Despite what the corporate controlled media tells us, there are some very worrying things regarding our economy. It isn't anything particularly new though. The issues that concern me is the trade deficit and the mounting national and consumer debt in this country. As markets tend to do, there will be a correction of some kind. I believe the correction will take the form of very high inflation. As the U.S. dollar is devalued, it would naturally reduce debts in real dollars and make it too expensive to import goods. Using my imagination I will try to show a picture of how hyperinflation would affect our lives.
So why do I think there will be hyperinflation? The last time we had a trade surplus was 1975(data from
census.gov). Our federal debt is over 8 trillion dollars. Some theorize that we may actually end up having deflation. There is no way in the world that the Fed is going to allow deflation. There is no way the United States will ever default on its debt either. They would opt to print more money rather than default or allow deflation. If things start going towards deflation, the Fed has indicated that it will print money and then just start buying stuff like national, state, local debt, gold, etc. As many of us know, the U.S. dollar is based on peoples' faith in it. It is not backed by gold or silver or our oil reserves. As soon as the U.S. dollar is perceived as weak, people will start getting rid of it which will start a snowball effect causing the dollar to lose more and more value.
So let's assume hyperinflation happens. What will life be like? For one thing, anything we import will become super expensive as the purchasing power of the dollar falls through the floor. While it may not kill us to be unable to afford those Nikes or dvd players, super high prices of oil will hurt really bad. So say goodbye to those SUVs. People may not even be able to afford to drive a car to work. We may see a lot more walking, biking, carpooling, buses and other forms of public transportation. With urban sprawl, getting to work with insanely high oil prices will be quite a challenge. Food prices will get really high because petroleum is used to cultivate, process, and transport the food. Clothing as well. These increased costs will only add to inflation.
Just by virtue of higher prices of oil for the american consumer will hurt our economy. Lending is probably another thing that would contribute to economic hardship. With hyperinflation, who is going to lend money if the amount of interest is not higher than the rate of inflation? Laws would have to be changed so that lenders can lend money at super high rates of interest. However, it would still be risky as the dollar would still be unstable and the inflation could actually accelerate. If borrowing money is difficult, there won't be many start up businesses and people will not be able to buy houses.
How will people get paid? Assuming they get paid in american dollars, you can bet that people will be converting it to something else ASAP. Businesses will likely have to shorten their pay period. No more getting paid every 2 weeks. It could end up being every day. With direct deposit I don't see why not. I'm sure financial instutitions will offer an instant currency conversion service as well. The employer could have an account in a foreign currency, then convert to U.S. dollars and direct deposit in an employer's account. Then the bank could automatically convert the U.S. dollars to another currency of the employee's choice. In this way, U.S. employees could be paid in U.S. dollars but the U.S. dollars would be converted to something else within seconds.
How would the government collect an income tax? Would people still be taxed in U.S. dollars? If there were hyperinflation and I was lucky enough to have a job, I know the first thing I'd do is make sure I claim so many dependents that I pay as little federal income tax as possible. I'd owe it at the end of the year but because of the out of control inflation, I'd be paying a lot less taxes in real dollars. The government could not survive everyone doing this. They'd have to collect taxes more often instead of once a year.
We can imagine the bad things hyperinflation can do. Extremely high unemployment, poverty, perhaps crime, deaths due to people unable to afford heating their homes in the winter, senior citizens unable to afford transportation to hospitals and not fit enough to walk, etc. There would likely be some good however. In fact, I believe that hyperinflation will eventually make the U.S. stronger. It will hurt and people will suffer big time however many things will change that will need to. The SUV, urban sprawl culture will have to come to an end. We simply won't be able to import enough oil to sustain that lifestyle. We will be forced to become more efficient. High unemployment will kill the corporate conservative movement dead. When people can't afford to feed themselves or their family or to drive their car, or buy clothes, etc etc, then they will become quite liberal no matter how right wing they were before. Unions will once again be a force to be reckoned with in this country. People will expect leadership from Washington to pull us out of this mess. The only solutions will be to become energy independent and in fact be capable of being self sufficient in every way so we aren't dependent on imports. The budget will have to be reworked to prioritize alleviating poverty. This could mean drastic cutbacks in the military, corporate welfare, and increased taxes on the upper classes.
Ultimately I think hyperinflation will allow us to give a stronger nation to future generations. The national debt will become diminished. Imports will become more expensive while exports become cheaper to those abroad which would reverse the balance of trade. The economic hardship people will face will result in more activism and people educating themselves on the issues. Our democracy will be stronger and needed reforms will be made.
So what do you guys think? Am I crazy? This is all hypothetical of course. No way to know for sure how it will all turn out. The United States could end up a third world country. I doubt this though as we have a lot of natural resources and a highly skilled workforce. All we need is good leadership. The only thing keeping us from good leadership is the complacency of the american public. I'd love to hear your ideas. Debunk me. Elaborate on what life under hyperinflation would be like. Tell me if you think we'll eventually pull out of it and become stronger because of it or if it will spell the end of the U.S. as a real power in the world.