have cratered. And since the vast majority of people's (seemingly) ever diminishing wealth still resides in their homes, it is very hard to make the case, despite evidence of rising costs for consumer goods, food, and fuel, that the effects of inflation have been, to date, as deeply felt as those of deflation.
At this point it might be helpful to point out that hyper-inflation, a dreadful condition that has most recently ravaged Zimbabwe, and that most notably occurred in the last century in such varied locales as Weimar Germany, Argentina, and Chile, is, despite the seeming similarity to inflation, a very different animal. Hyper-inflation occurs when a nation's currency is, in effect, shunned, which tends to be the result of a total and relatively sudden loss of confidence in the issuer of said currency. Inflation, by contrast, is generally a healthy development that comes about as a result of a fully functioning economy simply overheating.
There is nothing healthy about hyper-inflation. In fact, it is so nasty that, after wreaking absolute havoc, economically, politically, and socially, it generally burns itself out in a year or so. There is no evidence in modernity of hyper-inflation occurring in a currency that has held global reserve status, and that is the primary reason commentators invoke against the possibility of hyper-inflation occurring in the U.S.
The other reason that many "experts" offer for why it can't happen here, a reason that is, in essence, inextricable from the idea that the U.S. Dollar's reserve currency status will forestall hyper-inflation, resides in a belief in the indomitability of the U.S. monetary authorities. The basic idea is as follows: The Federal Reserve, The Treasury, and the broker dealers that work closely with these two institutions will not collude to monetize to a degree that will ignite hyper-inflation, because it is not in their interest to bail out borrowers at the expense of lenders. Despite sitting on trillions of dollars of non performing, (i.e. worthless) assets that can not be allowed to sit on balance sheets forever in their vastly depressed state, to head down the road of hyper-inflation would destroy The Federal Reserve's most prized asset, its dollar franchise. The goose that laid the golden eggs would be well and truly killed.
These arguments have several flaws, one of which is that the U.S. dollar is already in the process of losing its reserve currency status. It is happening slowly, and in fits and starts, but the wheel is rolling down the hill nonetheless. The rest of the world has been badly burned by the profound corruption in our capital markets and political sphere, and they are taking steps to insure that they will not be the bag holders of tomorrow.
As for the vaunted power of the U.S. monetary authorities, only in the sort of system we don't live in, namely a closed one, can their formidable power be, in theory, unassailable. The Federal Reserve and The Treasury do indeed have massive, if not unimpeachable, strength, but it is my view they have already squandered a great deal of their wherewithal in the service of a plethora of scams and frauds-see gold and silver suppression, and, of course, the much better known, but hardly transparent, exchange of toxic assets for currency. So, in short, the U.S. dollar is a currency whose days as the globe's reserve monetary unit are numbered, and the U.S. monetary authorities have, despite surface appearances, squandered their advantage and compromised their authority through various execrable endeavors.
Having said that, nobody wants a hyper-inflation, which may, in the end, be the main reason why one won't come about. However, my view is that the aforesaid wayward deeds of the U.S. monetary authorities are all that stands between us and the onset of wheelbarrow money. When, for whatever reason, their machinations are finally sundered-they are already exposed, but to date, no one in our thoroughly corrupt political environment seems remotely interested in addressing them-we will likely be hours away from a full blown hyper-inflation as they have an unerring and alarming tendency to emerge with blinding speed.
At this point you may be wondering what the title to today's blog entry has to do with what I've written about so far. Here's a hint: The authorities, monetary and otherwise, are, in my view, very aware that our financial system and economy are in a terminal state, and that the risk of an uncontrolled currency collapse-as opposed to their far more preferred scenario of a contained, slow moving one- is far from inconsiderable. What do you suppose they might have in mind to forestall, or at the very least, divert attention away from, the inevitable day of reckoning?