Several years ago, when the financial crisis became apparent to pretty much everyone on the planet, talk of hyperinflation from economists Marc Faber and Bob Chapman, investor Jim Rogers and trend forecaster Gerald Celente was generally dismissed as an impossibility. With the Federal Reserve at the helm, most did not believe that such an event could occur in modern times. Even today, after two years of trillion dollar bailouts and stimulus, and no end in sight, Keynesian pundits still argue that we need to spend even more money.
Inflation, according to Ben Bernanke, is not the enemy – deflation is.
Forecasts for where the economy and the US dollar are headed include a variety of possibilities, with some in the deflation camp, some in the inflation camp, and a small minority suggesting the worst case scenario – out of control hyperinflationary price rises.
As we get deeper into the crisis, and the actions of global governments and central banks become more pronounced, forecasting the eventual result of their actions may be getting a bit easier.
Gonzalo Lira, who is well versed in the effects of inflation, as he had direct experience with it when it occurred in Argentina, has developed somewhat of a timeline of events to come.
Though we warn our readers that specific date forecasts generally don’t pan out exactly as predicted, the trend for a hyperinflationary event seems to be locked in – it’s really just a matter of when, not if:
In Signs Hyperinflation Is Arriving, Lira argues that we will soon see inflation popping up, even in the official government CPI figures:
These factors all point to one and the same thing:
An imminent currency collapse.
Therefore, I am confident in predicting the following sequence of events:
â€¢ By March of 2011, once higher commodity prices reach the marketplace, monthly CPI will be at an annualized rate of not less than 5%.
â€¢ By July of 2011, annualized CPI will be no less than 8% annualized.
â€¢ By October of 2011, annualized CPI will have crossed 10%.
â€¢ By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%.
After that, CPI will rapidly increase, much like it did in 1980.
What the mainstream commentariat will make of all this will be really something: When CPI reaches 5% by the winter of 2011, pundits and economists and the Fed and the Obama administration will all say the same thing: â€œHappy days are here again! People are spending! The economy is back on track!â€
The first key number to look for over the next six months is the Consumer Price Index (CPI). If Lira is correct about his hyperinflation forecast, we will see the CPI jump from around 1%, where it is currently, to 5% or more.
If we close 2011 with a CPI of around 10%, it’s on – and you better be ready.
Remember, CPI is the “official” government price index, so it does not properly weigh the important consumer consumption products like food and energy (because those go up a lot higher and a lot faster than everything else). Thus, if and when the CPI reaches 10% in 2011, we can probably guess that food and energy prices will have already seen a 25% to 75% increase in price. Don’t worry if you don’t want to keep up with the specific percentages, you’ll know for sure when you go to the grocery store and your $150 weekly grocery bill buys about half of what it’s getting today.
If these events come to pass in 2011, then look out, because Lira doesn’t provide any good news in his forecast for the following years:
2012 will be the bad year: I predict that hyperinflationâ€™s tipping point will be no later than the first quarter of 2012. From there, it will accelerate. By the end of 2012, I would not be surprised if the CPI for the year averaged 30%.
By that point, the rest of the economyâ€”unemployment, GDP, all the rest of itâ€”will be in the toilet. By that point, the rest of the economy will no longer matter: The collapsing dollar will make 2012 the really really bad year of our Global Depression
Whether Mr. Lira is right or wrong about his forecasts will be known over the next 18 months or so. For now, keep an eye out on the prices you’re paying at the pump, the grocery store, and even when you buy cheap Chinese goods, because all of them should be going up.
Though inflation rates of 15%, or 30% seem manageable, consider that Weimar Germany and Zimbabwe saw similar price inflation at the onset of their inflationary cycles, as depicted in this chart of the Zimbabwe inflation provided by Howard Katz:
year rate of increase in prices 1999 56.9% 2000 55.22% 2001 112.1% 2002 198.93% 2003 598.75% 2004 132.75% 2005 585.84% 2006 1,281% 2007 66,212.3% 2008 231,150,888.87% (July)
Now, imagine this trend playing out with the US dollar.
If Lira’s time lines and assessments are correct, we’ve got about 3 – 5 years before the price inflation for goods becomes totally unmanageable for average Americans.
And then, well, the only way to describe it is: SHTF & TEOTWAWKI
Read Gonzalo Lira’s Signs Hyperinflation is Arriving
For more information on hyperinflation, take a look at the following resources: