Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value.
Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that “the economy is recovering”, a sign that “normalcy” was returning.
I argued that—far from being “a sign of recovery”—rising CPI would be the sign that things were about to get ugly.
I concluded that, like the stagflation of ‘79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke.
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