Most rational people with some knowledge of economic history will realise
that the US$ will eventually be the victim of hyperinflation. The hard
reality is that whenever money can be created in unlimited amounts by central
banks or governments, it’s inevitable that at some point the money will
experience such a dramatic plunge in its purchasing power that it will be at
risk of soon becoming worthless. However, knowing this is only slightly more
useful than knowing that the star we call the Sun will eventually die.
The relevant question is never about whether hyperinflation will happen;
it’s about the timing, and at no point over the past 20 years (including
right now) has there been a realistic chance of the US experiencing
hyperinflation within the ensuing two years. Furthermore, the same can be
said about deflation. A sustained period of deflation (as opposed to a
short-lived deflation scare) will eventually happen, but at no point over the
past 20 years (including right now) has there been a realistic chance of it
happening within the ensuing two years.
So, when I say that the hyperinflation and deflation arguments are both
wrong I mean that they are both wrong when dealing with practical investment
time-frames. They are both actually right when dealing with the indefinite
long-term.
By the way, when considering inflation/deflation prospects I only ever
attempt to look ahead two years, partly because two years is plenty of time
to take protective measures and partly because it is futile to attempt to
look further ahead than that.
How do I know that neither hyperinflation nor deflation will happen in the
US within the coming two years?
I don’t know, but I do know that neither will happen without warning. We
are not, for example, going to go to bed one day with government and
corporate bond yields near multi-generational lows and wake up the next day
immersed in hyperinflation. Also, central banks are not going to be rigidly
devoted to pro-inflation monetary policies one day, to the point where
theories/models are never questioned and failure is viewed as the
justification for ramping-up the same policies, and the next day be willing
to implement the sort of monetary policies that could lead to genuine
deflation.
Some people are so committed to the “deflation soon” forecast that they
ignore any conflicting evidence. It’s the same for people who are committed
to the idea that hyperinflation is an imminent threat to the US economy.
However, an objective assessment of the evidence leads to the conclusion that
it currently makes no sense to position oneself for either of these extremes.
The evidence includes equity prices, corporate bond yields, credit spreads,
the yield curve, commodity prices, the gold price, and future “inflation”
indicators such as the one published by the ECRI.
The evidence could change, but what it currently indicates is that the
signs of “price inflation” will become more obvious over the coming 12
months. No deflation, no hyperinflation.