US Crosses the Bernholz Line -- Hyperinflation Early Warning Signal

Via:  US Crosses the Bernholz Line -- Hyperinflation Early Warning Signal – EconomicPolicyJournal.com

The basic point:

Economic historian Peter Bernholz has identified that inflation starts to take on hyperinflationary characteristics some time after the deficits of a country as a share of government expenditure rise above a third and stay there for several years.

According to Bernholz, the great hyperinflations of France, Germany, Poland, Brazil, and Bolivia all occurred after deficits reached that magic percentage or higher (In Bolivia, it reached 91%). The United States crossed over the Bernholz line last year.

The time lags for onset of the disease vary following the indication.

A word about the definition of inflation:  Monetarists and Keynesians alike (neoclassical economists) generally follow Friedman in saying “inflation is always and everywhere a monetary phenomenon.”  Some Austrians say inflation is money supply growing faster than real product.

For practical purposes, let’s define inflation as a general and sustained rise in prices, all prices, including consumer and producer prices.  This is very different from a localized asset inflation such as America has recently experienced in stocks and real estate and commodities.  Let’s call these “asset inflations.”  Asset inflations are not so good at reducing real debt loads, as most people’s incomes (and wealth) don’t follow asset price bubbles upward—and they are definitely left behind when the bubble bursts.

For a general inflation to get going there must be a “wage-price spiral,” so that incomes rise to meet or at least follow the general rise in price level.  Hence, I define a general price inflation as “a labor market phenomenon accommodated by monetary policy.”  The money supply does indeed grow faster than real product in such a case.

I go through all this merely to point out the unlikelihood of a general inflation in the current environment, in which labor unions are nearly extinct, employment-at-will is the law of the land, fascistic Storm Troopers routinely terrorize citizens for trivial infractions, basic Constitutional rights to due process have been destroyed (the Government can “disappear” you legally if they designate you a “terrorist”—hold you forever without any due process, torture you, do whatever they like with you), and for the most part citizens respond by cowering in their homes, afraid they will be next to run afoul of the dystopian corporate police state, to drop into poverty and a life of internal exile or worse.

Now, the monetary authorities, in their wisdom, would actually like to see a general inflation, as this is their deus ex machina for dealing with excessive federal debt loads (debts of all varieties, really).  Hence, I expect the national governments, goaded by their monetary wizards, to try to “enfranchise” the working populations of the world somehow, in a desperate last stand of Bretton Woods (II).  If successful, they will accomplish nothing less than the the supernova of Bretton Woods II, a global hyperinflation. 

And hyperinflations generally end up permitting those with money and access to leverage, the Big Money, to expropriate the working folks of whatever they had left, and if historical precedent applies, to set the stage for full-bodied Fascism to arise.

The solution:  raise taxes on the rich in America who have twisted the income distribution so much in their favor, and provide workfare and health benefits to the people.  There is enough to go around.  We don’t need to run huge deficits, we don’t need to cut taxes on the rich, we don’t need more war.

Shame upon the ruling class of America!  You sit and watch as this happens without the slightest pangs of conscience?  As if you don’t know what is happening?  Shame upon you!

Shalom.

See also: 

U.S. Income Inequality Is Frightening--And Much Worse Than We Thought – businessInsider.com