So long as the dollar is perceived as being more stable than other currencies (and, tough as that is to believe, it is), we’re not likely to see anything remotely like the wild hyperinflation of the German Weimar Republic. For all the low interest rates, printing and quantitative easing, we’ve been verging upon deflation (falling asset values which means a strengthening currency) for almost the entire eight years. Will there be something huge that overthrows this seeming deadlock? Very well could be, might even be inevitable. But, I wouldn’t hold my breath waiting for it, myself.
Thank you for you thoughts. I can see that the Quantitative Easing, TARP programs and other money printing bailout schemes have not yet triggered hyperinflation for three reasons. 1) They have printed heavily but against pressures that should have been otherwise extremely deflationary. 2) Much of that funny money went on the bank books as “assets” to get around reserve requirements that should have bankrupted them, and it did not make its way into the economy as velocity. Also, 3) I believe that because of the “petrodollar” system there is a strong demand for dollars since they are used to buy oil. This has permitted us to borrow, print and spend at these levels with impunity.
With the end of the petrodollar system, the USD loses its place as the world reserve currency, and the dollar will then be free to hyper inflate. If it is impossible for any other currency to take that role, I wish someone would give us a reason to believe that. Russia is settling oil contracts in Yuan. China is working to create a new gold standard. You will be able to buy oil in Yuan or Rubles from Russia, and anyone will be able on the Shanghai gold exchange to convert Yuan to physical gold. You just won’t need dollars anymore.
If demand for dollars goes down, then how do we borrow and spend? If yields must go up to sell the treasuries, how do we pay the interest? What happens when others like China and Saudi Arabia start trying to sell off their treasuries? All those dollars must come back and be absorbed into the existing dollar economy as inflation.
Every crash has a triggering event, but there is also an underlying financial economic weakness that must be cleared. The next big bank bankruptcy will be monetized using the “Cyprus Solution.” That may buy us a little more time...
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