Ron Paul: Expect 50% Inflation

US Presidential candidate Ron Paul expects the US government to default via inflation

The unionleader.com writes, (hat tip lew rockwell political theatre)

Texas congressman Ron Paul on Friday predicted that inflation will hit 50 percent in the next couple of years, thanks to the massive debt the country has accumulated.

Paul, who spoke to admirers and Republican activists at a Manchester house party, said the inflation will act like default.

Social Security checks will still be cut and interest payments will still be made, but the inflated dollars will allow the government to repay borrowed dollars with devalued money, Paul said.

“They cannot pay the debt,” he said. “I don't think that means you shouldn't try and work things out, but with the size of this debt it never gets paid.”

The national debt is about $14.3 trillion.

Currently about 2/5 of the US CPI index accounts for housing which only means that for inflation to reach 50% that commodity prices will have to go vertical. There would be a flight to real assets. The inflation would have to be so devastating that even housing prices which currently has reverted to a declining price trend, would rise.

Thus Ron Paul sees that the US Federal Reserve will likely take, or experiment, on the path of hyperinflation rather than an outright default.

I would surmise that this is more of a warning than of a prediction.

Yet, this is one tail risk that the mainstream has continued to ignore which is why Ron Paul raises this concern. The obstinacy to maintain current path of government spending profligacy risks this outcome.

The next global financial crisis will likely signify what I call the Mises Moment—the critical moment where the set of choices of policymakers determines whether the entire paper money system collapses or major economies suffers from debt deflation.

Remember in 2008 the banking system nearly collapsed. Major economy governments assumed many of the banking system’s bad assets by flooding the world with money in the hope that these concerted rescue efforts can wish away the accrued malinvstements.

Today, both the banking system and governments have been disproportionately leveraged, and which continues to rely on further inflation (via serial bailouts) to maintain price levels that keeps the banking system afloat. The unfolding events in Europe, particularly the PIIGS, seem as appetizers to the next government-banking system crisis. The difference would be the intensity.

What is unsustainable can’t last.

Have a nice day.