Hyperinflation: Will It Happen Here?

I frequently hear fearful whispers of “hyperinflation” in our future. Hyperinflation is a severe economic condition in which the supply of money is far too large, and each unit of money becomes nearly valueless; this is the sort of situation where people start using money as wallpaper and toilet paper. Many people seem to think that the Federal Reserve, the institution in America which prints dollars, will plunge the American economy into hyperinflation within the near future. There is no question that this would be a truly terrible and painful scenario.

I do not predict hyperinflation in our future. I think people who are seriously concerned about hyperinflation are worrying needlessly. I think people who claim hyperinflation is inevitable are totally mistaken. Hyperinflation is a possibility, but certainly not inevitable, and not even likely.

The federal government is over $200 trillion in-the-hole. They will never be able to pay off these obligations under the present tax and monetary system. One possible method of paying these obligations would be through inflation. If the Federal Reserve were to start printing money en masse, however much the government needed, then these obligations could begin to be paid. This would produce hyperinflation. This is the scenario most people invoke when discussing hyperinflation.

There is a fatal flaw with this scenario from the outset. The question I posit is this: Why would the Federal Reserve choose to undergo hyperinflation? This would be economic suicide for them. I despise the Federal Reserve, but in spite of all their crappiness, the Federal Reserve has a single saving grace: It is a cartel of private banks not directly controlled by the federal government, and each bank is looking out for their own economic self-interest. If you think the Federal Reserve is about helping the average American, think again: It is an institution designed entirely for the benefit of the large Wall Street banks. Whereas the central banks of other nations are usually controlled directly by the government, the Federal Reserve is only quasi-controlled by the government; for the most part, the Federal Reserve is free to do as they please, free from the whims of politicians (emphasis on “for the most part”). The Fed sucks, but I trust most politicians a lot less than I trust most bankers. At least the banking cartel that comprises the Federal Reserve has limits to what it will do; I do not trust politicians to hold back from utterly destroying the US economy, should some serious stinkers get into office. Of course, it’d be best if the Federal Reserve did not exist at all, but that’s another story.  

This means that the Federal Reserve will avoid hyperinflation at all costs. If they were to hyperinflate, how would that serve the interests of the private banks that comprise the Federal Reserve? In a period of true hyperinflation, people could pay off their old loans with a few wheel-barrows full of money. People could pay off mortgages and other obligations with wheel-barrows of money. All the money, of course, would be nearly worthless, and the banks would lose the future interest. This means the banks would experience staggering losses. Many would go under. Most large Wall Street banks would go under. Does it sound like hyperinflation is in their best interest? Absolutely not. Therefore, the Federal Reserve will not inflate to the point of hyperinflation.

I do think mass inflation is a distinct possibility, but it will not reach the extremes of hyperinflation. When the bankers on the Federal Reserve board begin to detect that inflationary policy is starting to damage them, they will stop inflating. When they stop inflating, short-term interest rates will rise and create recessionary conditions. Frightened politicians will begin agitating for inflation again. The Federal Reserve will inflate again, but yet again cease when inflation becomes too severe. Do you see the pattern? Stop-and-go. It will become a constant balancing act of inflation versus recession. As far as hyperinflation is concerned, the bankers will say this to politicians who agitate for too much inflation: “Go screw yourselves.”

The only legitimate threat of hyperinflation is this: If the politicians do not take “Go screw yourselves” for an answer, and decide to nationalize the Federal Reserve under full government control. This would be the worst-case scenario, because most politicians are more economically illiterate than even the idiots running the Federal Reserve. I can hear it in my mind’s ear already: “The Federal Reserve is holding back by not inflating, and they’re causing recession! They’re only looking out for themselves! We’re going to take back control of the Federal Reserve for the good of the American People!” In this instance, I could see the newly-nationalized Federal Reserve kicking inflation into overdrive and eventual hyperinflation as the politicians pursue their own self-interest, indeed.

Thankfully, I do not think the above scenario is likely. Too many Americans have gained an at-least miniscule iota of economic understanding and would realize that nationalizing the Fed is a bad sign. The internet has enabled this understanding to exist on a widespread scale. I think there would be sufficient resistance so as to take control of the situation away from the politicians.

Conclusion: Hyperinflation is extremely unlikely and not worth fretting over. Mass inflation, not quite hyper, is a realistic fear and should be reasonably prepared for. If you ever hear politicians agitating for more direct control over the Federal Reserve, be very suspicious. The Federal Reserve sucks and should be shuttered entirely; but in it’s current form, I’d rather it be run by bankers who at least have a little skin in the game, as opposed to politicians who only stand to lose largely at the expense of taxpayers.

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