Are Headed Toward Hyperinflation?

Ernie Lane ernielane at VERIZON.NET
Mon May 25 07:52:55 MDT 2009


John A. Quayle wrote:
> */[It happened during the Weimar Republic and some say it could happen 
> here, too. Fact is that we cannot possibly spend our way out from under 
> mounting deficits - no matter whether we flood the system with worthless 
> cash or continue to borrow from our enemy (China). - JAQ:]
> 
> http://www.augustreview.com/news_commentary/global_banking/the_weimar_hyperinflation:_could_it_happen_again?_20090520122/ 

I read an article the other day that said that deficit spending is OK, 
if not called for, as long as the deficit is below 4% of GDP.  Now, I 
don't know what the "limit" is, but obama is moving us in the direction 
of annual deficits of more than 10% of GDP.  I think that deficits are 
fine, as long as they are of reasonable size.

And one thing you don't hear much about is that these huge deficits are 
going to put us in the area of a total government debt of more than 100% 
of GDP, and I don't think that's survivable.  At least when the annual 
deficits are small, the economy can grow faster than those deficits, so 
the total debt never overtakes GDP.  A declining economy, as we are in 
now, can absorb reasonable deficits for a year or two, and eventually 
make that surplus (economic growth over deficit) up.  But obama's 
deficits, so much so fast, will hobble the economy forever -- 
hyperinflation being just one thing.

You can already see the future in two things:

- The rapidly rising oil price.  There are also other factors at play, 
but the oil suppliers denominate in dollars, which they see as a 
declining asset, so they _have to_ raise the price.

- S&P recently revised its outlook for the British Pound -- they didn't 
cut its rating yet, but are poised to -- because their overall 
government debt is at or near GDP.  That's also where we are.  They are 
going to be extremely reluctant to do or say anything about our 
situation, but I think that eventually, they will be forced to.



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