Being a trillionaire isn’t all it’s cracked up to be
By Lance Crossley
Your faithful editor, Mr. Casey Lessard, recently gave me 100 trillion dollars. Seriously. Following a dinner we had a few weeks ago in Toronto’s Bloor West neighbourhood, in which I proposed that the United States is firmly on the road to hyperinflation, Casey kindly sent me a rather fitting gift: an authentic 100 trillion dollar bill from Zimbabwe’s bout of hyperinflation in the 2000s. (Ed.: This was the second largest bill ever printed until the Z$ was suspended in April 2009; government transactions are now performed in US$.)
Zimbabwe is one of the worst examples of hyperinflation in history. It is also the first example of hyperinflation in the 21st century (though, dare I say, it won’t be the last. More on that later).
The road to hyperinflation for Zimbabwe started with a sputtering economy, enormous government deficits, and the inability to borrow due to poor credit ratings. The Robert Mugabe government, which desperately wanted to avoid creating the civil strife that results from harsh austerity measures, resorted to what most governments do in this situation: printing money. Since Mugabe couldn’t find buyers for Zimbabwe bonds, he rolled the printing presses.
At its peak in 2008, inflation in Zimbabwe was increasing at an exponential rate. Put in a more tangible way, the cost of grocery shopping would double every 24 hours.
Hyperinflation brings cruel consequences for the average citizen. If you’re on a fixed income and your pension is $3000 a month, and the price of everything around you increases 50 to 100 times that amount, you can imagine the hopelessness of the situation. Basically, hyperinflation is an instantaneous way to wipe out all your savings and wealth.
During my conversation with Casey a few weeks ago, I suggested that the United States is highly vulnerable to hyperinflation. Like Zimbabwe, they have a struggling economy and gigantic government deficits. The only difference is that other countries are still willing to buy U.S. treasuries (i.e. U.S. debt). However, that may be changing.
In 2009, the U.S. had to auction a record $1.49 trillion in treasury bills to pay its deficit. And that was only freshly minted debt. If you count the debt the U.S. had to “roll over” from previous auctions, it totalled over $8 trillion. That is a massive amount of debt to sell. Remember, somebody at the other end has to assume this debt.
To me, it is astounding that anyone would buy a U.S. treasury security in light of all the money printing talking place south of the border. John Williams, an American economist who calculates statistics based on how the government used to calculate these things (before various administrations started cooking the stats), says the real inflation rate in the United States is at least twice as much than is reported by the government. In other words, people are buying U.S. treasuries to lose money at this point. This can only go on for so long.
Recently, some well-informed analysts have also noticed some “funny business” in the way the U.S. reports the results of its treasury auctions. Without getting too technical, it appears that part of the treasury auctions are being bought by the Federal Reserve itself. This would indicate that there is already not enough demand for the massive supply of U.S. debt that must be met. If you wrote yourself a cheque and cashed it in to meet your monthly obligations, you would be put in jail for fraud. The U.S. government, on the other hand, can get away with it. But not forever.
Will we ever see a million, billion or trillion dollar American bill? As incredible as it may sound, this is not a ludicrous proposition anymore.