The financial world we live in is just as wild, if not more, than the mountains and woods we walk through. We are told that the fundamentals of our economy are strong, but we can feel that something is wrong. My unique financial background and survival passion make Financial Survivalist and excellent place to learn and share.

Friday, January 30, 2015

Why Hyperinflation is not a Danger

Every day someone is on the radio or cable news talking about how there is going to be hyperinflation. Some of them profit big from this. Not that hyperinflation couldn't happen. Anything can happen. However, the dangers of hyperinflation of the US dollar is almost always exaggerated.

Many of the these so called experts refer to situations like the Vimar Republic. I myself have referred to this situation while talking about hyperinflation. I my myself have had concerns about hyperinflation. So why is hyperinflation not a danger?

According to the theory of quantity of money (the theory that most conservative, classical and Austrian economic followers refer to), an increase in money supply is equal to the increase in price level. That means price level will only increase (inflation) if you print money and will only do so at an equal level. You print money, you get inflation.

Even in the Vimar Rebublic they could not print enough cash to justify the inflation they had. The printing presses simply could not print fast enough. So how did inflation increase so fast? Expectations and currency trade my friend. Inflation started, no one had confidence in the Mark so they got out. People didn't want the Mark so they traded it for other currencies, increasing the supply of the Mark and decreasing its demand. I.e. hyper inflation.

The big question is what currency did they trade for? Well, in all inflation and hyperinflation situations since then, it has been the dollar that people want. Its the dollar that countries ban to try and prevent inflation. Its the "flight to security." Until we loose the flight to security, we will not have hyper inflation in the dollar. I don't see us losing the flight to security any time soon. In fact, the reason why we have had concerns of deflation recently is because there is such high demand for the US dollar.

Despite everything that is going on in the US, the rest of the world if far worse. The United States is the least bad of all the bad economies. It would take the entire world to do great while the US was crashing, for hyperinflation of the US dollar to be a reality. Fact of the matter is, the US economy is doing bad, so is the rest of the world, but hyperinflation of the US dollar is simply not a danger any time soon.

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