Saturday, June 6, 2020

Let's Do The Hyperinflation Math

Most of the money we spend is simply debt on a bank's balance sheet. You can lookup the physical cash in circulation compared to the total USD money supply.

This data is from the D.3 Credit Market Debt Outstanding by Sector, Flow of Funds.
https://www.federalreserve.gov/releases/z1/20200312/html/d3.htm

Here is the data I collected in graph forms: https://docs.google.com/spreadsheets/d/1Up6Za6lOemFi_84KkzDh4JwMkuLnzgrFv1fbBfd9sWg/edit#gid=0

Numbers are denominated in Billions.




DateTotal Household/Corporate DebtFederal Government

LA314104005
Federal Debt %
vs Total
1980$5,719.20$812.2012.44%
1981$6,323.60$907.7012.55%
1982$6,786.70$1,081.0013.74%
1983$7,495.40$1,280.8014.59%
1984$8,630.70$1,496.5014.78%
1985$9,939.70$1,762.0015.06%
1986$11,320.30$2,007.5015.06%
1987$12,449.30$2,181.7014.91%
1988$13,767.70$2,369.6014.68%
1989$14,999.40$2,550.5014.53%
1990$15,977.30$2,830.8015.05%
1991$16,390.10$3,147.4016.11%
1992$17,029.10$3,491.1017.01%
1993$18,124.30$3,784.3017.27%
1994$19,632.20$3,977.8016.85%
1995$21,181.50$4,152.0016.39%
1996$22,808.80$4,343.1016.00%
1997$24,678.30$4,406.5015.15%
1998$27,581.70$4,395.1013.74%
1999$30,752.10$4,365.0012.43%
2000$33,728.70$4,090.0010.81%
2001$36,445.80$4,145.2010.21%
2002$39,023.80$4,427.3010.19%
2003$42,180.70$4,848.0010.31%
2004$46,127.30$5,250.9010.22%
2005$50,438.20$5,584.809.97%
2006$55,471.10$5,803.909.47%
2007$61,202.90$6,074.309.03%
2008$62,583.20$7,376.8010.54%
2009$59,834.60$8,882.6012.93%
2010$57,983.00$10,528.6015.37%
2011$57,824.60$11,667.2016.79%
2012$58,433.70$12,847.8018.02%
2013$59,643.40$13,705.1018.68%
2014$61,535.00$14,441.1019.01%
2015$63,312.30$15,165.6019.32%
2016$65,550.20$16,008.3019.63%
2017$68,470.20$16,606.9019.52%
2018$71,211.00$17,865.0020.06%
201973825.514$19,055.7020.52%

What inflationists fail to do when declaring that the US Government is borrowing too much money is that it is only in relation to itself. So we can see it's increasing and decreasing, but we don't know in relation to what. Often times it is in relation to GDP.

I'm more interested in relation to TOTAL money supply. That would be total debt from households, businesses, and corporate. More specifically, these categories:

"Domestic nonfinancial sectors
Households
LA154104005"

"Domestic nonfinancial sectors
Households
Home
mortgage
LA153165105"

"Domestic nonfinancial sectors
Households
Consumer
credit
LA153166000"

"Domestic nonfinancial sectors
Business
Total
LA144104005"

"Domestic nonfinancial sectors
Business
Corporate
LA104104005"

"Domestic
financial
sectors
LA794104005"

"Domestic nonfinancial sectors
Federal
government
LA314104005"

Back in 1993, we saw Federal Government debt to be 17.27% of total money supply. We did not see those levels until 2012.

In 2019, Federal debt is at a ratio of 20.52% of total money supply.

Let's look at the data beginning 2008, when the total money supply peaked, and then shrank.



DateTotal Household/Corporate DebtFederal Government

LA314104005
Total Money Supply% Federal Debt
to Total Debt
2008$62,583.20$7,376.80$69,960.0010.54%
2009$59,834.60$8,882.60$68,717.2012.93%
2010$57,983.00$10,528.60$68,511.6015.37%
2011$57,824.60$11,667.20$69,491.8016.79%
2012$58,433.70$12,847.80$71,281.5018.02%
2013$59,643.40$13,705.10$73,348.5018.68%
2014$61,535.00$14,441.10$75,976.1019.01%
2015$63,312.30$15,165.60$78,477.9019.32%
2016$65,550.20$16,008.30$81,558.5019.63%
2017$68,470.20$16,606.90$85,077.1019.52%
2018$71,211.00$17,865.00$89,076.0020.06%
2019$73,825.51$19,055.70$92,881.2120.52%
Private debt continued to drop until after 2011. It dropped down $4,758.6 billion, and the Federal debt increased $4,290.4 billion (that's $33,367.55 per household!). From 2008 - 2011, the Federal Government could not print enough money to offset the loss of money in the private sector. 

Overall, the money supply shrank, which means deflation (or the shrinking of the money supply).

Q1 began around November 2008
Q2 began around November 2010
Q3 was announced September 13, 2012

It wasn't until 2013 that the total money supply matched the 2008 levels.

Weren't those the glory days of the Hyper-Inflationists?

I wasn't really paying attention back then, so I don't really know. When I look at the data in relation to the overall money supply, I'm not seeing Hyper-Inflation. I only see DEFLATION from 2008-2011, which were during Q1 & Q2.

The Federal Reserve couldn't keep up.

Obviously, inflation is occurring. The Total Money supply is increasing. The Federal government keeps increasing its proportion of the overall money supply.

But what is the definition of "hyper-inflation"?

I think it has more to do with the velocity at which the total money supply increases.

I see a definition of more than 50% per month (https://infogalactic.com/info/Hyperinflation). I think this means that the total money supply would need to increase 129 times larger in one year.

In this situation, we are assuming that the increase of the total money supply is from the Federal Government printing money. Private entities do not have the power to create more money, so they would remain the same.

Total money supply currently is at $92.9 trillion.

To increase 129 times, there would need to be $11,984.1 trillion more dollars printed.

Currently, the Federal Government has $19 trillion, so the Federal Reserve would need to print 629 times more than that.

Let's assume they do helicopter money on a per household basis, of which there are 128,580,000 households. I think $11,984.1 trillion = $11,984,100,000,000,000.

That would be $93,203,453.10 for each household. or $93 MILLION for simplicity.

In the hyperinflation incidents that have occurred in history, there were some other, major underlying issues with the economy or war situations. Vox Day has done more analysis on each of the hyper-inflation scenarios. 

Basically, the countries were fucked anyway. Correlation does not mean causation. It's probably the other way around.

Let's Be A Little More Reasonable (Universal Basic Income)

How does $1,000/month for every family in the United States sound? 

$12,000/year X 128,580,000 households = $1,542,960,000,000. AKA $1.5 trillion.

That would be a 1.6% increase in total money supply each year assuming no reductions in any other program.

Is 1.6% hyperinflation?

Let's double it. $2,000/month. 3.2% per year?

$4,000/month = 6.4% per year inflation.

What is the number you would like to see to call it "hyper-inflation"?

Without UBI, the total money supply was already increasing at these rates:

DateTotal Money SupplyTotal Money Supply
Change Over Year
2008$69,960.00
2009$68,717.20-1.78%
2010$68,511.60-0.30%
2011$69,491.801.43%
2012$71,281.502.58%
2013$73,348.502.90%
2014$75,976.103.58%
2015$78,477.903.29%
2016$81,558.503.93%
2017$85,077.104.31%
2018$89,076.004.70%
2019$92,881.214.27%
3% is the "accepted" rate of inflation.

Tell me the scenarios you have in your mind, and let's run the numbers.

I think you will find the "hyper-inflation" math doesn't make sense.

That's not to say that there won't be a big reset.

If hyper-inflation is not a reality, then, the next reason for a collapse is a deflation. That's when all the private sector debt starts getting written off because of all the bad investments, and the Federal Government cannot print enough money, like they couldn't from 2008 - 2011.

How Much Would The Fed Need To Print?

If the private sector debt were to decrease:

5%, then $28,708 per household with helicopter money to offset.
10%, then $57,416 per household with  helicopter money to offset..
15%, then $86,124 per household with helicopter money to offset..
20%, then $114,832 per household with helicopter money to offset..
25%, then $143,540 per household with helicopter money to offset..

2019 Private DebtHouseholds
DECREASE$73,825,510,000,000128,580,000
-5%-$3,691,275,500,000$28,708
-10%-$7,382,551,000,000$57,416
-15%-$11,073,826,500,000$86,124
-20%-$14,765,102,000,000$114,832
-25%-$18,456,377,500,000$143,540
There reaches a point of diminishing return for helicopter money. Eventually, people just start paying off their existing debt. Which would lower the overall money supply in the economy, which is deflation.

If you want to increase the money supply (debt), the best way is for the private sector to take on more debt. Unfortunately, we've reached the peak saturation of debt that people and corporations can handle. They are imploding and defaulting instead, thus creating deflation.

I'm mainly regurgitating and processing what Vox Day has written on this subject but applying it more directly in ways I can understand. I may be misrepresenting what he's saying and not making any sense. I still have lots of holes in my head about this whole thing and will post more as things become clearer to me.

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