Images from the Weimar Republic of housewives using currency to heat their homes are bound to surface again as commentators discuss Dr. Marc Faber’s prediction of hyperinflation for the modern United States.
In an interview with Bloomberg TV he said:
The U.S. economy will enter hyperinflation approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates.
Dr. Faber claimed inflation might get to rates ‘close to’ Zimbabwe where inflation has reached 231 million per cent recently. He left no doubt about his prediction.
I am 100 percent sure that the U.S. will go into hyperinflation. The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.
Over-the-top
Now perhaps the original Dr. Doom has lost it, or at least got a little carried away with the strength of his analogy. It is hard to equate the market savvy Obama administration with the corrupt court of Robert Mugabe, or to imagine a scenario that would bring such economic devastation.
But what Dr. Faber’s hyperbole does flag up is the possibility of a return to the inflation levels of the 1970s, or indeed something worse. It is true that what politicians are doing to head off an economic slump today does indeed have consequences for future inflation levels.
In short, pumping money into the global economy will eventually prove inflationary. The money supply is being recklessly expanded to accommodate rising levels of public spending, largely on zombie banks and bankrupt automobile companies.
Government control
At the moment this new money is only compensating for a collapse in the private sector, global trade and consumer spending. But it is far harder to take money out than put it in, and Dr. Faber’s point is that left-leaning politicians will be reluctant to downsize the public sector at the appropriate time.
The investment conclusion he draws is that gold and silver are the best options to beat inflation and that buying US treasuries is likely to be a complete disaster. Those buying T-bonds in the auctions this week might care to reflect on what hyperinflation, or something close to it, would mean for this asset class.
Oil or black gold would be another clear and major beneficiary from a trip down the hyperinflation road.
