A Hyperinflation Scenario

The coming hyperinflation - pretty much baked into the cake right now, especially for the USA - can have many triggers and can proceed in many different ways. Here is a scenario proposed by a reader “Paul of Los Angeles” from Rick Ackerman's site, which is pretty realistic - and I think probably "the one". Although it ignores the perspective of foreign countries' "belief" in the USD (biggest of whom is China) and only focuses on US citizens, I think the analysis pretty much applies to all holders of the dollar (who are being robbed and pillaged right now). They all share the characteristic of having faith in the US and its government. And faith is a funny thing - it takes years and decades - even centuries - to build, but only a single instant to destroy. With the level of corruption endemic in present day US economic and political system, it's just a matter of time. And although no one knows exactly when this Hyperinflationary Armageddon will transpire, I think it will be sooner than most people imagine. Forget about the monetary base (which is, I might add, being increased at an exponential rate by the Fed right now) - the amount of currency needed to cause hyperinflation has already been printed and resides in various Central Banks throughout the world. Even if the US citizenry doesn't wake up, a sell-off by one of the major holders (China?) will do the job.

Here's the link to the article. I am also publishing the relevant section here:

“In the world of the fiat USD (and all others fiats), you need to distinguish between the numerical destruction of fiat wealth (a mathematical event now happening), and the destruction of BELIEF in the value of the fiat USD itself (a moral/perceptual event that is still in the future). These are two completely different destructive events (mathematical and moral/perceptual), and one has not happened yet.

“At first, the mathematical destruction of vast amounts of fiat wealth clearly makes the remaining fiat units more valuable (law of scarcity), and price deflation results. Your argument for years of monetary deflation is only based in mathematics. Very scary mathematics, but still, only numbers. You need to go further.

“The fiat USD (a debt instrument) ONLY has value in the first place due to a belief that it has value. This belief was ORIGINALLY (as in 1933) founded in trust and discipline. People trusted that debts would be repaid, and that the FED would exercise discipline in the creation of the USD. These two conditions are NECESSARY if the USD is to continue to retain “value.”

“It has now been four generations since the USD went fiat, and massive brainwashing and stupefaction of the general population has been perpetrated. The belief that the USD has value is now simply an ingrained habit. As evidence, I present the President-elect’s pronouncement that we can basically IGNORE a decade of annual trillion dollar deficits, in order to “stimulate” the economy away from collapse. In the face of this insanity, zero MSM alarm bells are sounding. Even two generations ago (the Reagan / Volcker era), people would be running for the hills if this level of monetary debauchery and incompetence were taking place in the United States. So, for the time being, the brainwashed illusion of USD value remains imbedded and stable in the collective USA mind.

“However, regardless of what people have been trained to habitually believe, debt is still the actual “backing” of our fiat currency, and people are generally either unable and/or too fearful to assume more debt right now (the fatal flaw of the New Deal). Therefore, the “backing” of our fiat currency is failing, and worldwide organized trade and commerce (in the words of Jim Willie) is disintegrating. Eventually (months or a couple years), shortages of basic goods and services will surface somewhere in a “first world” nation not accustomed to scarcity. Relative valuations will change. For example, a luxury Mercedes vehicle will be deemed less valuable, and a gallon of gas in a moped, or=2 0a loaf of bread in your shopping bag, will be deemed more valuable. Lots of fiat money formerly committed to large, expensive non-essentials, will flow towards essential goods that are in shortage, due to speculation, hoarding, and/or the ongoing breakdown of commerce. Money velocity will increase. Even housing prices will be less important, due to the relative ease of squatting in a vacant residence if necessary. (To answer your question, who cares if the median house price is $100,000 or $10,000,000, if a gallon of gas is $50?) Prices will skyrocket for essentials, and suddenly, the trained and habitual “belief” in the “value” of the USD will evaporate. Deflation will flip over to hyperinflation in the blink of an eye.

“To wax spiritual, in the Book of Revelation the “mark” of the beast is the collective delusional belief in the value of a piece of paper. The Apostle John saw that people could not buy or sell without it, and souls were sold and traded for it. And in the end, the wealth of the Whore ends up being destroyed “in one hour.” This is how I see hyperinflation. It is a collapse in a belief system, and not just a mathematical event. We have already seen how leveraged speculative hedging and Frankenstein-like financial instruments (both only possible in a fiat money world), can result in very fast fiat wealth destruction. Do not, therefore, discount the profound impact of people simply losing faith in an ingrained habit.”