The “transitory inflation” narrative has completely broken down. And now Twitter and Square CEO Jack Dorsey has warned us.
Hyperinflation is coming.
Hyperinflation is going to change everything. It’s happening.— jack⚡️ (@jack) October 23, 2021
Responding to comments, Jack tweeted “It will happen in the US soon, and so the world.”
It’s pretty clear that inflation will run hotter longer than the mainstream anticipated just a few months ago. The CPI came in higher than expected yet again in September. Year on year, the CPI was 5.4% last month. It was the fifth consecutive month that year over year inflation came in above 5%. And the rate rises to 6.5% if we project the inflation levels of the first 9 months of 2021 to the entire calendar year. This is based on government numbers. Keep in mind the methodology to derive CPI was deliberately designed to understate the true increase in the cost of living.
Even Federal Reserve Chairman Jerome Powell has been forced to admit that inflation isn’t looking so transitory. On the same day that Dorsey warned of hyperinflation, Powell conceded that inflation pressures “are likely to last longer than previously expected,” and projected that they could run “well into next year.”
Nevertheless, the mainstream by and large poo-pooed Dorsey’s warning.
Technically, hyperinflation means price increases of 50% per month. Stagflation — a combination of rising prices and low economic growth — already appears to be rearing its ugly head. But could we really see hyperinflation in the US?
Given the Federal Reserve’s monetary policy, it’s not out of the realm of possibility. Despite some fretting about rising prices and some taper talk, the Federal Reserve continues to run the same extraordinary quantitative easing program it launched at the onset of the coronavirus pandemic. Interest rates are locked at zero and there is no hint the Fed will raise them any time soon. While money supply growth has slowed, it continues to expand at an alarmingly high rate. M2 grew at the fastest rate since February last month. With inflation already hot, continuing this kind of loose monetary policy is a recipe for hyperinflation.
Peter Schiff has talked about the possibility of hyperinflation in the past, and he discussed Dorsey’s tweet on his podcast.
I’ve never said it’s going to happen for sure. I’ve always said that’s the worst-case scenario. But it certainly is a possible scenario. I have no way of knowing the exact probability. I still think it is a worse-case, not most-likely scenario.”
But again, the mainstream doesn’t see hyperinflation as a risk at all. Treasury Secretary Janet Yellen weighed in, saying she sees no risk of the Fed losing control of inflation and predicted CPI will return to “normal” by late 2022. Schiff wondered how she could say this.
Obviously, we know she’s just lying. But clearly, there is that risk. I mean, you can say, ‘I don’t think it’s going to happen,’ But the Fed really has no ability to rein in inflation if it gets out of control. So, this is just wishful thinking.”
The central bank has printed trillions of dollars — not just over the last 18 months but over the last several decades. There is already significant pent-up inflationary pressure in the economy.
And we’re unleashing more and more of it,” Schiff said. “And the Fed really has no ability with rate hikes – unless you think that raising interest rates from zero to 0.5% is really enough firepower to do anything. To me, it seems ridiculous. If we end up having the most inflation we’ve had, including even the 1970s, how is the Fed going to fight it with half a percent interest rates?”
Paul Volker had to push rates to 20% in order to tame the inflation of the 1970s. If we have an even bigger inflationary fire now, wouldn’t rates have to go even higher to put it out this time around?
And of course, higher rates would collapse this economy built on easy money and stimulus.
How is the Fed going to sit idly by and watch the entire house of cards that it spent the last couple of decades building completely implode?” Schiff asked.
“It’s not going to do that. … The only way that the Fed can contain inflation is just to hope that it never really becomes a problem. And that’s basically what it’s doing. It’s pinning everything on hope.”
As Schiff put it, it’s “open mouth operations.”
When you can only bark and you can’t bit, you’d better bark awfully loud. Because that’s all you’ve got.”
So, while hyperinflation may not be the most likely scenario, it’s certainly a scenario.