Jordan Roy-Byrne's model of hyperinflation is a little different from the standard one: hyperinflation (or stagflation) results from deflationary forces. He meets the standard explanation when he says: "It is not a rise in inflationary expectations but a loss of confidence in a country being able to repay its debts."
The risk of hyperinflation comes in when government debt has to be monetized by the central bank because the interest payments are just too high for the federal budget to withstand. Instead of resulting from overstimulation, or a Keynesian Red Queen's Race, it results from a government-bond financing crisis.
He holds up as an example Iceland, whose economy shrunk by 8% while prices rose 11%.
His advice is to watch the bond market, and how gold does compared with it. Should the bond market cave in, the U.S. will be at risk for that kind of hyperinflation because servicing the debt will be too much to handle.
Roy-Byrne's model makes some sense, and does tie in with previous hyperinflationary episodes. The deflationary forces he refers to are ones created by too much debt overall, including government debt. By deflation, he seemingly means debt deflation in an economy already clogged with debt. Had that not been the case, there would be no potential confidence crisis.
Also, the government has to borrow hugely to fend off the crisis.
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Indeed, but with a twist: This "fear of deflation" is also instrumentalised by central banks to keep inflating the money supply. Deflation does not keep people from spending – they always spend what's necessary. And money NOT "spent" is then saved which means it is credit to someone who invests it for capital goods etc. thus it is again being spent, only not for consumption. Money never lies completely idle to any extent whether there's inflation, deflation, stability or a solar eclipse. For deflation to seriously happen, not only the current extreme credit expansion by the central banks and states (through "quantitative easing", stimulus packages, monetising and then spending national debt etc.) but also the money that was released into the economy PRIOR to the collapse would have to be "mopped up" again. This is nowhere to be seen nor would it be technically possible (confiscation aside) so we will rather see inflation than deflation.
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