Hyperinflation Might Happen in the Near Future (Theory)

The Fed has been buying treasury bonds at an exceeding rate.  The national debt is a testimony to this.  I do not think the printing of money to pay off this debt contributes to inflation simply because the money is being sent to the banking sector.  However, when the financial crisis hit in 2008 the government had to infuse 780 billion dollars into the economy to keep the system from failing.  This increase in the money supply results in prices to increase because there is more available money to buy things.  The increase in prices slows the rate of expenditure for some people, because their income remains stagnate.  This decrease of currency velocity is inflationary in nature because in order for businesses to get the same amount of profit with less transactions, they must increase their prices.  In order to battle this inflation, The Fed has to increase interest rates.  Interest rates contract the money supply, because money is taken out from the public sector into the banking sector.  This does two things.  First, in theory, banks hope to obtain more money because people need loans to purchase certain things.  With this extra money, more money will eventually be sent to The Fed, whereby The Fed will be able to purchase treasury bonds at an inflationary rate (which is required in theory).  It also removes available income to the people who purchase those loans.  With less income, prices will rise because there will be less transactions.  Eventually however, in theory, businesses will be forced to lower prices to obtain more income.  Thus, the decrease of prices is due to higher interest rates.  This may or may not happen, but The Fed has to do this to try and contract the supply as much as they can, otherwise the shift of the extra money to the more “fortunate” from the increase in prices will alienate people who do not have the money to purchase goods or services.

The problem is a good percentage of people are not going to be able to purchase loans with an increase in interest rates as well as inflationary prices.  This means money will not be contracted from the overall money supply.  The added supply of money is inevitably going to initially shift money to businesses, while average workers won’t see their wages changed.  In order to keep the same or more profits, prices rise to combat slow transaction velocity.  Again, this shift of money requires a more percentage of people to not buy certain things, while more and more people can’t compete with the prices.  Eventually the value of money is going to be completely shifted to a select portion of the economy.  Less and less people are going to be able to deal with such high prices.  Eventually confidence in the currency is lost; the economy collapses.

This is the road that I think our future brings.  I think there are solutions to this problem:

  1. Enforce a regulation that transfers money from solvent companies to their employees.
  2. Reduce the cost of certain sectors of the economy that correlate to a large portion of average Americans’ debt (healthcare, education, etc.).
  3. Reform education.
  4. Tax the rich.

Forcing companies to invest back into their workforce will allow average workers to have more money to spend, which is a core problem to this debacle of money supply, interest rates, and transaction velocity.

The same concept applies to reducing debt.  This will create more money which will not only allow the purchase of loans with higher interest rates, but will speed the velocity of transactions which combats inflation.

If we can improve the quality and efficiency of education, more people will be able to work higher paying jobs, which thus allows for more loans to be purchased in combination with goods and services.

Putting ideology aside, taxing the rich is an effective way to shift the money supply back to the other classes, because the expenditure of more government aid gives people more money to purchase things, including loans.

 

I think a core problem with how Washington works is they are not transparent with not only the American people, but with the representatives themselves.  I think this mostly has to do with the idea that more knowledge is power.  If we put the situation on paper and out there, I think people would be willing to compromise with the other side in order to keep the system from collapsing.  Of course, if people knew the complete story there could be an uprising as I have stated before in previous posts.  Plus the schism of Congress is exactly what happens in The Age of Decadence; we are scheduled to collapse soon and the current state of the economy is evidence of this.  Honestly I am scared.  The uncertainty of what will happen is frightening.  However this is what I want.  This fear is what is required for drastic change for humanity.  In every case that I know in history, drastic change brings about fear in peoples’ lives.  I hope that one day humanity will learn the lessons of The Fate of Empires, and try to stop the cycle of empire death.  I hope humanity will progress to an economical system that removes money, the true reason for the decline of empires.

So now that I think about it, I am excited.  Who knows, maybe the people in power can figure things out to keep the boat from sinking.  But I am still hopeful.  I am hopeful that a new system will be put into place that is more humane and reduces the suffering of everyone.

 

 

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