Here’s David Buckner in conversation with Glenn Beck about how hyperinflation might hit the US. I don’t necessarily agree, but there are two important points made:
I don't think hyperinflation is coming that easy, because dollars aren't exactly flying out of the window right now.
But something he said piqued my interest:
First, it is said that “everyone wants to buy our debt,” and no one will ever stop wanting to do so. But Buckner countered that China is already quickly shifting our debt quickly to gold, and analogized the situation to a restaurant where China, the chef, lends the United States money to eat at its establishment. Pretty soon, he said, there will be other customers, like India, who can pay outright.
Effectively, China which runs a massive export surplus is using the excess dollars to buy US debt, which allows the US to have cheap financing of its own companies. If China wasn’t buying US debt, then the US would have to get its own banks or funds to buy them. (India forces banks to buy government bonds with 23% of all deposits, for instance) Doing that will make non-government - that is, corporate - debt more expensive since they have to fight for the money.
But if China were to tell India that we could pay in, say, rupees or even in Renminbi, and other countries decided that their “surplus” would not be kept in dollars (could be kept in other currencies or Gold), things could change for the US.
None of this is happening, even though Bucker says it is. China’s holdings of US treasuries are up 10% as of July 2013. Also China and India have territorial issues, and don’t trust each other enough. And there’s a massive buyer of US treasuries - the US Fed - that is printing to bridge their deficit.
The US still remains the most active consumer of the planet and no one else can easily take its place. You can't have all countries (Germany, Japan, China) running big current account surpluses, without using a currency of a country that has an equivalently large deficit - and the only places that can qualify are: Euro (ex-Germany) and India. But that in my opinion will take a long time to transition, and India has to start opening up its currency to allow other countries to hold its bonds.
Rajan mentioned this in his first speech, but it is more important to have a government that is not batshit insane to make this possible. (We need a government that won’t change policies every few minutes, provide proper clarity and force faster litigation in international matters) Let’s hope the next one is better.
Hyperinflation could come eventually, if the US Fed is not be able to stop printing even when the economy shows signs of improvement. If they were able to cut printing and raise rates in time, they are likely to ride it through, thanks to the lack of will of other countries to use their own currencies for trading instead of the dollar.