The U.S. Dollar's Outlook: Walking Down the Road Toward Hyperinflation

by Guest Editorial

The U.S. Dollar's Outlook: Walking Down the Road Toward Hyperinflation

by James Turk, Guest Editorial

Tuesday, June 22, 2010

The latest financial results for the United States government shows that it continues to spend and borrow recklessly. As a consequence, there has been no improvement in the hyper-inflationary outlook for the U.S. dollar.

Hyperinflation results when a country's central bank turns government debt into more currency than is demanded in economic activity.

Unfortunately, it's impossible to measure the precise demand for currency. Nevertheless, the rate at which the government is borrowing can be used as a general guideline to determine if too much currency is being created.

If government borrowing causes the debt to accumulate at rates of greater increase than the historical trend, clearly too much new debt is being added, which forces the central bank to "print", i.e., turn that debt into currency.

I have discussed this phenomenon before. "The [Federal Reserve] has one mission. It's to make sure that the federal government obtains all the dollars it wants to spend. If the federal government cannot attract these dollars from the world's savings pool, then there is only one other way to obtain them. The Fed must print them."

The following chart illustrates the worsening problem for the U.S. dollar:

The U.S. Dollar Outlook - Receipts vs. Outlays

As you can see:

  • The Federal revenue remains stagnant, indicating that the economic recovery is weak at best.
  • At the same time, federal spending is not contracting.
  • Therefore, the gap between income and outlays remains near record levels as new debt continues to be piled upon existing debt.

Will all of this lead the once-almighty greenback - that only a few decades ago was considered to be as 'good as gold' - down the road toward hyperinflation?

Good investing,

James Turk

Syndicated at GoldMoney was founded by gold industry leaders who understand gold's usefulness as a financial asset and value its worldwide role as money.


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