The Biden White House and Democrat-led Congress tells us all is well – if only we trust them with the economy. Doubt is rising, inflation too. Could we ever see hyperinflation, rapid dollar devaluation, the sort that bankrupts countries, leads to panic buying, shortages, unemployment, market collapse?
Probably not. That said, uncontrolled federal spending can trigger it – and Congress is binging.
Historically, “hyperinflation” refers to irrational inflationary expectations taking over the public mind, a level of reduced confidence in the value of the currency – to the point where prices spiral upward, jobs downward, government loses control over operations, more paper dollars chase falling production.
To get to this odd, surreal place – where wheelbarrows of dollars are needed to buy basic staples – many things must go wrong. Typically, production must fall, dependence on government rise, market predictability vanish, and management of government operations – especially spending, tax collection, benefit disbursement, and public safety – get out of control.
We are not there, not yet. In effect, imbalances we are seeing now can be remedied, but they do offer cause for concern. Here is why.
Today, the national debt is bumping up against $30 trillion – unprecedented. The economy is struggling. Jobs, while slowly coming back, remain 5.7 million below early 2020, unfilled as people prefer free benefits to work, and new pandemic fears fresh stoke slowdowns, commerce interruptions, and personal restrictions – all unprecedented.
Meantime, Democrats controlling the White House, Senate, and House continue to push new taxes, sure to further slow US production and employment, trigger job cuts, slow reinvestment, and growth.
Most arrestingly, Democrats continue to spend taxpayer dollars that will not be collected for decades at a rate never seen, not in billions, hundreds of billions, but in trillions, approaching tens of trillions. Keep in mind that a trillion is a million times a million, a one with 12 zeros behind it.
Moreover, this runaway federal spending is for untested, untenable programs – creating government centralization and control of a kind most Americans do not want, much unannounced until irreversible.
So, where does all this lead? Will it produce hyperinflation, that is, double-digit monthly inflation, approaching 50 percent, hundreds per year, triggering loss of confidence by the public in control over their government, loss of government’s control over currency value?
Probably not, not yet.
Examples of hyperinflation include the German Weimar Republic during inter-war years when the productive capacity of that country could not sustain a growth rate to support debt payments, wage-price balance, and a predictable future.
Another example is post-Soviet Yugoslavia, when internal ethnic divisions foretold a country coming apart, headed for war, inflation jumping to 76 percent annually, then – with public corruption unmanageable – doubling daily, until it topped out at more than 300 million percent, requiring to adopt of the relatively stable German mark as currency.
Venezuela represents another sad case of a healthy economy flying apart, with a combination of mismanagement, overspending, communist control, runaway crime, and total loss of confidence – no predictability, amputated confidence in the future.
On the numbers, 2016 was probably the tipping point for Venezuela, as confidence in the economy and currency plunged – communist control proving an utter disaster. That year, annual inflation – once in single digits – sprang to 274 percent, then 863 percent in 2017, suddenly to 130,060 percent in 2018, bouncing down to 9,586 percent in 2019, and today remains thousands of percent, the overall inflation rate of 53,798,500 since 2016.
In short, between a private sector economy restricted, taxed, leveraged, and reduced to sputtering growth, uncontrolled government spending, and massive mismanagement, one of the continent’s strongest economies suddenly fell into hyperinflation and has remained there.
For perspective, current US inflation is roughly 5.4 percent, and while high has not been in double digits since Jimmy Carter’s edgy, troubled economic leadership. That said, economists are not sure if it will rise or fall ahead, although many agree massive federal spending raises the risk of inflation – especially at a time when COVID lingers, supply chains are not restored, and government restrictions abound.
Again, on the numbers, our inflation rate is presently just unsettling, not on the way to hyperinflation – by all indications. While it jumped almost one percent between May and June, substantially above the 0.2 percent monthly average from 2000 to 2019, this is not hyperinflation.
The worry is that if the federal government continues to crack down on the private sector, disincentivizing investment, employment, production, and growth, while raising taxes, spending trillions on programs no one wants, failing to keep crime at bay, and centralizing power – confidence will fall, and inflation jump.
We are a long way from hyperinflation, as we are not the Weimar Republic, Yugoslavia, or Venezuela – but none of the three imagined that idea. Nor did their leaders, who spouted the virtues of centralized government, lectured the private sector, blithely spent money they did not have (none by trillions), made promises they could not keep, ignored mounting national debt, told people all was well. If we keep our government accountable, stop the madcap spending, all will be well. If not, one wonders.