Market Outlook: The podcast discusses the potential onset of hyperinflation in the US, emphasizing the stages of inflation as described by Mises, and the current economic indicators that suggest the US might be on the on-ramp to hyperinflation.
Investment Performance: Bitcoin and gold are highlighted, with gold outperforming Bitcoin in 2025, both reaching near-record highs, and outperforming the stock market, indicating strong investor interest in these assets.
Precious Metals: The gold-to-silver ratio has fallen significantly from 104 to 87, indicating silver's outperformance over gold, reflecting volatility and potential shifts in investor sentiment towards precious metals.
Currency and Reserve Status: The podcast critiques the US dollar's status as a reserve currency, suggesting it is at risk due to factors like excessive US spending, loss of investor confidence, and geopolitical tensions, particularly with BRICS countries moving away from US-dominated financial systems.
Global Economic Shifts: US and European sanctions against Russia and the subsequent reduction in US government securities holdings by central banks are discussed as significant factors influencing the global financial landscape and the US dollar's standing.
Alternative Investments: There is a noted shift among investors, both domestically and globally, towards gold, silver, real estate, and cryptocurrencies as protective measures against inflation and potential currency devaluation.
Inflation Expectations: The podcast highlights the growing inflation expectations among different demographics, with older generations investing in precious metals and younger generations favoring cryptocurrencies like Bitcoin as hedges against inflation.
Transcript
Hello and welcome to another episode of the minor issues podcast. I'm Mark Thornton at the Misesus Institute. Well, feces comes in many different colors. The typical color is brown and that's very fortunate for my talk today on the road to hyperinflation. It turns out that the color brown can be derived from the color red, which is of course symbolic for debt and credit. And if you add the color green to the color red, you get the color brown. And green, of course, is symbolic of the paper money of the United States of America, also known as the greenback, the money that we use in day-to-day transactions. Before we get to my analysis of where we are on the road to hyperinflation, there are a couple of housekeeping details that I wanted to go over that I've been meaning to go over. uh for quite some time. The first is our annual contest this year of Bitcoin versus gold. Um where people guessed uh what the relative performance of Bitcoin would be versus the performance of gold over the year 2025. Now, as of midweek, uh, September 4th, Bitcoin is at an all-time high, actually, and it has risen 17.9% so far this year as of today. Gold, on the other hand, is also at or near an all-time record high, and it is up 38.2% for the year. So the number if you guessed it exactly correct um before January 1st 2025 the number would be 0.47. Now most of the people who took guesses into the contest um guessed a number I think it was about 2thirds uh of the people guessed uh that the number would have been greater than one. In other words, Bitcoin would outperform gold. Um, and it's been neck andneck. You know, both uh commodities have been up on the year. Uh, doing very well, doing better than the stock markets. Um, so, uh, Bitcoin is up. It's at near record highs, but it's not performing as well, uh, as gold so far, uh, this year. Of course, everything can change. We're going into September, one of the more volatile uh months for stocks and commodities. So, stay tuned. Uh the other update that I wanted to make was on a podcast episode that I did in early May on the gold to silver ratio. Uh which is a measure of what's going on with the relative performance uh the relative standing of gold versus silver. So back then um in the first week of May uh the gold silver ratio was actually about 104 which was really at all-time high levels and um a couple months later as we get into the beginning of fall uh we see that the gold silver ratio has fallen as I kind of expected but it's fallen into 87. Uh, that's a very big fall. And as I pointed out in the episode, when things change with the gold silver ratio, they tend to change pretty dramatically um from year to year. So, both of those metals have gone up uh during the year and they certainly have gone up um since the u early May episode. Uh it's just that silver has greatly outperformed gold over that period of time and has uh gone up in relative uh in a relative sense. gold up relative to silver and that tells us uh a good deal about um how volatile things are and uh what direction the precious metals are going in. Uh as I said numbers over 100 with the gold silver ratio are extremely high and aberrations historically um and um so that number could continue to fall over time. So both of those sets of information, they're not just uh housekeeping details, but they actually provide some information that is evidence uh for my case that the US is actually that we've actually driven up onto the road to hyperinflation or at least we've driven up onto the onramp for the road uh to hyperinflation. Now, as background here, I'm going to link uh my review of a book that I did by the book was by Professor Iiken Green and his 19 excuse me, his 2011 book called Exorbitant Privilege. And in the book, uh, Professor Iiken Green looked at the US dollar's role as a reserve currency, um, as the main currency that central banks held as reserves as well as the currency that's used in international trade and the fact that the US had uh, the premier position in the globe um, as the reserve reserve asset for those two really critical functions. Um made that an exorbitant privilege in the sense that the US uh could kind of continue along the lines it had during Brentton Woods where it could print uh money and uh sort of foist the cost of inflation on the rest of the world. Now in the book uh the good professor thought that the dollar's reserve status was uh really solid and he saw nothing on the horizon which would uh threaten the US dollar as the world reserve uh currency. He thought that maybe over a long period of time we would get a new set of junior partners uh as the reserve currency that maybe the euro would be diminished somewhat and that maybe the Chinese currency would be in greater use in international trade and as a reserve asset in banks. And when we talk of currency as reserve assets in central banks, uh we're usually talking about uh central banks buying uh government debt. And in the US's case, the US treasuries that central banks would hold um as reserves that were earning interest. Now um so he didn't see any risks uh to that. um to the any threats to the US dollar's standing uh and that it would not be dethroned except by quote serious economic and financial mismanagement by the United States. Well, you can see in my um review of Ikeen Green's book um that he dismissed gold as a reserve asset as something that was inconsistent um and it was inconvenient with the needs of central banks. um and that central banks had no interest in using uh gold as a reserve asset. Um and so that that really wasn't a threat either. And so therefore he thought that there would be no crash in the US dollar. Um and uh you know there would be no disappearance of the role of the US dollar uh because he thought that it would require continuous runaway US spending uh a loss of confidence by investors in the US dollar and it would require China dumping the dollar um as a reserve currency. Now, as I point out in the review, all of these things that I Green dismissed are precisely the reasons why I thought at the time of the review, and I did beforehand as well, that the US's role um the dollar the dollar's role as a reserve currency uh was in serious jeopardy and that all the reasons that I green gave for saying the dollar was golden are the same reasons I thought the dollar was at risk and that it might crash and that we we would lose our monopoly reserve uh status. In fact, I criticize Iiken Green because he fail he he fails to seriously question uh the status quo at all. And you know in my thinking that would be the only reason to write such a book would be to seriously question uh the status quo along some metric whether it was theoretical whether it was public choice oriented whether it was historical simply the fact that other reserve currencies have lost their status in the past. So, I urge you to check out uh my review and Ikeen Green's original book. Um, now another thing I've talked about and have talked about on this podcast is Misesus' view of inflation that there are three stages. Uh, the first stage is, you know, where people don't expect any inflation. they expect the the money to maintain its value. And so when the central bank increases the supply of money, people don't diminish their demand for money and they simply absorb um the new money into their cash balances. Um so that's really stage one. In stage two, the government inflation, the printing continues. uh people stop adding to their uh cash balances um and prices start to go up and people's experience and their expectations of the future start to change. And so in the final stage, the government, the central banks are continuing to print. they're continuing to inflate and in and uh the people sense that inflation is an ongoing possibly upward trending phenomenon and so then they actively decrease their demand for money. Of course, the overall economy can't decrease the quantity uh of money by reducing demand. But the reduction in demand at the same time you get an increase an everinccreasing supply of money means that the purchasing power of money is going to be depreciating even more rapidly. Okay, so those are the three stages. Mises um used those um as a way of understanding the Germans reaction to hyperinflation in Germany in the 1920s. So what sort of things do we look at today to see um possible evidence uh of the of a similar type of behavior? Well, of course in the United States when we were on the gold standard and even when we were on the Breton Woods gold standard, prices were very stable and u people didn't uh get a sense that there was a lot of in price inflation in the economy. Uh they didn't have any idea if there was monetary inflation even though there was some inflation uh by the central bank. there was growing debt on the part of the government and um so expectations for inflation were fairly subdued. But of course that was shaken uh first in the 1970s when we had high rates of inflation from 1970 to the early 1980s. Uh and then there was a rather long interlude when uh inflation and inflation expectations were more subdued until they were recently awakened um with the COVID inflation uh and subsequent events. Uh and so in in stage two, once people realize there's price inflation, they stop increasing their uh demand to hold cash balances um in the economy. They'd rather have something else that holds its value. And then of course in stage three uh people want to actually actively diminish their uh demand for money, their cash balance holdings. And so we see people adjusting their expectations and reacting to Fed policy. Um, and this is where the the rate of price increases can uh accelerate accelerate rapidly. And that's why I say we're we're still maybe on the on-ramp to the road to hyperinflation because uh technically or statistically uh hyperinflation is when you know prices are rising um by like 20% per month. Uh some people define it as 50% per month. uh something that we for example see in Venezuela and we've seen in other second and third world countries um really throughout history throughout modern history. So what do we have going on today that's really affecting this? Because I've talked about Mises's stages and I've talked about all of these factors but I've never put them together in one episode. So the first thing uh that is important to realize is the US and European sanctions against Russia and specifically the fact that the US basically stole uh Russians uh billions of dollars of US treasuries um as a sanction um and of course that was immediately an aggressive threat threat uh that countries around the world recognized uh they recognized that hey the US government who knows who's going to be in control it could be you know not somebody really with it and stable and dependable and honest but it could be you know somebody some crackpot some uh airhead um and some criminal basically that's going to take all of our bank all of our central bank reserves. Um so in response to that we've actually seen central banks diminishing their holdings of US government securities. Um and we've seen moves on the part of the BRICS country countries that that organization to get away from the swift uh financial transaction system. They're currently setting up their own financial transaction system where they'll be able to engage in international trade transactions uh that are beyond the reach of the US uh government and its allies. And the system supposedly is partly based on gold. It's technologically further advanced um and better in some other respects, but that's on the um that is on the uh beyond the drawing board at this point. So central bank reserves are now in in terms of gold have now s surpassed uh the US government uh treasuries or bonds uh for the first time and uh this new financial transaction system is now uh getting up and running and uh so those are factors that I think are important because central banks banks are reducing their demand to hold US denom denominated assets. Um, another thing uh that is a wild card in all of this are President Trump's sort of arbit arbitrary and unilateral tariff policy um which most other countries in the world consider a threat. they consider an aggressive threat. Um that it seems to be uh completely personal and discretionary. Uh it's not transactional uh at all from their point of view. It's like a thief in the night with a knife in your back type of an approach. And uh and so you know in all of those respects we see foreign governments in particular central banks uh they are getting out of the US dollar and government bonds and so that's obviously uh a big problem uh in where the condition the underlying condition of course is that the US is borrowing more and more and more money. Uh that the interest on the debt has skyrocketed very quickly in just the last couple of years uh to enormous levels and the of course the budgets are more unbalanced, more in the red uh than ever. So that's an independent threat to US bond holders and US holders of any kind of dollars, any kind of dollar denominated uh assets. So central banks, we know, we have evidence in a lot of it that they are dumping dollars in favor of gold. If we look at Americans, I think they're not really well informed about all of this. um the you know the the current generation. Um but because of economic conditions and relative prices in the economy, we find that a lot of people are holding what might be considered excess excess investment in housing. They're holding maybe more than one house. They're holding a house that is uh much bigger than their needs. They might otherwise if prices were different um they might actually downsize but currently they're over you know real estate agents might consider them overinvested in things like real estate but from our perspective uh that overinvestment in real estate is a protective layer against price inflation because the values of homes can rise with inflation. uh just like the value of gold at foreign central banks. And also speaking of that, there are of course a lot of old farts in the uh current generation that are actively investing in gold and silver and precious metals uh both in the United States and in many other countries around the world. This is you know um the US is not alone uh in this problem. of uh a possible currency emergency. Certainly Japan and the United Kingdom, potentially the euro and other currencies around the world are all kind of up in the air here. Uh our focus is on the US dollar as traditionally the best of the fiat currencies or the strongest I should say. I wouldn't want to say best, but the strongest of currencies. And then so we've got, you know, pockets of the American population who are are actively reducing their demand for dollars and cash balances and investing that money in precious metals, precious metal investments that are better protected against a falling US dollar uh or other fiat currencies. And finally, of course, we have some of the younger generation uh who are not turned on to any of the traditional investments and are uh mostly turned on by things like crypto currencies, Bitcoin, and um and then of course uh one of the selling points for crypto and Bitcoin uh the crypto currencies, the crypto coins in general and Bitcoin in particular is that it helps protect the investor against inflation. So we do have evidence that there are good reasons why uh people are adjusting their expectations and moving into Misesus' third stage of inflation expectations. And we also have good evidence that there are groups both globally and domestically that are moving out of uh actively moving out of holding US dollars cash balances and moving into things that where their wealth is protected against the losses uh that are brought about inflation. Of course, not many people are actually expecting any kind of hyperinflation, but if we look at Mises's overall theory and analysis, we should realize that we're probably uh moving in that direction and uh that it would take a really serious sustained um intellectual and revolutionary type uh chain of events to turn that whole thing around.
The Road to Hyperinflation | Mark Thornton
Summary
Transcript
Hello and welcome to another episode of the minor issues podcast. I'm Mark Thornton at the Misesus Institute. Well, feces comes in many different colors. The typical color is brown and that's very fortunate for my talk today on the road to hyperinflation. It turns out that the color brown can be derived from the color red, which is of course symbolic for debt and credit. And if you add the color green to the color red, you get the color brown. And green, of course, is symbolic of the paper money of the United States of America, also known as the greenback, the money that we use in day-to-day transactions. Before we get to my analysis of where we are on the road to hyperinflation, there are a couple of housekeeping details that I wanted to go over that I've been meaning to go over. uh for quite some time. The first is our annual contest this year of Bitcoin versus gold. Um where people guessed uh what the relative performance of Bitcoin would be versus the performance of gold over the year 2025. Now, as of midweek, uh, September 4th, Bitcoin is at an all-time high, actually, and it has risen 17.9% so far this year as of today. Gold, on the other hand, is also at or near an all-time record high, and it is up 38.2% for the year. So the number if you guessed it exactly correct um before January 1st 2025 the number would be 0.47. Now most of the people who took guesses into the contest um guessed a number I think it was about 2thirds uh of the people guessed uh that the number would have been greater than one. In other words, Bitcoin would outperform gold. Um, and it's been neck andneck. You know, both uh commodities have been up on the year. Uh, doing very well, doing better than the stock markets. Um, so, uh, Bitcoin is up. It's at near record highs, but it's not performing as well, uh, as gold so far, uh, this year. Of course, everything can change. We're going into September, one of the more volatile uh months for stocks and commodities. So, stay tuned. Uh the other update that I wanted to make was on a podcast episode that I did in early May on the gold to silver ratio. Uh which is a measure of what's going on with the relative performance uh the relative standing of gold versus silver. So back then um in the first week of May uh the gold silver ratio was actually about 104 which was really at all-time high levels and um a couple months later as we get into the beginning of fall uh we see that the gold silver ratio has fallen as I kind of expected but it's fallen into 87. Uh, that's a very big fall. And as I pointed out in the episode, when things change with the gold silver ratio, they tend to change pretty dramatically um from year to year. So, both of those metals have gone up uh during the year and they certainly have gone up um since the u early May episode. Uh it's just that silver has greatly outperformed gold over that period of time and has uh gone up in relative uh in a relative sense. gold up relative to silver and that tells us uh a good deal about um how volatile things are and uh what direction the precious metals are going in. Uh as I said numbers over 100 with the gold silver ratio are extremely high and aberrations historically um and um so that number could continue to fall over time. So both of those sets of information, they're not just uh housekeeping details, but they actually provide some information that is evidence uh for my case that the US is actually that we've actually driven up onto the road to hyperinflation or at least we've driven up onto the onramp for the road uh to hyperinflation. Now, as background here, I'm going to link uh my review of a book that I did by the book was by Professor Iiken Green and his 19 excuse me, his 2011 book called Exorbitant Privilege. And in the book, uh, Professor Iiken Green looked at the US dollar's role as a reserve currency, um, as the main currency that central banks held as reserves as well as the currency that's used in international trade and the fact that the US had uh, the premier position in the globe um, as the reserve reserve asset for those two really critical functions. Um made that an exorbitant privilege in the sense that the US uh could kind of continue along the lines it had during Brentton Woods where it could print uh money and uh sort of foist the cost of inflation on the rest of the world. Now in the book uh the good professor thought that the dollar's reserve status was uh really solid and he saw nothing on the horizon which would uh threaten the US dollar as the world reserve uh currency. He thought that maybe over a long period of time we would get a new set of junior partners uh as the reserve currency that maybe the euro would be diminished somewhat and that maybe the Chinese currency would be in greater use in international trade and as a reserve asset in banks. And when we talk of currency as reserve assets in central banks, uh we're usually talking about uh central banks buying uh government debt. And in the US's case, the US treasuries that central banks would hold um as reserves that were earning interest. Now um so he didn't see any risks uh to that. um to the any threats to the US dollar's standing uh and that it would not be dethroned except by quote serious economic and financial mismanagement by the United States. Well, you can see in my um review of Ikeen Green's book um that he dismissed gold as a reserve asset as something that was inconsistent um and it was inconvenient with the needs of central banks. um and that central banks had no interest in using uh gold as a reserve asset. Um and so that that really wasn't a threat either. And so therefore he thought that there would be no crash in the US dollar. Um and uh you know there would be no disappearance of the role of the US dollar uh because he thought that it would require continuous runaway US spending uh a loss of confidence by investors in the US dollar and it would require China dumping the dollar um as a reserve currency. Now, as I point out in the review, all of these things that I Green dismissed are precisely the reasons why I thought at the time of the review, and I did beforehand as well, that the US's role um the dollar the dollar's role as a reserve currency uh was in serious jeopardy and that all the reasons that I green gave for saying the dollar was golden are the same reasons I thought the dollar was at risk and that it might crash and that we we would lose our monopoly reserve uh status. In fact, I criticize Iiken Green because he fail he he fails to seriously question uh the status quo at all. And you know in my thinking that would be the only reason to write such a book would be to seriously question uh the status quo along some metric whether it was theoretical whether it was public choice oriented whether it was historical simply the fact that other reserve currencies have lost their status in the past. So, I urge you to check out uh my review and Ikeen Green's original book. Um, now another thing I've talked about and have talked about on this podcast is Misesus' view of inflation that there are three stages. Uh, the first stage is, you know, where people don't expect any inflation. they expect the the money to maintain its value. And so when the central bank increases the supply of money, people don't diminish their demand for money and they simply absorb um the new money into their cash balances. Um so that's really stage one. In stage two, the government inflation, the printing continues. uh people stop adding to their uh cash balances um and prices start to go up and people's experience and their expectations of the future start to change. And so in the final stage, the government, the central banks are continuing to print. they're continuing to inflate and in and uh the people sense that inflation is an ongoing possibly upward trending phenomenon and so then they actively decrease their demand for money. Of course, the overall economy can't decrease the quantity uh of money by reducing demand. But the reduction in demand at the same time you get an increase an everinccreasing supply of money means that the purchasing power of money is going to be depreciating even more rapidly. Okay, so those are the three stages. Mises um used those um as a way of understanding the Germans reaction to hyperinflation in Germany in the 1920s. So what sort of things do we look at today to see um possible evidence uh of the of a similar type of behavior? Well, of course in the United States when we were on the gold standard and even when we were on the Breton Woods gold standard, prices were very stable and u people didn't uh get a sense that there was a lot of in price inflation in the economy. Uh they didn't have any idea if there was monetary inflation even though there was some inflation uh by the central bank. there was growing debt on the part of the government and um so expectations for inflation were fairly subdued. But of course that was shaken uh first in the 1970s when we had high rates of inflation from 1970 to the early 1980s. Uh and then there was a rather long interlude when uh inflation and inflation expectations were more subdued until they were recently awakened um with the COVID inflation uh and subsequent events. Uh and so in in stage two, once people realize there's price inflation, they stop increasing their uh demand to hold cash balances um in the economy. They'd rather have something else that holds its value. And then of course in stage three uh people want to actually actively diminish their uh demand for money, their cash balance holdings. And so we see people adjusting their expectations and reacting to Fed policy. Um, and this is where the the rate of price increases can uh accelerate accelerate rapidly. And that's why I say we're we're still maybe on the on-ramp to the road to hyperinflation because uh technically or statistically uh hyperinflation is when you know prices are rising um by like 20% per month. Uh some people define it as 50% per month. uh something that we for example see in Venezuela and we've seen in other second and third world countries um really throughout history throughout modern history. So what do we have going on today that's really affecting this? Because I've talked about Mises's stages and I've talked about all of these factors but I've never put them together in one episode. So the first thing uh that is important to realize is the US and European sanctions against Russia and specifically the fact that the US basically stole uh Russians uh billions of dollars of US treasuries um as a sanction um and of course that was immediately an aggressive threat threat uh that countries around the world recognized uh they recognized that hey the US government who knows who's going to be in control it could be you know not somebody really with it and stable and dependable and honest but it could be you know somebody some crackpot some uh airhead um and some criminal basically that's going to take all of our bank all of our central bank reserves. Um so in response to that we've actually seen central banks diminishing their holdings of US government securities. Um and we've seen moves on the part of the BRICS country countries that that organization to get away from the swift uh financial transaction system. They're currently setting up their own financial transaction system where they'll be able to engage in international trade transactions uh that are beyond the reach of the US uh government and its allies. And the system supposedly is partly based on gold. It's technologically further advanced um and better in some other respects, but that's on the um that is on the uh beyond the drawing board at this point. So central bank reserves are now in in terms of gold have now s surpassed uh the US government uh treasuries or bonds uh for the first time and uh this new financial transaction system is now uh getting up and running and uh so those are factors that I think are important because central banks banks are reducing their demand to hold US denom denominated assets. Um, another thing uh that is a wild card in all of this are President Trump's sort of arbit arbitrary and unilateral tariff policy um which most other countries in the world consider a threat. they consider an aggressive threat. Um that it seems to be uh completely personal and discretionary. Uh it's not transactional uh at all from their point of view. It's like a thief in the night with a knife in your back type of an approach. And uh and so you know in all of those respects we see foreign governments in particular central banks uh they are getting out of the US dollar and government bonds and so that's obviously uh a big problem uh in where the condition the underlying condition of course is that the US is borrowing more and more and more money. Uh that the interest on the debt has skyrocketed very quickly in just the last couple of years uh to enormous levels and the of course the budgets are more unbalanced, more in the red uh than ever. So that's an independent threat to US bond holders and US holders of any kind of dollars, any kind of dollar denominated uh assets. So central banks, we know, we have evidence in a lot of it that they are dumping dollars in favor of gold. If we look at Americans, I think they're not really well informed about all of this. um the you know the the current generation. Um but because of economic conditions and relative prices in the economy, we find that a lot of people are holding what might be considered excess excess investment in housing. They're holding maybe more than one house. They're holding a house that is uh much bigger than their needs. They might otherwise if prices were different um they might actually downsize but currently they're over you know real estate agents might consider them overinvested in things like real estate but from our perspective uh that overinvestment in real estate is a protective layer against price inflation because the values of homes can rise with inflation. uh just like the value of gold at foreign central banks. And also speaking of that, there are of course a lot of old farts in the uh current generation that are actively investing in gold and silver and precious metals uh both in the United States and in many other countries around the world. This is you know um the US is not alone uh in this problem. of uh a possible currency emergency. Certainly Japan and the United Kingdom, potentially the euro and other currencies around the world are all kind of up in the air here. Uh our focus is on the US dollar as traditionally the best of the fiat currencies or the strongest I should say. I wouldn't want to say best, but the strongest of currencies. And then so we've got, you know, pockets of the American population who are are actively reducing their demand for dollars and cash balances and investing that money in precious metals, precious metal investments that are better protected against a falling US dollar uh or other fiat currencies. And finally, of course, we have some of the younger generation uh who are not turned on to any of the traditional investments and are uh mostly turned on by things like crypto currencies, Bitcoin, and um and then of course uh one of the selling points for crypto and Bitcoin uh the crypto currencies, the crypto coins in general and Bitcoin in particular is that it helps protect the investor against inflation. So we do have evidence that there are good reasons why uh people are adjusting their expectations and moving into Misesus' third stage of inflation expectations. And we also have good evidence that there are groups both globally and domestically that are moving out of uh actively moving out of holding US dollars cash balances and moving into things that where their wealth is protected against the losses uh that are brought about inflation. Of course, not many people are actually expecting any kind of hyperinflation, but if we look at Mises's overall theory and analysis, we should realize that we're probably uh moving in that direction and uh that it would take a really serious sustained um intellectual and revolutionary type uh chain of events to turn that whole thing around.