Hyperinflation coming to America

By Bryan Borzykowski | October 22, 2008 | Last updated on October 22, 2008
3 min read

If you think America’s economic fortunes can’t get any worse, think again. One American economist says the States is heading for one of the worst inflationary periods of its existence.

John Williams, founder of the website Shadow Government Statistics, which offers alternative economic data to what the feds release, says the country can expect to enter a period of hyperinflation sometime between 2010 and 2018, thanks to the copious amounts of money the government has put into the financial system.

“Federal debt is roughly four times the size of the GDP,” he said during a conference call sponsored by Toronto’s Bullion Management Group. “The government has no way of paying this. They’re not going to default on debt, so what most countries do when they’re in this kind of trouble is rev up the printing presses and pay back obligations with debased dollars.”

It doesn’t help that 80% of America’s net treasury issuances have been bought by foreign investors. Because these buyers haven’t sold their greenbacks, the country has had low interest rates, and liquidity hasn’t been a problem.

But Williams expects foreign investors to unload their bucks soon. “We will see a flight from the dollar to a dumping of the dollar,” he says. “That will spike interest rates as foreign-held securities are dumped and the Fed has the option of letting rates rise or buy securities. They will effectively monetize debt and that leads you to hyperinflation. I would look for a massive decline in the dollar.”

There are many reasons why inflation is moving upward, but the problem really took off during Alan Greenspan’s years as head of the Fed, when he pushed debt expansion.

“The average person hasn’t been able to make ends meet, so society has shifted. Now two people are working, but they still can’t make ends meet,” he says. “You can’t have significant and sustainable economic growth. The only way to do that is through debt expansion, and that’s what got us into this current problem.”

Williams says that America is likely facing another Great Depression, but it won’t come with deflation as it did in the 1930s. In order for that to happen, the money supply would have to collapse, and the Fed won’t let that happen.

“Federal Reserve Chairman Ben Bernanke said the Fed can always protect against deflation. Just run the printing presses,” says Williams. “His point is the Fed can always debase the currency, which is the same thing as inflation. You don’t want to see a collapse in the system, but the cost of saving it is inflation.”

Unfortunately, Williams says it’s too late for hyperinflation to be avoided. If the government wanted to help ease inflationary pressures, they’d have to cut Social Security and Medicare, and it’s unlikely they’ll take such drastic measures.

“The financial crisis has put something close to a trillion dollars in play,” he says. “You’ll have a new government that will be coming in with a severe recession and they’ll be looking to spend a lot of money. But they don’t have it.

“This is a U.S. problem,” he adds. “The American government got itself into this mess. No other major economies of the western world have done anything as grotesque.”

Even though Williams says it is America alone that is causing inflation to move upward, what happens in the U.S. eventually affects everyone else. And when the rest of the world feels the effects from America’s hyperinflation, big changes will have to be made to the global financial system.

“When it happens it will have to lead to a new global currency arrangement,” Williams explains. “I have no idea what that will be, but my speculation is that it will be tied into gold in order to sell it to the public, because people will not be too happy to be in a currency again.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com


Bryan Borzykowski