Question

Can hyperinflation happen in the United States? If so, what would be the likely scenario playing out first before hyperinflation takes off?

Answer 1

Deflation is what most predicters expect to see in the wake of this crisis. Given the precedent set in the aftermath of the last global economic downturn, where all quantitative easing has not had the desired net impact of igniting an inflationary increase, this should be desired. This time around it can be different, because the essence of the crisis is different from the last time, with different economic consequences. There is going to be deflation, in fact we are most likely already experiencing it. But a period of high inflation will take the place of deflation. The challenge for investors in this supposed context will be to place themselves in a manner that will adapt them to both

The tightness in the oil market balance decreased dramatically with the near-collapse of the economy and then the shale boom ensured that no major price increase occurred over the course of the last decade for the duration of recovery. This time around we see major disturbances in the global supply chain, ranging from car parts to meat processing facilities, as well as a disruption in the supply of seasonal labor, which also transcends borders. The disruption in demand for many goods and services is also greatly depressed, which should, at least for now, mask some supply disruptions, especially in non-essential goods.

The scenario that we are most likely facing at the moment, and maybe for the next few years, is a situation where deflation will give way to high inflation or an outright climate of hyperinflation. The switch can only become apparent after the fact and as it reflects, it may first seem like it is a return to a healthy economy. It's hard to plan for such a situation, but we need to think about it because it's a strong possibility that it's exactly what we're going to experience.

With more than $4.2 trillion in the Fed's balance sheet ($3.8 trillion more than at the start of the crisis), when demand eventually increases and borrowers need more liquidity to lend, or when the Fed wants not to pay interest on bank reserves, the Fed will have to change its course and, instead of buying bonds (which reduces cash from its balance sheet and raises money supply), it would sell. Things could get dicey here. This is also why the Fed needs to stop QEIII at the earliest opportunity.Because the longer it goes on, the more money will have to be removed and this could lead to severe dislocation in the financial markets. In other words, the stock market could decline along with the bond prices when the Fed ceases QEIII.