High inflation has been in the news for a long time and will continue to be. Gasoline, food, and most recently oil are just a few of the many items whose prices have been rising sharply. This is concerning any time it happens, but especially so now. That’s because the Fed has raised interest rates 11 times since March 2022 to control inflation, and the statistics prove the medicine is not working. So now what? Is the government losing control of the economy? Do we have to worry about hyperinflation? Let’s hope not, because that would mean hard times are ahead for consumers, businesses, investors, and the world.
High inflation is not hyperinflation. According to Investopedia, an inflation rate above 5% is considered high inflation. Certainly, that creates difficulties for some people and is a nuisance for everyone, but it’s something most can live with. Hyperinflation, on the other hand, is when prices increase at a 50% rate per month, and in a worst-case scenarios they double in a few weeks or even a few days.
Fortunately, this problem is very rare because governments literally will do just about anything to prevent that. But it does happen! In late August, Forbes listed the following five countries as having the world’s highest inflation rates: Venezuela, Zimbabwe, Sudan, Argentina, and Turkey, ranging from 48% to 400%. Other compilations report that these and other countries have much higher rates. The people who live in these countries simply cannot afford the basics they need and the purchasing power of everything they own has completely been eroded.
We’ve all seen pictures of hyperinflation in the Weimar Republic of the 1920s, where children used huge stacks of money as building blocks and women used bank notes to fuel for their ovens. And hyperinflation can certainly be a prelude to political unrest or can follow it.
Nowhere Near That
Many people shake their heads when they go shopping and realize how much prices have increased since their last trip to the supermarket (and other stores). They grumble and groan. But bear in mind the official inflation rate is in the single digits.
Now try to imagine how people would react if prices had increased by fifty percent or more, and on their next shopping trips a few weeks later by another fifty percent. Clearly, most people could not survive in this kind of environment nor could they provide the basics for their families. When things reach this point, they snap.
Fortunately, inflation in America is nowhere near those levels, but the situation is, nevertheless, serious. Consumers know this without having to check statistics – they know it from real life experience. This problem is becoming worse in America and in other countries and no one is sure when – or how – it can be controlled.
Those In The Know
Nations are extremely careful about preserving their wealth, and their recent actions speak volumes about their views. “Having become convinced that the dollar is losing its value, they’re selling huge amounts of their Treasury bills and moving their assets into gold and other assets,” said CPA Lena Petrova.
As an example, take the two biggest buyers of US Treasuries, China and Japan, as well as other countries, such as Saudi Arabia. They are unloading their dollars at a record pace, in part because of political issues but also because they no longer consider the dollar a safe investment. “Foreign countries aren’t looking to hold massive amounts of US dollars anymore or US debt,” Petrova added. “That used to be the case but it’s not anymore.”
The Fed recently announced plans to sell $60 billion in US treasuries every month to help pay for debt. Sales like these are necessary to fund the growing deficit, but there’s a big problem with this plan: If these major countries won’t buy them, who will?
Since 2018 China’s holdings of US treasuries declined by nearly 30%, a very telling statistic. As of June 30, China’s US Treasury holdings had declined to $835 billion – a humongous amount to be sure, but now at a 14-year low. China has been making these sales for over a decade, and now the rate of sales is accelerating. In recent weeks alone, Beijing sold 10% of its entire holdings of US Treasuries. At the same time, both Japan and Saudi Arabia (and other countries) also are getting rid of their dollars.
Meanwhile, inflation is wrecking the standard of living for millions of Americans. Real median household income has had the largest decline since 2010. According to the Census Bureau, the child poverty rate in the US has more than doubled from 2021 to 2022. And homelessness is now rising at the fastest pace ever recorded. With many people unable to pay for the basics they have no choice but to charge those and now for the first-time credit card debt has topped $1.03 trillion and is moving higher.
Red Flags
The economy has its ups and downs, but there are a few red flags out there that really need to be considered. One is that the national debt now exceeds $33 trillion and is increasing by more than $1 trillion/quarter. Also, the debt is so high that the interest payments alone now top $1 trillion.
Also, America’s oil reserves are now at a 41-year low! This makes the US very vulnerable because the combined voluntary production cuts by Russia and Saudi Arabia have created a three million barrel per day production deficit. One economist is warning that oil could jump to $107/barrel. And a JP Morgan strategist says any additional cuts could push the price to $120/barrel, which would put major pressures on the global economy.
As ordinary citizens, we can’t do anything about inflation. But there are some things we can and should do in our personal lives. These include paying off debt to whatever extent possible and saving as much as one can for hard economic times some economists are warning about.
The US has faced economic problems many times before this, some even worse than the ones we are experiencing now. We are beginning a New Year. Let’s hope it brings all good things to the US, Israel, and to all of us.
Sources: axios.com; kiplinger.com; netsuite.com; theeconomiccollapseblog.com; yahoofinance.com. YouTube: Lena Petrova: Hyperinflation Threat Is Real
Gerald Harris is a financial and feature writer. Gerald can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.