Hyperinflation in the US in 2021 - YouTube

hyperinflation is here the fed pumped over nine  trillion dollars into the u.s economy last year  

and now we are in for a ride this is what  reddit and other discussion forums are  

abuzz with right now but these fears  are real is hyperinflation inevitable

in this video we are going to  analyze whether this is true or not  

the outbreak of the pandemic caused the  financial markets to crash in march 2020  

followed by choking off the supply chains as  the world went into intermittent lockdowns  

causing an economic recession  that we are still suffering from  

to save the economy from crashing the u s  government decided to pump money into the market  

according to economists almost 20 percent of  all us dollars in existence were created and  

circulated in 2020 this figure instantly rings  alarm bells about the devaluation of the dollar  

is hyper inflation on the cards for the us  well in order to answer this question we must  

first try and understand why the government  had to print and circulate so much money

the financial crash of 2020 the financial market  crash of march 2020 was the biggest market crash  

since the global financial crisis of 2008  as the markets began to slide due to the  

fear and uncertainty caused by the pandemic  and the oil price war the investors dumped  

their investments from stocks and bonds  and preferred to hold their cash investment

so as stocks bonds and commodities crashed  the value of the dollar strengthened which  

was not a surprise because the same happened  in 2008 when stocks crash bonds rise but when  

both stocks and bonds crash investors turn  to the most liquid asset which is the dollar  

like 2008 in 2020 the investors had liquidated  their investments and this meant that investors  

had more cash at hand than the banks  and credit institutions had to lend out  

this is what you call a credit crunch  the world came very close to a credit  

crunch around the 21st of march last year the  situation became so dire that even companies  

like apple could not find financing for  their short-term operational requirements

fed intervention it was around this time that the  federal reserve decided to intervene by directly  

injecting liquidity into the market this was a  rare instance of the fed directly stepping into  

the market to lend funds to businesses to prevent  them from collapsing other central banks followed  

the fed and this basically created a chain  reaction across the world where central banks  

started to pump money into the markets  to prevent a global financial meltdown  

but what was the need to pump so much money  remember that the financial system is based  

on trust the currencies we have today are  not backed by gold or silver instead the  

fiat currencies are backed by the trust in the  government when markets crash they indicate a  

reduction in the trust level and an increase in  risk trust and risk are inversely proportional  

so when lending institutions see that the market  risk is rising they stop trusting their borrowers  

and increase their lending requirements in 2008  when the markets began to crash the credit rating  

agencies started to downgrade the companies which  created a domino effect in march 2020 we came  

very close to that same domino effect but timely  intervention by the fed prevented that situation  

remember that risk and trust are always inversely  linked with each other in financial markets  

high risk and low trust lead to credit  downgrading which leads to a credit crunch  

learned in 2008 that quantitative  easing can prevent a credit crunch  

and in 2020 we saw the timely implementation  of it the fed fearing a chain reaction of  

corporations collapsing like domino's decided to  step in by directly lending money to corporations  

this restored confidence in the market because  lenders and corporations both understood that  

borrowers were not going to default on payment  in the last year over nine trillion dollars has  

been pumped into the market to support the economy  this is an astounding figure but the question is  

did the direct intervention of the fed solve the  existing problem of the market the simple answer  

is no direct intervention by fed and by other  central banks across the world did not solve  

the problem because the problem was and still is  the uncertainty and fear caused by the pandemic  

what fed and central banks did was simply put  the economy on a life support machine till the  

answer to the problem was found in the form of  vaccines now that the economies are opening up  

or will the nine trillion dollars  injected in the last year alone go  

reddit and other discussion forums are buzzing  with speculations about the imminent collapse  

of the dollar and hyperinflation this  fear is not unfounded because anyone who  

has studied basic economics knows you  cannot print as much money as you like  

technically you can japan for instance has proven  that you can print as much money as you like  

wait does this mean we can print as much money as  we need without any of the negative consequences  

well in order to understand this we need to  understand inflation first what is inflation

inflation is simply defined as a  rise in the general price level  

the general price level is an index  that measures the change in the price  

of goods in an economy over time and hence the  purchasing power of the currency of the country  

since the eighties at least the inflation rate  in the usa has been roughly under six percent  

in recent years the rate has hovered around  two percent this was simple inflation  

now what is hyperinflation well hyperinflation  is a rapid rise in the price level economists  

define hyperinflation as a rise in the price  level by more than 50 percent per month  

this comes to around a ten  percent daily rise in price levels  

this means that the grocery you bought one week  ago for five hundred dollar ends up costing  

seven hundred dollars the next week and then  nine hundred dollars the next and in a month  

it crosses one thousand dollars while simple  inflation slowly erodes the purchasing power  

hyperinflation on the other hand plunges  the society into chaos and anarchy  

when hyperinflation hits you hear stories about  people carrying wheelbarrows full of money just  

to buy a loaf of bread in any case hyperinflation  results in a total socioeconomic collapse  

although it gets talked about a lot hyperinflation  is not that common the usa for instance has never  

experienced hyperinflation the closest it came to  hyperinflation was during the civil war and the  

great depression when inflation rates peaked at 20  percent hungary yugoslavia zimbabwe and in recent  

times lebanon can be seen as worst case scenarios  for hyperinflation according to professor steve  

hink of john hopkins university the underlying  causes of hyperinflation are always the same  

governments start running larger and larger  fiscal deficits and call on the central bank  

to fund those deficits because tax and  bond financing avenues are inadequate  

in hyperinflation central banks are required to  virtually fund the government's entire fiscal  

operations in addition to injecting a lot of  money into the market hyperinflation is almost  

always marked by socioeconomic and political  turmoil in the country so the question is is  

the usa heading down the similar road the answer  to this question is no not right now at least  

why though why not if injecting nine trillion  dollars isn't going to push the country into  

hyperinflation then why don t we do it all the  time well firstly remember that hyperinflation  

is caused not only by the injection of money but  also by socioeconomic and political breakdown  

unless and until multiple factors come  together it is unlikely that inflation  

levels will go anywhere close to fifty  percent to be classified as hyperinflation  

secondly as professor steve hank said governments  start running larger and larger fiscal deficits  

in the case of the usa the budget deficit is  roughly 50 percent of the revenue collected  

the government collects roughly 3.4  trillion dollars from taxes and generates  

3.1 trillion dollars through debt this includes  the spending the government had to do to control  

the pandemic as well the budget deficit to  gdp ratio for 2020 peaked at almost 15 percent  

and this is the highest deficit to gdp  ratio since 1945 however even this high  

level of deficit to gdp is not high enough  to make hyperinflation inevitable for the usa

perhaps if the country continues to pump the  same amount of money for a few more years  

then hyperinflation can be considered but at the  current levels of debt it can be safely ruled  

out apart from favorable statistics and lack  of contributing factors another reason why we  

can rule out hyperinflation is excess capacity in  the economy remember that the extra nine trillion  

dollars had to be pumped because of the pandemic  and every central bank in the world did the same  

which actually puts the whole world  on financial steroids but it is not  

dangerous yet because the pandemic brought  the global economy to a grinding halt in 2020  

as people stayed at home the savings rate  shot up in the second quarter of 2020  

savings rates for households in the usa went up  from an average of 10 percent to almost 30 percent  

this caused the aggregate demand to slump  businesses downsized and manufacturing  

plants reduced their capacity in other words  the pre-pandemic level economy shrunk down  

as the world began to open with vaccine rollouts  we saw aggregate demand rising again households  

showed increased demand for consumer goods because  all of the pent-up savings have to be spent  

what this means is that factories and businesses  are now going to go back to their previous  

capacity the nine trillion dollars in circulation  will result in investments and economic activity  

the unemployment that spiked in 2020 will  gradually start to come down the excess 20  

percent that is in the market will now boost  the economy yes there is going to be an uptick  

in inflation but this is not yet because of  the excess liquidity the uptick in inflation  

is because of the release of pent-up demand and  supply bottlenecks supply chains are still not  

back to their pre-pandemic levels this delay is  causing demand pull inflation that will take some  

time to normalize the twenty percent excess  liquidity will however at some point result  

in increased demand and that will be a signal  for the businesses to increase their capacity  

before that point however the government  can use interest and tax rates to take  

the excess liquidity out of the system  and keep the price levels in control  

so the bottom line is that hyperinflation  is not on the cards for the usa  

unless the government pumps money at the same  rate that it did in 2020 for a few more years  

secondly hyperinflation happens at a 50  inflation rate while it is not on the  

cards higher than normal inflation is the  inflation rate may even go as high as 10  

because clearly there is excess liquidity in the  system and that liquidity will push the prices up  

as the economy goes back to its pre-pandemic  levels do you think too that u.s will dodge  

the bullet or is it going into hyperinflation  share your thoughts comments below and if you  

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