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Outside timing on the hyperinflation remains 2014, but events of the last year have accelerated the movement towards this ultimate dollar catastrophe. Following Mr. Bernanke‘s extraordinary efforts to debase the U.S. currency in late-2010, the dollar had lost its traditional safe-haven status by early-2011. Whatever global confidence had remained behind the U.S dollar was lost in July and August.
That was in response to the lack of political will—shown by those who control the White House and Congress—to address the long-range insolvency of the U.S. government, and as a result of the later credit-rating downgrade to U.S. Treasury debt.
Those latter circumstances triggered something of dollar selling panic, particularly as reflected in the corresponding buying of gold and Swiss francs, but various interventions, misdirection and manipulations helped to quell the currency disorders. Still, many financial markets were left rocking with the aftershocks of a major shift in the global view of the U.S. dollar.
The economy has underperformed and likely will continue to underperform consensus forecasts by a significant margin. In turn, weaker-than-expected economic growth will mean significantly worse-than-expected federal budget deficits, Treasury funding needs and banking-system solvency conditions.
With the U.S. election just nine months off, political pressures will mount to favor fiscal stimulus measures instead of restraint. The Fed should be forced to provide new “easing” in an effort to continue propping the banking system (the explanation will be an effort to boost the economy). Given the Treasury‘s funding needs, the easing likely will in the form of renewed buying of U.S. Treasuries, with the Fed remaining lender of last resort there.
Consistent with the precedent set in 2008, the Fed, and likely the Treasury, also will remain in place to do whatever is needed, at whatever cost, to prevent systemic collapse in the United States. All of these actions, though, have costs in terms of higher domestic inflation and intensified dollar debasement.
The U.S. dollar remains highly vulnerable to massive, panicked selling, at any time, with little or no warning. The next round of Federal Reserve or U.S. government easing or stimulus could be the proximal trigger for such a currency panic and/or for strong efforts to strip the U.S. currency of its global reserve currency status.
As the advance squalls from this great financial tempest come ashore, the government could be expected to launch a variety of efforts at forestalling the hyperinflation‘s landfall, but such efforts will buy little time and ultimately will fail in preventing the dollar‘s collapse. The timing of the early days—the onset—of full-blown hyperinflation likely will be coincident with a broad global rejection of the U.S. dollar, which, again, could happen at any time.
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