Are We In the midst of a Hyperinflation?

There are those who believe they believe that U.S. is set to attain an inflation rate that is 1,000% or higher

Hyperinflation is generally described as a series of extreme, out of control price rises, is not common in advanced countries. It’s because true hyperinflation needs to achieve a very high threshold, which is an inflation rate of 1,000 or more per year as per the majority of economic experts. 1

 

The U.S. Federal Reserve System (FRS) states that an annual rate of inflation of 2.2% is “most compatible to the Fed’s mission to ensure the highest level of job creation and stability in prices. 2

 

The rate of inflation for the United States in 2021 was 6.6%. In 2020, the rate was 1.2 percent and 1.9 percent for the year 2019. The highest the rate at which inflation has been since 2011, in 2011, when the rate was 3.5 percent.

Inflation and Economic Equilibrium

In the realm in economics the term “equilibrium” is an abstract state in which demand and supply are perfectly balanced. Simply put, the quantity of products available for sale is equal to the amount of buyers willing to purchase the items. If the equilibrium of the economy is not in balance (which is usually the majority times) this is known as disequilibrium. One reason for this is inflation..

In the event of disequilibrium caused by inflation, the prices of products and services increase in response to the inequities between demand and supply. The result is a reduction in the value that your cash can buy. Inflation is the reason that items that cost $1 today could cost $1.25 one year from now. In the majority of cases this is how things work. 4

 

Hyperinflation: The Inflation Has gone Amuck

Hyperinflation differs from other inflations. Hyperinflation is inflation that has a slew of. In the case of hyperinflation, a one dollar today could cost you $10 or $50 over the course of the next calendar year. 1 According to Anders Aslund of the Peterson Institute for International Economics, hyperinflation can only occur under specific circumstances, such as the disintegration of a currency after conflicts, when fiscal authorities are unable to control the situation or when a wild populism is prevalent.

A striking instances of hyperinflation that has ever occurred was during the period following World War I in the Weimar Republic of Germany. In the attempt to pay reparations for war and expand the economy simultaneously it was discovered that the German government produced enough money that an enormous gap between demand and supply resulted in the rate of inflation reaching 322% per month, or an average annual increase of over three billion per cent The rate was more than 3 billion percentby the end of November in 1923. 6

 

The table below shows the effects of annual inflation that is normal (2 percent) in addition to hyperinflation (1,000 percent) on the cost of certain products in the basket of services and goods which are covered through the Consumer Price Index (CPI), used to determine the rate of inflation within the U.S.

Item/Service 2020 Price 2021 Price Including 2 % Inflation 2021 Price Including Hyperinflation of 1,000%
Cup of coffee $2.00 $2.04 $22.00
Gallon of milk $3.50 $3.57 $38.50
The shirt for men $60.00 $61.20 $660.00
Insulin (vial) $95.00 $96.90 $1,045.00
55-inch TV $400.00 $408.00 $4,400.00
Two-bedroom apartment rent $2,000.00 $2,040.00 $22,000.00

 

Source Writer Calculation

The causes of inflation

The economists have identified two major sources of the rise in inflation: cost-push and demand-pull. Cost-push inflation occurs when the price of production is increased (e.g. because of rising costs for raw materials or wage increases). This causes an increase in the cost of products and services as producers pass the price increase onto consumers. In the case of cost-push inflation, costs are “pushed” upwards by the increasing production costs.

 

Demand-pull inflation occurs when supply is insufficient compared to demand. The demand can rise because of a robust economy, natural disaster or an excess of money. In these situations demand exceeds supply, which “pulls” prices up.

The causes of hyperinflation

The two main causes of hyperinflation is (1) an increase in the quantity of money that is that is not backed with economic development, and this can lead to an increase in the rate of inflation and (2) an inflation that is a result of demand-pull where demand exceeds supply. Both of these causes are connected since they both overburden the demand aspect of the supply/demand equation.

 

The rise in the supply of money is usually triggered by government intervention similar to what took place during Germany during 1923. If the government pumps funds into the market, there is a risk that hyperinflation will occur. The effect of demand-pull inflation is due to the fact that consumers have more money which leads to a desire to pay more that increase the amount of demand.

Hyperinflation is a rare phenomenon.

Hyperinflation, as shown in the previous paragraph, can be fiscally devastating to a country. However, they are uncommon. Aslund goes as that she refers to hyperinflation as “an insignificant issue for ordinary money policy. 5

 

Hyperinflation may occur when governments print more money to respond to the onset of a crisis, like during the Weimar Republic. It doesn’t have to be one of war. It could be due to a weak economy, illness or natural catastrophe or even a sense of anxiety that prompts people to accumulate. That, naturally, reduces supply, which in turn increases the demand.

 

Each of these variables when taken to extremes, may lead to hyperinflation. As Aslund points out However, it is rare that this causes hyperinflation in normal monetary policy.

Yet, Rumors Remain

In spite of the very high threshold to reach hyperinflation, there’s a few who claim that’s precisely the direction that it is that the United States is headed. Here are a few examples of recent blog posts on the internet showing various methods:

 

Deficit-to-outlay ratio tops 60%, well above the hyperinflationary threshold of 40 percent. 9 — Albert Sung

Eventually all major Nation State Empires fall and the people who reside there lose faith in their leaders, and as a result, the funds they release. It’s happened at times in Ancient Babylon, in Egypt, China, Rome, several of the leading nation states in Europe and it will eventually impact in the U.S. when the American citizens decide they’d rather live their lives as free people instead of being slaves to an unpayable national debt whose value will eventually take up more of the budget than military expenditures.” — Joseph Holleman

Are it true that the United States Actually Headed for an Inflationary Crisis?

A few people might think that way. But most authorities say, “No.”

 

Economic analyst Asher Rogovy attacks the persistent internet rumor that suggests the U.S. is printing too many dollars and this could lead to hyperinflation.

 

Rogovy says Rogovy, “In the U.S. the central bank does not make payments on its debts using the money it generates. Instead it lends money at the rate it has set while the private sector makes use of the capital more efficiently. The money that is created is repayable and that is the main reason why this policy of monetary regulation doesn’t cause hyperinflation.”

 

Prof. L. Burke Files of Hayek Global College suggests that hyperinflation is not likely in stable economies such as that of U.S., in part because of the cost-control aspects created by a global economy. “The interconnectedness that exists across the globe,” Files says, “is the “pressure relief valve’ that is used by most nations. The nations which print a ridiculous amount of currency, such as Zimbabwe or try to manipulate their currency or restrict trade, like Argentina, become the extremes.”

“I doubt inflation will remain so at a low level as Federal Reserve’s inflation forecast of 2%,” declares Jim Pendergast, senior vice president of altLINE. “That said, I’m not convinced we’ll see the types of hyperinflation portrayed in these headlines of apocalyptic articles. It’s likely to be a mixed bag due to a particular sequence of events that linger in COVID.”

 

In the end, attorney Steven J.J. Weisman Esquire., addresses what is referred to as the “scam” part of some hyperinflation stories on the internet. “Sometimes reports such as this are created in order to entice people to read the articles that are published on websites that pay advertising depending on the number of clicks they earn,” says Weisman.

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