There has been a growing case for hyperinflation of the US dollar this year, but typically Americans, and all American expats I’ve encountered that are living overseas believe that such talk is blasphemous and completely absurd. However, such beliefs do not arise from actual close introspection of facts, but simply to a blind faith in American exceptionalism that would “never allow” such a fate to happen to the US dollar. However, when I inform people unwilling to take action to protect themselves from this realistic possibility, and I inform them that the current collapse of the US dollar should serve as a sign of the need to take steps while steps are still possible, I’m often met with more ridicule and met with more declarations of incredulity that I think the US dollar has already collapsed and statements of great US dollar strength at the current time (a declaration that illustrates an inability to distinguish between relative and absolute strength, of which the latter concept is much more important to understand than the former in regard to wealth preservation strategies). When I respond by asking what qualifies as an asset collapse to them and it would be a 50% collapse, a 60% collapse or what percentage collapse would be required to qualify as a collapse, the responses I have received have typically been in the 70% or greater range. When I notify them that the US dollar has collapsed by more than 98.5% in purchasing power when compared to the 1913 US dollar (the year in which the US Central Bank was formed), I am met with silence. Furthermore, I reveal to them the collapse has been even greater when priced against real money like gold, as people that deny the US dollar has already collapsed are completely unaware of its greater collapse against gold. In 1913, one dollar could buy 1.504 grams of gold in 1913 but as of mid-May, with the price of a 1-ounce Credit Suisse gold bar at $1860 dollars, one dollar was only capable of buying 0.0167 grams, the dollar had collapsed 98.89% against gold. But still, if I run into any of these people and ask, “Have you bought any physical gold yet?”, the answer is always inexplicably no as they insist the US dollar is the safest place for their wealth to be right now, which again, is an indictment against our academic system for completely failing to instill critical thinking skills in society-at-large.
Recently in a 60 Minutes news show interview, US Central Bank Chairman Jerome Powell stated his belief that the economy might not recover from the pandemic lockdown until 2021, a belief that lends strong support to my theory regarding the real reasons why he cut the Fed Funds interest rate to zero in an emergency action this past March. He further stated, in that same interview, that he simply flooded the US economy with digital money that he could create out of nothing, and “by buying Treasury Bills or bonds or other government guaranteed securities”, of which it was reported in mid-May that $3 trillion of Treasury bills must be sold to fund the madness engaged in by Jerome Powell and US Central Bankers. However, this particular madness is not any more insane than the trillions they’ve been printing to fund overnight repos since the end of last year, as I first discussed in this article more than seven months ago. And if the US Central Bankers can’t find a sucker to buy the more than $3 trillion of Treasury bills they must sell, I’m sure that they will just step in, and with their left hand, buy the T-bills from the right hand that is selling them.
However, I believe it is a huge mistake to believe that US Central Bankers can just geofence their infinite monetary supply creation scam, and as long as they do not allow it to leak into increasing monetary velocity, that they can control their behavior from facing a future implosion (note that the last update of M2 velocity available is for the end of Q1 2020 as illustrated below).
I already provided other reasons, in this article here provided to my patrons, that discuss alternative scenarios in which hyperinflation can occur regardless of actions taken by Central Bankers to prevent it from materializing. Here is just a brief glimpse into that article. The belief that Central Bankers can exert absolute control over pricing mechanisms, including in the forex market, is a very short-sighted and foolish belief, especially since the strength of currencies are relative to one another. Even if US Central Bankers can “geofence” all the risks they have introduced in 2020 and prevent the dollar from imploding, what if European Central Bankers lose control over the Euro, or what if a large bank in Italy implodes, collapsing the entire Italian banking sector, therefore triggering massive rapid changes in Euro strength and causing domino effects in the global forex and interest rate markets?
It is one thing to believe that US Central Bankers can keep the lid on the pressure cooker from exploding if the banking system were only fragile in the United States. However, when it is fragile in every nation in the world, trying to keep the lid on the system is like playing a game of whack a mole. Eventually a mole is going to appear that Central Bankers are going to be too slow to whack back into its hole of containment. And when this happens, and it will, this is when things will get interesting. Though most people suffer from the “It won’t happen to me” syndrome, the only way to positively ensure that you make it through a very unstable situation, such as the one we are now facing, is to always plan for the worst possible scenario.
As an example of just how much basic costs of living have exploded since just 1975, just take a look at the cost comparison chart below for 1975 v. last year.
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