How does hyperinflation ever happen? I mean, why don’t the leaders and the people see it coming and put an end to it before it entirely destroys a currency?
The below chart illustrates why. It’s a chart that plots the number of fiat Weimar marks (redeemable for nothing) needed to buy one gold Weimar mark (redeemable for gold) between the years of 1914 and 1923.
In 1914 the fiat and gold marks essentially traded at parity (one for one). By 1920 it took fully 100 fiat marks to buy one gold one. Now that was bad inflation!
But less than four years after that it took over 1 TRILLION fiat marks to buy a single gold one!!!! Inflation was so bad and the fiat currency so worthless that people began burning fiat currency notes for heat.
When we look back historically at what happened, we tend to focus on the black line in the chart above, which goes pretty steadily up and to the right. Looking at that line, how could people not have recognized what was going on and either protected themselves or prevented it before it got out of control, right?
The answer is, of course, the red line on the chart. The red line shows the INCREDIBLE volatility in the fiat price of gold marks month by month. In some months the price was up over 150%, while in other months it would DECLINE by 40% or more, thereby causing people to think the worse was behind them. And it’s the extreme volatility that disguised what was actually going on. Alas, that’s usually the case.
But, here’s the key thing
The volatility was not so much in the price (purchasing power) of the gold redeemable mark but rather in the purchasing power of the fiat currency in which the gold redeemable mark was priced! In 1914 one gold mark could by you a fine custom-made man’s suit of clothes. And…the same was still true in 1924 (and then some). The purchasing power of the gold mark was preserved (and then some) over the decade.
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In 1914 a single fiat mark would also buy you a fine man’s suit. But by 2024 not even a QUADRILLION of them could do so. The purchasing power of the fiat mark was utterly destroyed in a single decade, with much of it towards the end of that decade.
It’s important to recognize that it was the purchasing power of the fiat currency that swung wildly over those months (as indicated by the red line of the chart). One month would see massive inflation (a large decrease in fiat purchasing power). The next would see prices stabilize or perhaps even significant deflation (a large increase in fiat purchasing power), thereby suggesting strongly (but wrongly) that inflation was improving. Again, the volatility disguised what was going on.
Alas, volatility like this is by no means unusual when money dies. It is precisely how fiat currencies have historically exited the world. History is littered with examples.
In short, the extreme volatility in fiat purchasing power represents the thrashing death throes of a dying money. Consequently, if hyperinflation ever threatens the US dollar, we might expect to start seeing similar volatility in its purchasing power quarter by quarter and eventually even month by month versus some other benchmark asset.
With that in mind, commentators have for years now pointed out how bitcoin’s volatile price (in US dollar terms) looks much like that of the gold mark’s at various periods in time. The correlation is eerie, actually.
Does that mean that the US dollar will soon fail? Not necessarily. But if it's going to fail, I expect to see volatility in its purchasing power month by month start to become more extreme over time. Be on the lookout for that. If the dollar is dying, we will begin to be whipsawed back and forth between months/quarters of severe inflation and months/quarters of significant deflation.
Any such fluctuations should eventually become significant enough to be detectable even in the manipulated CPI numbers (especially “non-core” CPI), perhaps also in the USD price of gold (though gold’s price is heavily manipulated and actively suppressed these days, unlike during the days of the Weimar Republic, so it might not be a good indicator anymore) and especially in the USD price of bitcoin (which for reasons I’ve explained previously is much more difficult to manipulate/suppress and which is the superior digital analog to gold).
Once we start to see increasing and significant volatility in the inflation numbers, and especially in the USD price of bitcoin, it's time to seriously consider the possibility that the US dollar might be dying, and exactly what that means.