We expect the Federal Open Market Committee (FOMC) to respond to renewed upward pressure on the unemployment rate with another round of unconventional monetary easing. These measures could involve more asset purchases, probably Treasury securities, and/or a more ironclad commitment to keep the federal funds rate low. If the committee decides on more asset purchases, the amount would be at least $1 trillion.
If Zimbabwe Ben thinks printing money is a panacea, he'd be wise to heed the words of Gonzalo Lira:
Hyperinflation, however, is the loss of faith in money. It is not that prices are rising because the economy is moving forward -- it’s that prices are rising because nobody believes that money is worth a damn anymore.
[...] our current deflation can trip over into hyperinflation at a moment’s notice. The stumbling block -- the thing that could trip us over from deflation to hyperinflation literally overnight -— is The Deficit.
Not just the Federal shortfall itself, but the policy implicitly embodied by The Deficit: The belief that all you need to do is throw money at the problem -— open up as many liquidity windows as needed, or expand Federal spending as much as necessary, to prop up those twin aggregates I mentioned before, aggregate demand and aggregate asset value.
The pernicious sense among American macroeconomic policy makers that fiscal shortfalls don’t matter -— and don’t matter especially in a financial or economic crisis—is what I believe will lead to hyperinflation. Policy makers -— who have lost any fear of providing as much liquidity and stimulus as necessary to steamroller any problem —- will have no compunction about adding to The Deficit at the next crisis.
That’s when hyperinflation will kick us in the teeth.
We've said it before, but we'll say it again: Bernanke Bucks are a medium of exchange, not a store of value. Get thee to a gold dealer.
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