Inflation is not over yet despite lower CPI, long-term, ‘moderate hyperinflation’ is coming - Nathan Lewis
The latest headline consumer price index (CPI) fell slightly from the previous month, coming in at 8.5%, compared to June’s reading of 9.1%.
Despite a lower CPI reading, inflation will likely persist in the long-run, according to Nathan Lewis, editor and author of the Polaris Newsletter.
“We might get another cycle of currency debasement, currency debauchery, which has been going on intermittently since 1971, since we left the gold standard. The value of the dollar today is about 1/50th compared to gold to what it was in those days, so we’ve been playing this game for a long time. We might get another act in the play coming up soon. I think we should probably expect that, which would be more inflation,” Lewis told David Lin, Anchor for Kitco News.
Lewis has published five books, including his gold trilogy, The Magic Formula, and his latest work with Steve Forbes and Elizabeth Ames, titled “Inflation: What It Is, Why It’s Bad, and How to Fix it”.
Short-term, inflation may stabilize a bit, Lewis noted.
“I think we’ll probably see a decline in the CPI numbers,” he said. “I think we might see substantially higher energy and food prices because of supply and demand issues in energy and food.”
Past recessions have always coincided with declining inflation, and Lewis said that this current technical recession that the economy is in may be no different.
“I’m not seeing a lot of obvious reasons for prices to go dramatically higher, I’m seeing a number of reasons for them to moderate. The housing market is clearly coming down, pretty substantially. The jobs market looks pretty tight for now but recessions mean more unemployment. In fact, that’s the Fed’s big plan isn’t it, to create enough unemployment to bring prices down. They keep talking about that. They’ll probably get what they want,” he said.
In his book, “Inflation: What It Is, Why It’s Bad, and How to Fix it,” Lewis wrote that “I personally think that we will eventually end up in moderate hyperinflation, of the sort common in Latin America during the 1980s.”
Lewis said that the academic definition of hyperinflation being 50% month-over-month increases in consumer prices is not the only definition that can be used, citing interpretations of “hyperinflation” by the International Accounting Standards Board (IASB).
“There is an International Accounting Standards Board definition of hyperinflation and it is basically a 100% increase in the CPI over the course of three years, that’s actually about 28% a year compounded. 28% is like, 2% a month, doesn’t sound very hyperinflationary to me, but this has arisen from the experience from real companies from real hyperinflationary environments, and that was the word used, they used the word hyperinflation,” he said.
Lewis cited examples of companies that had to adopt this definition of hyperinflation to adjust their accounting standards for rapidly increasing prices in the jurisdictions in which they operated.
“Coca-Cola was in Mexico in the 1980s…Pfizer was selling drugs in Chile in the 1970s. They had to do accounting and they said ‘what the heck are we going to do? Prices of everything is going up, we don’t know what’s what,” he said.
Lewis said that inflation levels even lower than what the defines as hyperinflation could already be enough to severely damage the economy.
“I suggest that right around that point, right around that 20% plus CPI reading, that’s when things just fall apart,” he said.
Hyperinflation will set in when the government runs out of money and is forced to create more money, Lewis said.
“Hyperinflation tends to take place when they just got to make the payroll for the military, there’s no money in the checking account, so they just make the money out of nothing. That is how you get 50%, 100% per year kind of raise in the CPI,” he said.
To find out how the gold standard can help fight inflation, watch the video above.
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