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Charles Hugh Smith: Hyperinflation Is a Political Process

Hyperinflation Is a Political Process (October 21, 2010) As the dollar has plummeted, discussions of hyperinflation proliferate. We should keep in mind that hyperinflation is always a political phenomenon, and only secondarily a financial one. With the Fed's campaign to destroy the U.S. dollar now visible to all, the topic of hyperinflation inevitably arises. Hyperinflation is the endpoint of currency destruction, and with the "race to the bottom" in a "currency war" in the news, then it is a good time to discuss hyperinflation. There has long been a lively debate underway on the Web as to whether hyperinflation is likely or unlikely. Rather than insert myself into a debate that needs no further voices, I will limit myself to three observations which I consider decisive. 1. Hyperinflation is intrinsically and necessarily a political process. The vast majority of the discussions and debates on hyperinflation seem to assume it is primarily a financial process which proceeds with some sort of inevitability once a tipping point has been reached. Perhaps, but the policies which lead to that point of no return are political in nature. Currencies do not die of their own accord--they must be actively destroyed by political decisions and policies. Destroying a currency is not like falling off a cliff; gravity does not take hold until the very end. Rather, the currency must be pushed and manhandled all the way up a long steep incline to the cliff's edge and then shoved off. At any point up to the final shove into oblivion, the political winds could change and the policy pressure that is destroying the currency would cease. Currencies are destroyed as a political "unintended consequence" of saving the Status Quo from losing power. Rather than risk a decline in power, or an upheaval in the fiefdoms, Elites and State dependents which support the Status Quo, the Power Elites choose to debauch the currency as the "short-cut solution" to their inherently unsustainable financial woes. Over the course of history, the usual cause of currency destruction is overindebtedness of the Central State/Monarchy/kleptocracy. Once the State/kleptocracy/Monarchy can no longer service its rising debts (usually incurred to finance war or expansion), then rather than cut expenses (which would deprive the fiefdoms, army, clergy, bread-and-circuses rabble, etc. of their share of the swag) then the status quo elects to print money to service the debts.

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