A couple of days ago I ask Zero Hedge readers why given the level of money printing we have not experienced hyperinflation similar to Germany during the Weimar Republic. My sincere thanks to all who gave the many considered replies. While the 200+ comments are worth reading in their entirety here is a summary of what was said.
Hyperinflation a Psychological Phenomenon
Unlike inflation which is a monetary phenomenon, hyper-inflation is psychological. It is when people have lost faith in a currency. Because of this hyperinflation remains a constant threat and can happen very fast.
In any event, a hyperinflaitonary event is in the end a psychological event. It depends on the expectations and reactions of real people and can change very quickly in response to who knows what emergent phenomena.
Until 2013 all excess printing was sucked up by foreign central banks and foreign and domestic savers who held treasuries. After 2013 it was mostly savers including pension plans who saved in treasuries and equities.
Now with increased demand for spendable funds, no reliable buyers of treasuries and the need to do government spending at rates never before seen accomplished by naked monetization of debt.....now...you'll see your inflation. One day the folks will realize the way the dollar is headed and POP, you get your loss of confidence in the dollar and your $50,000 postage stamps.
hyperinflation occurs when velocity goes sky high. This occurs when there is a total loss of confidence in a currency's ability to maintain purchasing power, and the timing is impossible to predict.
One of the things that keeps people’s faith in fiat is that there is no alternative. All major fiat currencies are pursuing the same monetary expansion, racing to devalue their currencies faster than each other.
If there was an alternative the US dollar would hyperinflate straight away
Debt as the Cause of Monetary Expansion
Debt is seen by many readers as the cause of the current situation. The expansion of money supply is required to pay off unsustainable debt. But new money, issued as debt simply increases the debt burden. This requires even larger volumes of new money and so on.
When a debtor realizes that they have gone to far, their behaviour is to keep borrowing as if there is no tomorrow - because there isn't. No debtor will suddenly stop borrowing because of the signal that it sends.
The increase in money supply to cover debts will continue.
New Money Not Entering Main Street
The Federal Reserve’s expansion of money supply has not caused inflation/hyperinflation because the new money does not reach the majority of people and the real economy. This was expressed by many readers in different ways.
As someone below correctly stated, the trillions getting printed are being used.......digitally.......to paper over existing debt. This is leading to the enriching of a handful while the masses get pennies on the dollar in handouts. Entities with huge amounts of debt (the government, corporations, banks, etc.) are being bailed out. The handful of people that run these "institutions" are becoming ever richer as we have seen in the last 6 months.
There is no hyperinflation because money does not reach mass of people who would spend it. These emissions or "money printing" serve more as "a lubricant" to grease already rich and powerful transactions and obligations.
In other words, all new money is spent and transacted on "the royal court", which increases aggregate demand only slightly. Hyperinflation COULD happen if ordinary people were given too much money all of a sudden. That would resemble inflationary pressure as ordinary people buy ordinary stuff: gas, food, medicine etc.
New money that does reach ordinary people is not used to chase goods and services but to retire debt at the bank. Retirement of debt is deflationary.
The reason I believe you have not seen hyper-inflation is because the majority of the 3 Trillion Dollars the federal reserve has created since March is in a closed loop;A Mobius if you will that has not come out into the real economy. Stock prices and bond prices propped up but since those companies aren't spending/using that money the illusion continues. I would make the argument that the actual money supply is shrinking; no more $600 per week, less people spending money they don't have. The only hyper-inflation you are seeing is in the food cost. Now the purchasing power of Americans is being destroyed; that's why silver and gold have done so well. But 95% of the feds actions are not in the real economy.
The Cantillon Effect
8th Estate points out this lack of access by the vast majority to the new money is an example of the Cantillon Effect which states that those closest to new money gain a disproportionate share.
But the basic outline of the Cantillon Effect, that some people have more purchasing power and others have less in the same economy, if the channels of money creation make it so, is still operative. https://mattstoller.substack.com/p/the-cantillon-effect-why-wall-street.
Lack of Velocity
New money is not seen by the mass of the population and hence does not enter the real economy. What little does reach people is used to retire debt which is deflationary. Hyperinflation is a state where money has very high velocity as people try to spend it as fast as possible before it loses more of its value. Because of the above money currently has very low velocity.
Hyperinflation is impossible, regardless the amount of printing, if those mega-trillions of fiat don't start raging through a busy and growing economy. Bottom line: the hyperinflation starts as soon as the velocity of money starts to accelerate, and not before.
Debt Reduces Velocity
A major different between Weimar Germany and today’s economy is the debt burden. This is the reason the velocity of money that does reach Main Street stays low – people do not use it to chase goods and services but to pay down loans
In a debt based economy, where virtually all J6P's have debt and are recipients of helicopter money, doesn't that printed money just go back to the bankers themselves? Wouldn't that diminish velocity?
It's not like everyone is debt free and additional money goes to vacations or home renos. The helicopter money goes basically back in payments to bankers, so in effect the trickle down helicopter money is a banker bailout.
The answer might lie in the typical debt load of the average German during Weimar. Printing money does not necessarily cause hyperinflation. The money must become mobilized in a way that it chases goods and services. That's money velocity. I suspect that in Weimar, printed money rapidly became mobilized. In our present environment, most money that finds its way into the hands of Joe Six-Pack does not get mobilized. It is instead paid to a bank for some debt or another. Once money arrives at a bank, it can only get back into circulation if someone borrows it back into circulation. Total debt then increases where it consumes an even larger percentage of what would otherwise be circulating money. While the money remains in the hands of the bank, that money, instead of chasing goods and services, chases financial assets - and that is where the inflation shows up as a bubble.
It’s a rather sick result of fiat that the people need to be kept as debt slaves to banks in order to retard velocity and prevent hyperinflation while the Fed prints at hyperinflation levels. So far, the scam has accomplished that objective.
Fed generated credit (asset purchases) is going towards paying on the debts incurred by Wall Street, the banks and the general population, meaning that the credit generated is being reabsorbed by debt and not making it into the economy. It's like what happened to the trillions in Fed generated credit during the 2008-10 financial crisis. Which is why inflation remains relatively tame.
Nothing to Measure Inflation/Hyperinflation Against
With the manipulation of the gold market, lack of credibility in the CPI and other fiat currencies also inflating there is nothing to measure the true extent of inflation against.
Also, currency inflation requires something to measure value against. When all currencies are pegged to the dollar all currencies inflate together. Gold is traditionally the measure that reveals currency inflation is happening... but gold price manipulation is well documented. So the banksters are manipulating the price of gold to mask the inflation.
If there were an alternative to the dollar, the dollar would be hyperinflating relative to that alternative.
CPI is a total lie we all know that at the hedge so real inflation is more like 10% a year see Chapwood Index. https://chapwoodindex.com/
Gold also has been rising 10% in most currency since 1971 the year the currency totally decoupled from the money(gold). This is not hyperinflation but very high inflation
Inflation/Hyperinflation is Already Here
Many readers gave anecdotal evidence that inflation/hyperinflation is already here in the rise of the cost of goods and services. Like a frog that can be boiled alive if the temperature is gradually increased, the process has been slow instead of cataclysmic.
"Where is the hyper inflation"?
Silly frog, just because the rate of temperature increase is being kept below what you can perceive doesn't mean the water won't be boiling eventually.
My property taxes in Atlanta have increased more than 50% since 2013.
In 2019 a 3/4" 4x8 sheet of plywood sold for about $16, today its selling for $39.
I always thought the dam would break and the mess would be fast and uncontrolled. But 99% of the purchasing power of the USD has been lost to a slow and controlled process, smeared over decades. Why should the last 1% be expected to vanish in a sudden event?
Inflation Already in the Stock Market
Hyperinflation is already here and rising if you only know where to look, the US stock market is already hyper inflated and its doing so deliberately as the Fed and bankers are pumping stock prices daily, from their point of view its better to direct that inflation monster in the direction they want or else it will destroy everything in its way.
Inflation has gone into the financial markets.
US Inflation is Exported
It's very simple. Like any empire, we can print as much currency as we like as long as we can force the rest of the world to cover our costs.
The problem is that the more we print, the greater the cost we impose on the rest of the world. The greater the cost we impose on the rest of the world, the more they resist. The more they resist, the more expensive it becomes to force them to pay. The more expensive it becomes to force them to pay, the more we print. It's just a ponzi, like any other although rather more bloody and vicious than some. It will end when it ends.
Weimar Germany couldn't really force anyone to cover their costs except their own citizens so their ponzi didn't last very long.
The hyper inflation is all over the globe as the USD is the reserve currency. Trillions sit in balance sheets of central banks, private banks, the wealthy and in the $100 bills that much of the worlds people possess.
The hyper inflation is hidden as a result of Tiffin's dilemma. The world keeps demanding USDs to trade with. That allows the Fed to print to oblivion up to and until the rest of the world finally says "screw you!"
Do not look for the certain hyper inflation until the reserve status is cracked. I don't know when that will be but I do know that it will be.
To condense these great insights still further:
- Because of its psychological in nature hyperinflation is a constant threat.
- Current money expansion favours those closest to the source – banks, government and large institutions (Cantillon Effect). This continues to increase income inequality.
- Today’s monetary expansion is primarily caused by the need to service unsustainable debt. As new money increases debt this addictive cycle will not cease by its own accord.
- Fiat currencies have been constantly debased over decades (inflation).
- The reserve currency status of the US dollar gives the US greater freedom to print.
If there was a credible alternative fiat currencies would likely hyper-inflate tomorrow