A few weeks ago, Twitter CEO, Jack Dorsey, tweeted this: “Hyperinflation is going to change everything. It’s happening.”
And sadly, some of the talking heads on the various cable news networks seemed to agree.
But, fortunately, cooler and better-educated heads are prevailing here and one of them is Erik Townsend, the host of Macro Voices – one of my favorite podcasts.
Mr. Townsend is a retired software entrepreneur and a hedge fund manager who spends most every moment analyzing macro trends in ways that Mr. Dorsey could never imagine (nor find time for).
In his most recent podcast, Mr. Townsend quite comically compares Mr. Dorsey’s understanding of macroeconomics to Paris Hilton’s, and then his rant gets even harsher.
The reason Mr. Townsend gets so upset is because the talk of hyperinflation is misleading and potentially damaging, as it could scare people into making very poor investment decisions or even push people into panic mode.
True hyperinflation is inflation of at least 50% per MONTH, like we have seen in Zimbabwe – where a “$1 trillion bill” can’t buy a loaf of bread.
And there is of course Venezuela which will see 5,500% inflation this year along with a complete collapse of society (mass unemployment, crime, severe shortages, no municipal services that we all take for granted).
1970s WERE NOT HYPERINFLATION
Mr. Townsend reserves his harshest criticisms though for hedge fund managers and cable news talking heads who refer to the 1970s as a period of “hyperinflation” when we were not even remotely close to it.
Yes, we saw double-digit annual inflation, but nothing like 50% per month which equates to 1,000% per year!
Hyperinflation occurs when societies lose all faith in a particular government and its currency, and, according to Mr. Townsend, that is all but impossible in the U.S., Japan, and Europe.
He shares a hypothetical where it could happen, but it would be an extreme situation – such as the U.S. losing a shooting war with China and thus also losing its reserve currency status which might result in wild money printing. But again – he makes it very clear that would be extreme and very unlikely.
Mr. Townsend finally makes the point that we all should ignore talking heads who refer to the 1970s as “hyperinflation” or who readily predict hyperinflation – because such statements prove they do not know what they are talking about.
MR. TOWNSEND STILL PREDICTS SIGNIFICANT INFLATION
Like most macro pundits I follow, Mr. Townsend does think we will see significant inflation for about a decade in the 10%+ range and maybe as high as 20%.
This is because governments absolutely need inflation in order to pay off their massive debt loads.
That inflation will be very painful to every society, as it is effectively a tax, but it will be nowhere near as awful as true hyperinflation.
So, what should we do in light of this?
Buy real estate and take on 30-year mortgages 😊 (and not worry about “hyperinflation”).
CRYPTOCURRENCY THREATS
The podcast I link to above is primarily about cryptocurrencies and some of the threats they face – particularly from governments.
It is fascinating and I recommend it for that reason too.
