• 303 days Will The ECB Continue To Hike Rates?
  • 303 days Forbes: Aramco Remains Largest Company In The Middle East
  • 305 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 705 days Could Crypto Overtake Traditional Investment?
  • 710 days Americans Still Quitting Jobs At Record Pace
  • 711 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 715 days Is The Dollar Too Strong?
  • 715 days Big Tech Disappoints Investors on Earnings Calls
  • 716 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 717 days China Is Quietly Trying To Distance Itself From Russia
  • 718 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 722 days Crypto Investors Won Big In 2021
  • 722 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 723 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 725 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 725 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 729 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 730 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 730 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 732 days Are NFTs About To Take Over Gaming?
Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

  1. Home
  2. Markets
  3. Other

Hyperinflation and Capital Controls


The US will eventually experience hyperinflation, but "eventually" could be long after we are all dead. Therefore, rather than making the case that hyperinflation will eventually happen, it is more useful to ask the question: What is the probability of hyperinflation happening in the US within the next two years? We have asked that question every year for more than ten years, and up until now the answer has always been: So low as to not be worth worrying about. We are now asking the question again.

Cutting to the chase, the answer hasn't changed. In other words, we think that the relentless forecasters of hyperinflation will be wrong for at leasttwo more years.

To understand why hyperinflation forecasts have been wrong up until now and will probably be wrong for at least two more years it is necessary to understand that hyperinflation has three basic prerequisites. First, there must be a large increase in the supply of money. Second, there must be a large decline in the general desire to hold money due to a belief that money will quickly lose purchasing power in the future. Third, when the large decline in the general desire to hold money leads to a perceived shortage of money by causing prices to rise at a much faster pace than the money supply, the central bank must react to the perceived shortage by further increasing the pace at which new money is created. This precipitates the downward spiral in money purchasing power thatis commonly referred to as "hyperinflation".

As things now stand, only the first of these prerequisites is in place. There has been a large increase in the supply of money, but the general desire to hold money has remained high. That the general desire to hold money has remained high is largely due to the excessive debt levels and the associated need toobtain money to meet repayment obligations.

Today's excessive debt levels stem from decades of central-bank-sponsored money-supply and credit inflation. The rampant prior inflations of money and credit have created a strong deflationary force, but central banks continue to resist this force by directly creating, or indirectly promoting the creation of, more money and credit. This only adds to the deflationary force, leading to even greater central-bank-generated money and credit inflation, and so on. The central banks will almost certainly continue to resist the deflationary force (the reason why the 'deflationists' will continue to be just as wrong as the 'hyperinflationists'), but the more concerted their resistance the soonerthe eventual hyperinflation will happen.

In any case, the desire to hold money is not going to shift from high to low overnight. It will take years. It could even take decades. Moreover, those who are paying attention will see clear warning signs in the financial markets long before the purchasing power of money takes a nosedive. One of the clearest signals will come from the bond market -- in the form of a large rise in long-term interest rates and a concurrent large rise in long-term relative to short-terminterest rates.

Capital Controls

Those who are paying attention will see plenty of warning signs long before hyperinflation or total monetary collapse become imminent threats. Right now there are no such warning signs. Consequently, it makes no sense to be preparingfor US hyperinflation at this time.

Capital controls (government restrictions on getting money into/out-of the country) are a different story, as they could be imposed at any time without warning. The probable justification will be national security (for example, the "war on terror") or the "war on drugs". People with significant financial assets should therefore already be preparing for the capital-controls risk by diversifying their assets internationally. Also, everyone (especially US citizens), including those who don't yet have significant financial assetsto protect, should have a second passport.


We aren't offering a free trial subscription at this time, but free samples of our work (excerpts from our regular commentaries) can be viewed at: http://www.speculative-investor.com/new/freesamples.html


Back to homepage

Leave a comment

Leave a comment