But possibly not in your lifetime.
As I mentioned in a blog post back in April of last year, I have never been in the camp that exclaims “buy gold because
the US is headed for hyperinflation!”. Instead, at every step along the way
since the inauguration of the TSI web site in 2000 my view was that the
probability of the US experiencing hyperinflation within the next 2 years —
on matters such as this there is no point trying to look ahead more than 2
years — is close to zero. That remains my view today. In other words, I think
that the US has a roughly 0% probability of experiencing hyperinflation
within the next 2 years.
I also think that the US has a 100% probability of
eventually experiencing hyperinflation, but this belief currently has no
practical consequences. There is no good reason to start preparing for
something that a) is an absolute minimum of two years away, b) could be
generations away, and c) is never going to happen with no warning. With
regard to point c), we will never go to bed one day with prices rising on
average by a few percent per year, 10-year government bond yields below 2%
and the money supply rising at around 8% per year and wake up the next day
with hyperinflation.
It takes a considerable amount of time (years, not days
or weeks) to go from the point when the vast majority is comfortable with and
has confidence in the most commonly used medium of exchange (money) to the
point when there is a widespread collapse in the desire to hold money.
Furthermore, many policy errors will have to be made and there will be many
signs of declining confidence along the way.
The current batch of policy-makers in central banking and
government as well as their likely replacements appear to be sufficiently
ignorant or power-hungry to make the required errors, but even if the pace of
destructive policy-making were to accelerate it would still take at least a
few years to reach the point where hyperinflation was a realistic short-term
threat in the US.
In broad terms, the two prerequisites for hyperinflation
are a rapid and unrelenting expansion of the money supply and a large decline
in the desire to hold money. Both are necessary.
To further explain, at a time when high debt levels and
taxation underpin the demand for money, a collapse in the desire to hold
money could not occur in the absence of a massive increase in the money
supply. By the same token, a massive increase in the money supply would not
bring about hyperinflation unless it led to a collapse in the desire to hold
money.
Over the past three years the annual rate of growth in
the US money supply has been close to 8%. While this is above the long-term
average it is well shy of the rate that would be needed to make
hyperinflation a realistic threat within the ensuing two years. Furthermore,
high debt levels in the US and counter-productive policy-making in Europe
will ensure that there is no substantial decline in the desire to hold/obtain
US dollars for the foreseeable future.
The upshot is that there are many things to worry about,
but at this time US hyperinflation is not one of them.
