How Can Hyperinflation Be Avoided?

Monty Pelerin / EconomicNoise.com

Kyle Bass, via Zerohedge, provided his thoughts on how the current economic mess might end:

Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion. We believe that war is an inevitable consequence of the current global economic situation.

Bass illustrates the the ineffectiveness of the worldwide effort by noting that balance sheets of major Central Banks have quadrupled since 2002. There has been no recovery despite this irresponsible money printing.

Mr. Bass correctly points out the dangers of hyperinflation accompanying or preceding the economic collapse. The potential for enormous inflation can be seen by the expansion of central bank balance sheets. Changes in central bank balance sheets approximate the change in “high-powered” money. An increase of 400 percent in this measurement makes possible a like increase in the total money supply. Should banks lend in line with historical loan to capital ratios, 400 plus percent potential inflation is already in the system (and central banks are still printing).If Mr. Bass’s war scenario breaks out there will be a lot more printing to fund the wastes of war. This will add to the inflationary potential that already exists. Save your dollars. They may be cheaper to use to heat your home than firewood.

The full article from Mr. Bass is embedded below:

http://www.scribd.com/doc/113621307/Kyle-Bass