Marc Faber: “I am 100% sure that the U.S. will go into hyperinflation”
You have to hand it to Marc Faber; he knows how to grab your attention. Earlier this year, I posted a video of him saying “don’t underestimate the power of printing money", a quote that has become mantra for me. Basically, he believes a rising tide of quantitative easing is going to buoy stock markets globally and the global economy (at least for the medium-term). This is a view I agree with and one reason I have taken a more bullish tack at Credit Writedowns.
Earlier today, I also posted a video of Faber talking about Nouriel Roubini and the pressure not to overstay a bearish call and miss the turn which I found rather interesting (Here’s a video of Roubini sounding rather bullish – for him). However, later in that same interview, Faber makes his most quotable statement yet: “I am 100% sure that the U.S. will go into hyperinflation.” That is a very bold claim.
Just last week, I made similar comments in my post, “More thoughts on the fake recovery.”
In my view, the Federal Reserve has effectively demonstrated it is willing to risk hyperinflation in order to beat back the deflationary forces.
But I was using hyperbole. Faber, however, is dead serious. It is the secret desire of the Fed to want inflation that has U.S. government bond yields going berserk. But, most people are not expecting hyperinflation in the United States ever.
The video of Faber is below. Is this headline-seeking exaggeration or serious punditry?
Source: U.S. Inflation to Approach Zimbabwe Level, Faber Says – Bloomberg.com
Guess it depends on your definition of hyperinflation. There really is no offical definition. 10% a year for 10 years seems likely. Maybe 20% or more annually. But 1000% a month, or whatever Zimbabwe’s was? Seems a bit far-fetched.
But the numbers are pretty staggering Dallas Fed estimates America’s unfunded medicare/caid and SS liabilities at $99 trillion. But that’s over a few dozen years, and we still have some useful stuff being produced. So complete dollar annihilation, zimbabwe-style seems unlikely.
I’ve been wondering how Canada would fare if this was the case. Our dollar is going to be worth more than the USD but I’m not sure about everything else. I’m an amateur and have only started following the economy for the past 2 weeks. (Spent 5 hours a day reading different opinions all over the web, what a mess)
If Gold goes to 3000$ like some predict, is it still worthwhile to buy even with CAD?
Hyperinflation has no exact definition, but generally is taken to mean sustained inflation in the tens of percents, probably rising rapidly to 3 or 4 figutres, so that the currency becomes worthless, as in Weimar Germany in the 1920s, and Zimbabwe currently.
I severely doubt that either the UK or the US (to pick the two most obvious candidates) will suffer that fate. But I can easily see a situation whereby a combination of several factors cause inflation to rise well above the levels we have become used to over the last 25 years.
That scenario would be a) a funding crisis caused by bond auction failures, and/or budget deficits getting even further out of hand, leading to falling currencies, pushing up all imported commodities and goods. Followed by b) the failure of central banks to respond to rising inflation as they are scared of killing off any potential economic recovery, and not raising rates and/or reversing QE. Resulting in an inflationary spiral of rising prices feeding through to higher wage claims as in the 1970s.
The longer QE continues the harder it will be to reverse, leading to the obvious conclusion that it might not be reversed at all, leaving all the extra printed cash in the economy, with obvious effects.
The most obvious solution (in the eyes of the government) to massive amounts of debt is to allow inflation to average 8-12% for a number of years. This is would probably not cause riots in the streets , but if maintained for 3-5 years say, would reduce the value of the debt by a third to over a half.