Possibility of Hyperinflation

Now that Congress passed, and the president signed, the financial industry bailout bill, don’t breathe a big sigh of relief just yet.

This bill allows the treasury to buy a lot of things, including a stake in major banks when it purchases stock in those companies. But the government won’t be buying into the root of the problem by purchasing land or housing.

The bailout bill plan, with all its pork barrel “sweeteners,” making it a $1 trillion venture, is allowing the treasury to purchase a lot of bad debt. That’s like plugging just one or two holes in a leaky dike.

What many national debt experts are not talking about is the growing debt that is due because of the slight of hand with Social Security funds – the borrowing from the fund, with interest, to boost general funds. Factor the Social Security problem into the national debt and the $10 trillion in current debt may not look so bad.

With total U.S. consumer debt, including credit-card debt and non-credit-card debt (but not including mortgage debt), $2.55 trillion at the end of 2007, up from $2.42 trillion at the end of 2006 (Source: The Nilson Report), the middle class is teetering on financial disaster. Where will the Federal government get the $700 billion to bail out the money lending industry? Where will the government get the trillions to prop up Social Security, Medicaid and Medicare?

One frightening possibility is if the U.S. Department of the Treasury decides to print its way out of the financial services industry and national debt mess that would open the door to inflation and hyperinflation.

In the world of hyperinflation Mr. & Mrs. Main Street could end up paying hundreds of dollars for a loaf of bread. In a worst case hyperinflation scenario, like in 1923 Germany, people could end up burning one hundred bills for heat because it would be more efficient that the small amount of fuel the bills could purchase.

World history has shown that when a government tries to print its way out of economic problems it ends up in economic disaster.