Are we about to witness a hyperinflation of the US$ shortly?

Hyperinflation of any currency doesn't happen by accident; it is by design. So if there is a hyperinflation of US$ it will be by design and will be designed to benefit those causing it. So in order to predict a hyperinflation of the US$, we need to first understand who the winners and losers of hyperinflation of a currency are.

The immediate losers in the event of hyperinflation of a currency are those who are holding the currency, since the purchasing power of what they are holding drops to next to nothing. The immediate beneficiaries are those holding debt denominated in the currency since their liability becomes next to nothing. Now, the US as a nation is a debt-ridden country both internally and externally and all the debt, both external and internal, is denominated in the US$. So it is extremely beneficial for the US to cause a hyperinflation of the US$ thereby instantly wiping the debt , internal and external, off. So why is the US not causing a hyperinflation of the currency that is so beneficial to the citizenry and the nation itself?

Is it because the US is afraid that the external holders are US$ are going to wage a war against if they declare all the debts wiped out with a stroke of the pen? That is a laughable suggestion, since there isn't any country that is actually capable of even threatening the US with a war unless it is prepared to be destroyed itself and no country would seek self-destruction in order to cause damage to a debtor who declares its debts cleared.

Is it because the US is concerned about not breaking trust of other nations by doing so, lest it become a laughing stock in the international financial markets? Hardly likely, since the US has already broken its promises twice over the value of the US$ and it hasn't become the laughing stock in the international finanical markets. The Bretton Woods agreement committed the US to maintain the US$ held by foreign banks to be exchanged at a fixed rate for gold. During the Vitenam war, the US first devalued the US$ against gold and next completely delinked it from gold even for foreigners holding them. So when going back on promises is nothing new for the US, why should they care what others think when no promises have been made with regards to its value?

Is it because, as conspiracy theorists allege, the "banksters" want to keep Americans indebted and would not do anything that would release them from their clutches? After all, all the internal creditors are the banks, all the debts denominated in US$ and they are the only significant ones that stand to lose in the event of a hyperinflation! Before we could shout "Yes!", let us examine what are the downsides to hyperinflation.

No country that went through hyperinflation of its currency has been in the position that US is today, where all external debts are denominated in its currency and the advantages it confers. When all of a country's external debt is denominated in its currency, it is actually getting a huge free meal. The domestic consumption can far exceed the domestic production simply because there are outsiders willing to accept the currnecy in return for actual goods and services. If the currncy goes through a hyperinflation this faith in the currency drops and the external creditors will start demanding payment in something other than the nation's currency for the goods and services they export to the US. In other words, if the US$ goes through a hyperinflation, it will stop being the world's trade and reserve currency. It will have the same affect as filing for bankruptcy has on an individual: all debts are wiped out, but no new debts can be made and the person has to live within the means. This will mean a huge correction in the US economy and may even mean a complete societal collapse. So no one who doesn't desire to see an immediate end to the way the US exists today would engineer a hyperinflation of the US$.

Why then would someone predict an imminent hyperinflation of the US$? Do I believe that anti-US forces are in control of the US$ as some conspiracists allege (although these have to be different from the "banksters", since the "banksters" who want to see Americans indebted have no reason to cause hyperinflation liberating them from their debt)? Far from it. I do believe that the US is capable of controlling the negative affects of hyperinflation of the US$ and the hyperinflation will be caused in the US national interests.

The US$ became the world's reserve currency through careful planning and if it loses the status it will also be because of a similar plan. In order for a domestic currency to become the world's reserve currency it must meet two criteria 1. The country/region where it is the domestic currency should be perceived to have long term export potential 2. The country/region should have a strong military to meet any challenges to its status. The US$ met both the criteria. But once it undergoes hyperinflation any new national currency issued to replace it will not automatically replace it as the reserve currency since the US no longer meets the first criterion. The obvious question is, if that is the case why didn't the US$ lose its status as the reserve currency? The answer is two fold. First to gain a status is different from maintaining the status. The US became a net importer long after its currency was established as the reserve currency. Second, the US actively thwarted any challenges to the dollar hegemony. While that may not have been the only reason for invasion, Saddam's decision to switch to Euro for trading Iraqi oil was definitely one of the reasons for the invasion of Iraq in 2003 as evidenced by the fact that the very first decision of the occupying govenrment was to switch it back to the US$. So the question is if the US$ is not going to be the world's reserve currency, what will replace it? What currency meets the two criteria? The only currency that meets both those criteria is the Chinese Yuan. But it would be hilarious to think that the US would cause a hyperinflation of the US$ only to concede the space it held in the international financial markets to China. Not even the worst conspiracy theorist would suggest that!

A few years ago the US could have chosen a couple of alternatives to replace the US$ as the world's reserve currency and still had preferential access to the new reserve currency. It is important to note that the country/region whose domestic currency is the reserve currency are not the only ones who get a free lunch. Even those countries/regions they prefer to spend their money on services like tourism or products like sports cars or as an investment destination get a free lunch although not to the same degree. In that sense all the preferred trade partners of the US who exported "high-value" goods and services to the US benefitted from the US$ being a reserve currency. Same way, if the Euro replaced the US$ as the reserve currency US can be expected to continue to get a free lunch, although to a lesser extent. However this doesn't seem to have found favour with all considering the decision to actively discourage the Euro replacing the US$ through a military intervention. Of course, consdering the impact of that decision, a steady rise of the Euro with respect to the US$ and it becoming a reserve currency alongside the US$, it could be argued (as I did back in 2004) that it was actually planned to increase the awareness in the world governments about the strength of the Euro vis-a-vis the US$ and to actually make them move away from the US$ to the Euro, but in a way controlled by the West and not market forces or the whims of the indiviual countries. So yes, if the US$ does go through a hyperinflation, the immediate replacement will be the Euro and not Chinese Yuan. However, that arrangement cannot last. While China may not be able to directly challenge the US/US$ hegemony, neither the US nor Western Europe can challenge China's decisions on what currency to trade in. While China imports a lot of oil and would have to take into consideration what currency the oil exporting nations want to trade in, in any changed scenario they could easily insist on all their trade surplus with the US/West be denominated in Chinese Yuan rather than Euro which would make their currency a reserve currency alongside the Euro and the Euro will eventually lose its place as the reserve currency to Yuan, not a welcome prospect for the US/West. Another option that existed a few years ago was creation of the North American Monetary Union and issuance of a new currency. This poses a different problem in the sense that the existing US$ debt won't be devalued and will simply have to be converted to the new currency.

So what is this magic formula that would allow the US to hyperinflate its currency wiping out its current debts, while leaving it having preferential access to any new reserve currency? The answer is that the new reserve currency to replace the US$ will not be the domestic currency of any nation or region, but will be an exclusive international trading currency to be issued by an international agency like IMF firmly controlled by the West. While currently IMF SDRs can be trasnferred between members, they are more like assets, rather than currency. Also current IMF rules require different members to maintain their quota of SDRs and anything below that is considered a loan and anything above that a deposit. The interest paid on the loans is credited to the deposits with the fund itself not holding any SDRs. While that could work even when it (or another organisation) starts issuing a trading currency, members cannot be asked to hold a quota. Initial allocations of the new units can be made based on some agreed upon formula (the net exports in the last few years or foreign currency holdings or a mix of both) and members may be allowed to trade these units freely, with perhaps the agency acting as an accountant for loans and repayments. The volume of the units in circulation can also be controlled as per an agreed upon formula.

What are the benefits of such an arrangement for the US to push for it? First off, all its external debt is wiped out while still leaving it with considerable borrowing power, since it can easily manage to get a significant share of the initial units to be created and even any subsequent units to be created. Since these units will represent tradable goods and services, its allocations, initial or subsequent, will represent the goods and services that a country can import over and above its exports without actually being indebted to anyone! What are the benefits to other countries, like China, that they would accept the arrangement? Export surplus countries need a unit in which to park their savings, a unit that is reasonably predictable as something that is not expected to lose its value significantly over time reducing the value of their savings. Faced with the prospect of their existing savings wiped out and any future savings facing a similar risk they are bound to heave a huge sigh of relief with the proposal and can ask for their existing savings getting converted into the new units and a degree of control of the creation and allocation of new units to save their future savings, which the West will gladly accept. It will be difficult for them to imagine a more fair offer that is also acceptable to the West, those firmly in control of the international finance and likely to continue to do so for sometime.

So it is a win-win for both the US/West and the export surplus countries like China and hence likely to come to pass.

Gonna be honest - but i spent under a minute "cliff noting" your paper on hyperinflation of currencies.

I think that most people on the world realize in one way or another that things are changing. The concept of cash currency has served humanity for its time. Now the currency will be TIME.

We all have the goods & means to take care of eachother through whats goin on, & i think thatd include with all the drought & small harvests (famine) going on. it all starts with a single soldier putting down a weapon, or a housewife hugging the neighbor. it starts with one person


People need to chill out. why isnt there a holiday for sleep? because youd be that much smarter.

Originally posted by survival
I think that most people on the world realize in one way or another that things are changing. The concept of cash currency has served humanity for its time. Now the currency will be TIME.

We all have the goods & means to take care of eachother through whats goin on, & i think thatd include with all the drought & small harvests (famine) going on. it all starts with a single soldier putting down a weapon, or a housewife hugging the neighbor. it starts with one person

Currency/money is what allows most peoples' wants to be taken care of even when people are not really interested in taking care of "everyone". It is a mechanism where people doing what they are capable of and what some others are interested in and exchanging the goods and services results in a higher satisfaction of wants for most.

Sure, it would be nice to see a world where there are no conflicts with others and people work to enrich others and in the process living an enriching life themselves. But I don't see the possibility of such a world around me any time soon.

In the meantime, money/currency will continue to serve its purpose.

"Are we about to witness a hyperinflation of the US$ shortly?" Until that happens, we cannot speculate. However, it would be "prudent" to pay off the creditors than worry about spending monies/purchasing power we don't have currently. I'd hate to see the a powerful debtor nation loose "face value" to the rest of the world.

Why is it so impossible that what's happening has been orchestrated? No one gives these politicians and corporate execs any credit. We're not $14,000,000,000,000 in debt because they don't know what they're doing... These faulty entitlement programs were meant to bankrupt us from the beginning. Taxs are taken from the middle class and given to to the leachers and corporations. The top 5% of the U.S. literally hoards money from us, there's no way you can spend the amount of money they have.

The only thing defaulting on our debt will accomplish is getting repossed by our creditors, or the pencil pushers of the U.S. will be forced to start doing real work again.

Originally posted by pikypiky
"Are we about to witness a hyperinflation of the US$ shortly?" Until that happens, we cannot speculate. However, it would be "prudent" to pay off the creditors than worry about spending monies/purchasing power we don't have currently. I'd hate to see the a powerful debtor nation loose "face value" to the rest of the world.

All speculation would be before the event, not after

Yes, it is always prudent to live within one's means. But what exactly would the US pay the external creditors off with?

Check this out...

www.usdebtclock.org...

It is going to be very interesting in the next few days, I do not know which way is going to be best in the long run.

No, the problem is deflation.

There is no demand as citizens have no expendable cash and are up to their eyes in red ink.

The economy needs to be stimulated with job creation by the government.

I have to admit, I never thought about a world currency as possibility. Mainly because unless one is already in place the US will still have to suffer through at least a year or more or hyperinflation. And if it continues for longer than that there will be huge civil uprising and wars across the globe and even here. A new monetary system will be the least of our worries.

Originally posted by Peruvianmonk
No, the problem is deflation.

There is no demand as citizens have no expendable cash and are up to their eyes in red ink.

The economy needs to be stimulated with job creation by the government.

Wouldn't hyperinflation solve the problem?

All debts would be practically wiped out. People would own their homes and equipment bought on credit by paying it of from a year'/month's earnings and would still have a huge portion left to spend. With so much disposable income with every earner new opportunities will automatically be created, it doesn't need a government to create jobs.

Originally posted by alex655320
I have to admit, I never thought about a world currency as possibility. Mainly because unless one is already in place the US will still have to suffer through at least a year or more or hyperinflation. And if it continues for longer than that there will be huge civil uprising and wars across the globe and even here. A new monetary system will be the least of our worries.

I am talking about a hyperinflation of the kind Russia experienced in 1993, a one time phenomenon, rather than the kind that Turkey experienced, for a decade, or the one Zimbabwe is going through right now.

It will be cheered with great fanfare by most Americans, since most Americans are indebted and a one time hyperinflation wipes their debts off. Foreign individual holders of US$ will no doubt be red faced, but there isn't much they can do. The foreign governments that hold US$ can be compensated by turning their US$ holdings into the new monetary units to be created.

Originally posted by Observor

Originally posted by pikypiky
"Are we about to witness a hyperinflation of the US$ shortly?" Until that happens, we cannot speculate. However, it would be "prudent" to pay off the creditors than worry about spending monies/purchasing power we don't have currently. I'd hate to see the a powerful debtor nation loose "face value" to the rest of the world.

All speculation would be before the event, not after

Yes, it is always prudent to live within one's means. But what exactly would the US pay the external creditors off with?

edit on 25-7-2011 by Observor because: Changed 'debtors' to 'creditors' in the last sentence.

First thought that came through before posting was outsourcing/exporting jobs/workers.
Second thought in reply to your inquiry was "intangible assets".

I guess you could say both thoughts work in tandem.

[/end thoughts]

Using hyperinflation to wipe out the debt is a grand idea but one less likely to occur. Considering that the object of the game is to set up a world corporate structure rather than a world political government structure via a central global bank as the center of the hub. Allowing the US gov to default and the dollar to go up in flames like the Hindenburg and equally as fast while dragging the euro to its demise as well.

Expect a major conflict that places the three top dogs at odds that will guarantee that neither will come through it in a position to hold the reserve currency. No need for hyperinflation of the dollar at that point as the bankers will reap a financial windfall in assets. They are not interested in a win/win situation for anyone other than themselves. Also expect a technical if not actual default between now and the first quarter of 2012.

I agree with the OP, holding dollars is a sure case to insure that your portfolio goes up in smoke and the euro is slotted to go the way of the Dodo.

Originally posted by pikypiky
First thought that came through before posting was outsourcing/exporting jobs/workers.
Second thought in reply to your inquiry was "intangible assets".

I guess you could say both thoughts work in tandem.
[/end thoughts]

Ousourcing and exporting jobs by US companies is the equivalent of buying the services of foreigners with US$ which actually enhances the problem, doesn't diminish it. If you meant foreign comapnies outsourcing to the US or exporting jobs to the US, yes, that would work, but there don't seem to be many takers for it as long as the cost of living in the US remains high.

Exporting workers who save and repatriate savings would work, but not sure how many Americans would be willing to work in countries like China in order to reduce the country's foreign debt.

US companies selling their assets, tangible or intangible, would definitely work. But again the US government seems very touchy about China/Chinese comapnies acquiring US companies as evidenced by their refusing permission for China to buy some oil assets in the US. As for other kinds of companies and assets, there don't seem to be enough takers among those foreigners holding US$.

Originally posted by pstrron
Using hyperinflation to wipe out the debt is a grand idea but one less likely to occur. Considering that the object of the game is to set up a world corporate structure rather than a world political government structure via a central global bank as the center of the hub. Allowing the US gov to default and the dollar to go up in flames like the Hindenburg and equally as fast while dragging the euro to its demise as well.

Expect a major conflict that places the three top dogs at odds that will guarantee that neither will come through it in a position to hold the reserve currency. No need for hyperinflation of the dollar at that point as the bankers will reap a financial windfall in assets. They are not interested in a win/win situation for anyone other than themselves. Also expect a technical if not actual default between now and the first quarter of 2012.

I agree with the OP, holding dollars is a sure case to insure that your portfolio goes up in smoke and the euro is slotted to go the way of the Dodo.

Well, if you are banking on a bankers' conspiracy it would be foolish of them to let both the US$ and Euro go up in flames, because they don't control other currencies. China's Central Bank is owned by the government of China as are the Central Banks of most other non-Western countries. So if the prominent Western currencies go up in flame, the world will probably trade using Chinese Yuan or a basket of Asian currencies none of which the Western bankers can influence let alone control. So it would be pointless and utterly silly on their part to trash either of the two major Western currencies, because as I pointed out when a currency crashes all the debt gets wiped out and the only control banks have is through debt.

i can only see a hyperinflation in the USD... but to get around that, the use of the Silver Canadian Loonies,
US Silver-Gold and the Mexican Peso will get a good deal of usage in communities...

my contracts for burial insurance as an example, will remain the agreed price regardless of hyperinflation...


i see only the things that are in demand during an natural disaster emergency as going hyper-priced

I don't think it will happen.
If people realize is worthless they will stop using it and without money the government has 'no' power to control the citizens.

The debt will not be wiped out by the stroke of a pen, WHY, control. I thought that this would come up, thus it still can when needed, but now i do not see that in the FUTURE.

Originally posted by cloaked4u
The debt will not be wiped out by the stroke of a pen, WHY, control. I thought that this would come up, thus it still can when needed, but now i do not see that in the FUTURE.

I think I covered it

Yes, if the bankers are really in control of the US it will not happen. If it doesn't happen with the US economy continuing to go down, the "banksters' conspiracy" will have to be treated as extremely credible vene in the face of many highly implausible explanations given by the conspiracists.

Originally posted by VforVendettea
I don't think it will happen.
If people realize is worthless they will stop using it and without money the government has 'no' power to control the citizens.

A currency will never will be "worthless" as long as the government accepts it as payment for taxes. All government payments can also be expected to be in the currency of the country, regardless of what other tokens of value different individuals and businesses are willing to accept as payment for goods sold and services rendered.

I am not sure about this part, but I suspect legal tender laws will make it an offence not to accept as payment the nation's currency. So while a trader may accept other tokens of value, he/she is forced to accept the legal tender of the country.