Hyperinflation is an extreme occurrence. In order to understand what it is, it is important to understand what inflation is. Inflation occurs when there is an increase in the price of goods and services. When this happens, the value of a dollar decreases.
In essence, the dollar buys less when there is inflation. Hyperinflation, as was stated, is an extreme occurrence of inflation. When this occurs, it is due to an unusually rapid form of inflation, dramatically decreasing the dollar’s value; imagine if a million dollars could not buy a can of Coke. In the worst instance of hyperinflation, a nation’s economy can break and fall apart.
Has hyperinflation occurred in the past?
This scenario occurs in and creates the direst of situations. It recently occurred in Iceland, which has led to people committing drastic acts for money. Such acts included obliterating their Range Rovers for the purpose of receiving insurance money, hoarding all of their food and found foreign currency, as well as seriously considering emigrating from the country.
It may provide some relief that only Iceland has suffered from an instance of hyperinflation, as their population is a rather insignificant one, at approximately 300,000, compared to the United States. However, this only means that it happens quicker in smaller countries. By no means does it render the United States safe from hyperinflation.
The Risk of United States Hyperinflation
Taking a look back on the history of the States, it had not yet come too close to hyperinflation in the past century or so. Double digit inflation occurrences also have not been seen in the past 25 years, though it was experienced several times before. Double digit inflation occurred in the United States in the 1910s, the 1920s, the 1940s, the 1970s and early on in the 1980s.
As previously stated, the United States is by no means immune to hyperinflation, even though they have not been close to it. Should triple digit inflation occur, it would in essence be a doomsday scenario, requiring the United States Dollar to devaluate on a massive scale, which would weaken the economy far more than it is staggering already. Therefore, the rest of the world would need to distrust the United States’ future completely in the sense of their earning power in order for hyperinflation to happen.
This is what occurred in Iceland.
While it is indeed not entirely likely that hyperinflation will occur within the United States, it is certainly a possibility. Because the government is beginning to drown amid the debts it has built over the past eight years, goods and services such as gas and food are beginning to rise in prices. In a country that once had gas for about $1.50 by the gallon, for example, inflation has caused the price to rise to $4.25 per gallon.
Why is hyperinflation possible in the United States?
However, because debts are rising, the government continues to need money, borrowing and borrowing some more; it is truly a vicious cycle. This already rising inflation has caused many other occurrences in the United States, all of which could eventually lead to hyperinflation – or perhaps even sooner than eventually.
These occurrences include many things, such as the fact that high prices cause labor to be less readily available. Because there is fewer labor to offer, many businesses are simply not hiring, and many others are laying off employees. In extreme situations, such as the business not having money to spend since the value of the dollar is decreasing, a business may end up going bankrupt. Filing for bankruptcy results in losing divisions of their company or even the entire business itself. The end result is a large group of people in need of a job and many companies without the labor to offer.
As can be inferred from this explanation, unemployment percentages are beginning to increase at an unsteady rate, causing people to cash in on unemployment compensation. This money comes right from the government, who must produce the money one way or another, leading back to either borrowing from others or from increasing taxes. Higher taxes leads to a rise in the price of goods and services, and with this, the whole problem comes full circle.
Other Potential Causes for Hyperinflation
Another problem with the United States is its continuing post-invasion of Iraq. A war that began nearly seven years ago continues to bleed out the economy of the nation. Heinous acts are being committed overseas, leading to the deaths of soldiers, forcing the United States to replenish the supply by sending more across the world in their place. When there are no more soldiers left in reserve in the home country, the government will require more training of more people.
What has been done to prevent this?
In an effort to help stimulate the economy, the government attempted to send out all qualifying Americans a stimulus check in 2008, hoping citizens would take the free money as a sign to go out and begin to spend it. They simply “printed” new money and handed it out, increasing the amount of money in circulation.
The United States is at Risk
The United States is becoming a hollowed out economy, not producing very much outside of agricultural products, internal services, housing and perhaps some sophisticated technological products. If something does not change soon, there will be a greater need for imports. Using a deflated dollar, this will simply put the country into a rapid downward spiral of hyperinflation.
It is not guaranteed, but it can happen. It will not happen overnight. The situation is advancing.
It is rational, however, to expect that within the next few years, the United States dollar could potentially lose about 75% of its value if nothing is done to stop the downward spiral. Cash, whether it is in the form of either government or corporate bonds, as well as money in CDs and other bank accounts will most likely be the ones that are hit the hardest. Investments in general index fund types will be a poor choice. It also goes without saying that stocks do not do so well in hyperinflation.
What You Can Do About It
It may not be entirely likely, but it is by no means impossible. These are the reasons why the United States might just see hyperinflation in their lifetime. It can only be hoped that it is not the last thing that the country ever sees.