Weve reckoned much about helicopter money in these pages. But airplane money? The Wall Street Journal reported the other day that proud and mighty Venezuela is in such an inflationary muss
it cant even print enough cash to meet its own needs. So it had to fly in three dozen 747 cargo planes all loaded to the gunwales with bank notes from outside dealers.
Mores coming, too. Our friends at the Journal report Venezuelas central bank plans to double the amount of airplane money in circulation. And its now only printing 50- and 100-bolivar bills because it costs more to produce 5s, 10s and 20s than theyre worth. If you think the Fed prints money, its a pimple to their Everest.
This loony bins annual inflation rate already clocks in around 720%. And its rising. Fast. The place is wrecked beyond help.
But its a tale of two inflation worlds right now...
Venezuela has hyperinflation. But deflations got the rest of us by the snout. The U.S., Japan, Europe none of them are within miles of 2% inflation. The Bank of Japan just introduced negative interest rates to revive the corpse. Europe has them too. Rumors circulate they could be coming to America.
Its weird. The central banks can inflate a multitrillion-dollar blimp of a stock market. But they can barely inflate a lung as far as consumer prices go. Also weird is that deflation can switch to inflation. And lickety-split, too...
The hyperinflation many warned the Feds QE programs would cause is a bogeyman: Everyones terrified, but no ones seen it. Its locked away in the dungeons of the banking system. But if all those trillions break their chains, look out.
Risk analyst Nassim Taleb warned about it in 2009 when he said, We will go from deflation to hyperinflation without seeing inflation.
Jim says it would start with garden-variety inflation the Feds going throttle full out to generate:
The last thing you probably think of is hyperinflation in a 21st-century developed economy such as the United States.
Yet it can happen here. In fact, the United States flirted with hyperinflation in the late 1970s
The U.S. dollar suffered 50% inflation in the five years 19771981. We were at the takeoff stage to hyperinflation, exactly where Germany was in 1920 on a relative basis. Hyperinflation in America was prevented then by the combined actions of Paul Volcker and Ronald Reagan, but it was a close call.
Jim says it would start with garden-variety inflation the Feds working night and day to generate. But once inflation expectations take root, the floodgates will open:
Today the Federal Reserve assumes if inflation moves up to 3% or more in the U.S., they can gently dial it back to their preferred 2% target. But moving inflation to 3% requires a huge change in the behavior and expectations of everyday Americans. That change is not easy to cause, but once it happens, it is not easy to reverse, either.
If inflation does hit 3%, it is more likely to go to 6% or higher, rather than back down to 2%, because the process will feed on itself and be difficult to stop.
And who knows where it would end. It would take another Paul Volcker to stop it. But as Jim adds in lamentation, Sadly, there are no Volckers or Reagans on the horizon today.
Jims also said the dollar is close to another peak and will soon begin a new period of decline. And as the economy weakens, the Fed will be forced to back off the tough talk and rate hikes and start another easing cycle, probably by mid-2016.
And heres the sting in the tail: Thats the catalyst for higher inflation.
Will that inflation itself be the catalyst for the hyperinflation Jim warned about? More importantly, will there be enough 747s in the world to keep up with it if so?
Below, The Mogambo Guru tells you why must have a plan in place when the Ultimate Keynesian Insanity Plan that could lead to the hyperinflation just described unravels. We promise its well worth your time.
Regards,
Brian Maher
Managing editor, The Daily Reckoning
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