Last June, Stephen Lendman published an article covering Walter "John" Williams's views on Future US Hyperinflation. These views are more relevant than ever today.
(emphasis mine)
[Walter Williams] believes [the current downturn] will morph into a hyperinflationary depression, then a “great depression.” And when it hits, it will be with “surprising speed.” Already disposable income is falling in a weakened economy in crisis. As things worsen, politicians get blamed, and Williams raises an interesting possibility. If conditions get bad enough, voters may respond with their feet, declare a pox on both major parties, and turn to a third alternative around 2010 or 2012. It happened before in our history. The Republican Party is Exhibit A. It was created in 1854 at a time Democrats and Whigs were the two dominant parties. Exit Whigs, and enter Republicans with Abraham Lincoln its first elected president in 1860.
Williams shows US inflation data going back to 1665. It was fairly stable up to the Fed’s 1913 creation. It then began rising and accelerated post-WW II. Government calculations mask it. Alternative ones are more revealing and accurate. Except for minor price declines in 1944 and 1955, the US hasn’t had a deflationary period since the 1930s. Abandoning the gold standard is why. It imposed monetary discipline. Roosevelt went off it in 1933. He had to. The banking system collapsed, money supply imploded, and economic stimulus was needed. It released the Fed to create money freely. Therein lies the problem, and it shows up in the numbers.
Current Fed Chairman Bernanke and Alan Greenspan are students of the Great Depression. “Helicopter Ben” especially vowed never again, and his actions prove it to a fault. He knows the risks and stated them in an earlier speech. He said:
“Like gold, US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology called a printing press (now its electronic equivalent), that allows it to produce as many US dollars as it wishes.” By doing so, it “reduce(s) the value of a dollar in terms of goods and services” which raises their prices….”under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”
So it has, according to Williams, and it caused a “slow-motion destruction of the US dollar’s purchasing power” since 1933. It shows up in GAAP-based 2007 federal deficit figures - $4 trillion for the fiscal year, not the official $163 fiction reported. Williams estimates total outstanding federal obligations at $62.6 trillion. At least one other economist puts it over $80 trillion. There’s no way to honor this debt level, so the “government effectively is bankrupt.” At that point, it has three choices - default, declare a moratorium, or repudiate the entire amount.
Sooner or later, markets will react. Holders of US debt already are balking, but so far modestly and quietly. Ahead, that may change if dollar valuations plunge. It will force the Fed’s hand. Greater debt monetization will follow. Dollar valuations will sink further, and so forth in a progressive downward cycle to oblivion if Williams is right.
If conditions get severe enough, the Fed can create huge amounts of currency in a few days or weeks - enough to match the dollar’s lost purchasing power in the last 75 years. Combine it with fiscal irresponsibility and imagine the consequences.
Official data alone today are reason for concern - soaring food and oil prices, the dollar near historic lows, money growth at an all-time high, and off-the-charts federal deficits and debt. The trend continues, and it shows up in gold prices - topping $1000, then retreating, but nearly certain to soar way above previous highs on its way to numbers not discussed in the mainstream - $2000 an ounce, $3000? Who knows. Williams sees it “setting new historic highs.”
In 1980, its price hit $850 an ounce. In CPI inflation-adjusted terms, around $2300 an ounce would match it today. But if the government hadn’t cooked the CPI calculation, the number would be about $6250 an ounce. By that standard, gold today is cheap. It’s way below its real 1980 top, and if inflation accelerates as Williams predicts, expect much higher prices as dollars keep deflating.
Under this scenario, the “US government cannot cover (its) existing obligations.” Annual federal deficits are “careening wildly out of control, averaging $4.6 trillion per year for the six years through 2007.” That’s with all unfunded liabilities included like Social Security, Medicare, Medicaid, other social services, debt service and more.
Williams says things are so out of control that “if the government (raised taxes) to seize 100% of all wages, salaries and corporate profits, it still would (show) an annual deficit using GAAP accounting” methods.
