Ken Nelson

Peter Bernholz believes that since most of our deficit is in the form of loans financed by the U.S. Government, and not in the direct issuance of money by the Fed that we are not at near term risk of hyper-inflation.  “Strong” inflation, yes, but not the “hyper” kind:

Looking from this perspective at the U.S. deficit, by far not all of the credits borrowed by the government were financed by the Fed. According to preliminary and rough estimates, not 40 percent but "only“ about 13 percent of U.S. expenditures are presently financed this way. Moreover, in discussing this problem it has to be taken into account that about two-thirds of dollar bills are estimated to circulate abroad. This—together with the fact that incredibly huge holdings of dollar assets are owned especially by the central banks of China, India, and the Gulf States—may pose other and later dangers. But these dangers will be, except for a return of the dollar bills and a purchase of foreign-owned dollar assets by the Fed, of a different nature. Inflation may rise more or less strongly during the next years, but there is presently no danger of a hyperinflation in the United States.

I wish he had put a number on “hyper”.  I suspect he refers to Bolivia or Zimbabwe type 10000% inflation, when most Americans might consider a Jimmy Carteresque 17% rate very HYPER.

I’m pretty sure that when China thinks it is in their interest, they will crank us up to double digit inflation. Is that “hyper”? Maybe not. But it would certainly suck.