Are We On The Verge Of A Hyperinflation?

Are We On The Verge Of A Hyperinflation?

There are those who believe that the U.S. is set to attain an inflation rate that is 1,000% or higher

Hyperinflation typically referred to as a series of extreme, out of control price rises, is not common in advanced countries. It’s because true hyperinflation needs to achieve a very high threshold, which is an inflation rate of 1000 percent or more annually as per the majority of analysts.

 

The U.S. Federal Reserve System (FRS) declares that an annual inflation rate of 2.2% is “most compatible in line with Federal Reserve’s mission to ensure the highest level of productivity and for price stability. 2

 

The rate of inflation of the United States in 2021 was 6.6%. For 2020 the inflation rate was 1.2 percent and 1.9 percent for the year 2019. The highest the rate at which inflation has been since the year 2011 which was 3.5 percent.

Inflation and Economic Equilibrium

In the field in economics the term “equilibrium” is an ideal state where demand and supply are perfectly balanced. Simply put, the quantity of goods available is the amount of buyers who would like to purchase these items. When the economic equilibrium is in disarray (which is usually the majority often) this is known as disequilibrium. The most likely cause for disequilibrium is inflation..

In the event of disequilibrium caused by inflation, the prices of products and services increase in response to the inequities between demand and supply. The result is a decrease in the buying power for your dollars. Inflation is the reason that items that cost $1 today may cost $1.25 one year from now. For the majority of people this is how things work. 4

 

Hyperinflation: The Inflation Has gone Amuck

Hyperinflation is a different thing. It is inflation on steroids. In the case of hyperinflation, a $1 item today may cost you $10 or $50 over the course of the next period of. 1 According to Anders Aslund of the Peterson Institute for International Economics, hyperinflation is only a possibility under particular circumstances, like the disintegration of a currency following wars, when the fiscal authorities are unable to control the situation or when populism reigns.

A striking instances of hyperinflation that has ever occurred was during the period following World War I in the Weimar Republic of Germany. Through the effort to pay for war reparations and expand the economy simultaneously it was discovered that the German government produced enough money that a massive gap between the demand and supply was created, which led to the rate of inflation reaching 322% per month, or the annual average of over 3.0 billion dollars The rate was more than 3 billion percentby December 1923. 6

 

The table below shows the effects of annual inflation that is normal (2 percent) in addition to hyperinflation (1,000 percent) on the price of certain items included in the basket of services and goods which are covered with the Consumer Price Index (CPI), used to determine the rate of inflation for the U.S.

Item/Service 2020 Price 2021 Price Including 2.2% Inflation 2021 Price with Hyperinflation of 1,000%
Cup of coffee $2.00 $2.04 $22.00
Gallon of milk $3.50 $3.57 $38.50
The shirt for men $60.00 $61.20 $660.00
Insulin (vial) $95.00 $96.90 $1,045.00
55-inch TV $400.00 $408.00 $4,400.00
Two-bedroom apartment rent $2,000.00 $2,040.00 $22,000.00

 

Source Writer Calculation

The causes of inflation

Economic experts recognize two main sources of the rise in inflation: cost-push and demand-pull. Cost-push inflation is when the price of production rises (e.g. due to rising costs for raw materials or increases in wages). This leads to an increase in the cost of items and services because producers pass the price increase onto consumers. In the case of cost-push inflation, costs are “pushed” upwards by the cost of production that is rising.

 

Demand-pull inflation is when the supply is not sufficient to demand. The demand can rise because of a robust economy, a natural catastrophe or an excess supply of money. In these situations demand exceeds supply, which “pulls” prices up.

The causes of hyperinflation

The two major causes of hyperinflation is (1) an rise in the amount of money in circulation that is that is not backed through economic expansion, that can lead to an increase in the rate of inflation and (2) the demand-pull effect of inflation where demand exceeds supply. The two causes are related since both are overloading the demand part of the equation of supply and demand.

 

The rise in the supply of money is usually triggered by government intervention similar to what took place during Germany during 1923. If the government pumps cash into the system, hyperinflation could be the result. The effect of demand-pull inflation occurs because the people have more money, leading to a desire to pay more that increase the amount of demand.

Hyperinflations are rare.

As you can see, hyperinflations, such as the one in the previous paragraph, can be fiscally devastating to a country. However, they are uncommon. Aslund goes as far as to describe hyperinflation as “an insignificant issue for ordinary economic policy. 5

 

Hyperinflation may occur when the government print more money to respond to the onset of a crisis, like during the Weimar Republic. It doesn’t have to be one of war. It could be due to a weak economy, illness or natural disasters or even a feeling of fear that leads people to accumulate. Of course, this reduces supply, which in turn increases the demand.

 

All of these in the event of being taken to the extreme, could lead to hyperinflation. As Aslund points out However, it is rare that this causes hyperinflation in normal monetary policy.

However, Rumors Continue to Persist

In spite of the very high threshold to reach hyperinflation, there’s a few who believe that’s the direction that it is that the United States is headed. Here are a few examples of recent blog posts on the internet showing various methods:

 

Deficit-to-outlay ratio tops 60%, well above the threshold for hyperinflation of 40 percent. 9 — Albert Sung

Eventually all major Nation State Empires collapse and their citizens lose faith in their leaders, and together, the currency they distribute. This has been the case at times in Ancient Babylon, in Egypt, China, Rome, several of the leading nation states in Europe and will eventually impact in the U.S. when the American citizens decide that they prefer to be a free people instead of being slaves to an unpayable national debt whose value will eventually take up more of the budget of the federal government than military spending.” — Joseph Holleman

Are The United States Actually Headed for an Inflationary Crisis?

A few people might think that way. But most authorities say, “No.”

 

Economic analyst Asher Rogovy attacks the persistent internet rumor that suggests the U.S. is printing too amount of money, and that this could lead to hyperinflation.

 

Rogovy: Rogovy, “In the U.S. the central bank does not make payments on loans using the money it generates. Instead it lends money to the public at the rate it has set while the private sector makes use of the capital more effectively. The money is then repayable in full, which is the primary reason why this policy of monetary regulation doesn’t cause hyperinflation.”

 

The Professor L. Burke Files of Hayek Global College suggests that hyperinflation is not likely in stable economies, such as that of U.S., in part because of cost-control elements that are made possible by a global economy. “The interconnectedness worldwide,” Files says, “is the “pressure relief valve’ that is used by most nations. Countries which print a ridiculous amount of money, such as Zimbabwe or try to manipulate their currency or limit trade, such as Argentina–become the exceptions.”

“I do not think that inflation will be so at a low level as Federal Reserve’s inflation forecast of 2%” states Jim Pendergast, senior vice president of altLINE. “That said, I’m not convinced we’ll see the types of hyperinflation that are featured in these headlines about apocalyptic events. It’s likely to be a mixed bag due to a particular sequence of events that linger after COVID.”

 

In the end, attorney Steven J.J. Weisman Esquire., addresses what He calls the possible “scam” part of some hyperinflation stories on the internet. “Sometimes reports like this are fabricated to be shocking enough to get people to read the articles that are published on websites that pay advertising depending on the number of clicks they earn,” says Weisman.


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