So Where Is The Hyper-Inflation?

Up until early October 2020, almost a fifth of the American dollars in existence were created in that year. That is an absolutely stunning fact.

Free market and “right wing” economists have been warning this ongoing money creation will lead to hyper-inflation. There have been many examples of this throughout history, but the two most often cited are Weimar Germany and “liberated” Zimbabwe.

There are many anecdotes about the Weimar inflation, like the one of the housewife who went out with a shopping basket full of banknotes. She put it down for a moment, and when she turned round, someone stole the basket but left the money.

If you want to understand just how bad was the inflation in the former Rhodesia, take a gander at some of the banknotes currently being offered for sale on eBay.

Inflation is certainly running rampant in the United States, far more so than in Europe because of its size and the problem of transporting goods inland, but so far the feared hyper-inflation hasn’t materialised.

Some people believe this means the United States and indeed the rest of the world can simply keep creating money,  by printing notes, minting coins, or “printing” it electronically, but of course if things were that simple, every sovereign nation could print money to its heart’s content and we would all be fabulously rich. Even most of the economically ignorant realise that, but again, where is the hyper-inflation?

The explanation for this is that normally the commercial banks create most of the money we use as explained by Major Douglas back in the 1920s. They do this by the simple process of lending it into existence; when a bank loan is repaid, the original sum loaned is cancelled out of existence – every bank loan creates money; every repayment destroys money. But, the bank’s fees and interest remain, and this is why the world must go progressively in debt to the banking system. This was explained in the article The Poker Economy.  As the Fed and other central banks are using quantitative easing in lieu of ordinary commercial bank loans, money has remained cheap. Cheap money is the lifeblood of the economy. The big question though is for how much longer can this go on? The answer is not much longer; we may not see hyper-inflation, but we may see a crash, and if a crash does come, we can expect our leaders to look for the traditional way out – war. Indeed, there is already some suggestion that the Chinese Government may be considering that prospect.

Why war? Because miraculously, during war-time the laws of economics are suspended. As Professor Quigley points out in his classic Tragedy & Hope, at the outbreak of World War I, Britain was technically bankrupt yet somehow found the resources not only to fight a four year long war but to win it. And the conventional wisdom – ludicrous as it is – is that the Great Depression was “cured” by the Second World War.

In March 1933, Eton alumnus Gilbert Frankau said: “A war would be a great idea” adding  “Another war would give our three million unemployed ample employment.”

He probably changed his mind some time before 1946 when Japan and much of Europe lay in ruins, but there are plenty of people who share those sentiments today, in Washington as well as Beijing.