But a few savvy folks are taking Bastiat's cue that it's more important to understand what is unseen as a result of economic policies, as opposed to just what is seen. While the fractional-reserve money-manufacturing process is currently broken in the commercial banking sector — because credit-worthy borrowers are hard to source and crumbling real-estate values have bank regulators closing a handful of small banks each Friday evening — the Federal Reserve has expanded its balance sheet to make up the difference and bailed out the large-money-center banks in order that the whole apparatus doesn't collapse.
So instead of allowing the market to provide a healthy cleansing deflation, the Fed, the Treasury, and bank regulators are fighting valiantly to keep the fractional-reserve-bubble machine operating, with the ultimate result likely to be inflation and possibly hyperinflation. "As inflationary pressures mount anew and the financial markets increasingly shun US Treasuries," wrote John Williams on his Shadow Government Statistics website this past January [available here],
"an inflationary depression can evolve quickly into a hyperinflationary great depression. Although hyperinflation became inevitable in the last decade, the onset of the process just recently was triggered by Fed and the Treasury actions in addressing the systemic solvency crisis."
What Williams describes is phase two of Mises's inflation outline: instead of a rising demand for money moderating price increases, a falling demand for money will instead intensify price inflation. Finally, we come to phase three, where prices go up faster than money supply, the demand for money drops to zero, and government fiat currencies collapse.
Monday, August 17, 2009
Another hyperinflation prediction
Writes Doug French on today's Mises.org: