Hyperinflation Watch - April 13, 2009

Do you still doubt that the US is on the road to hyperinflation? Then consider this news item, released late Friday afternoon on a 3-day weekend in the hope that few will notice.

"Reuters - U.S. budget gap soars in first half of fiscal 2009 - The United States posted a record $956.8 billion budget deficit for the first half of fiscal 2009, more than triple the year-ago shortfall, as spending on financial and economic rescue programs ramped up, the Treasury Department said on Friday. For March, the government recorded a deficit of $192.27 billion, a record for the month and nearly four times the year-ago gap of $48.21 billion. March budget outlays ballooned to $321.23 billion, including $46 billion spent to inject capital into government-controlled housing finance companies Fannie Mae and Freddie Mac and $10.6 billion for federally subsidized unemployment benefits. The total outlays compared with $227.02 billion for March 2008."

Federal spending is exploding, but the deficits are growing for another reason too. The article went on to note: "March receipts fell sharply as a rapidly deteriorating economy dried up tax revenue from individuals and businesses. Receipts for the month fell 28 percent to $128.96 billion from $178.82 billion a year earlier."

So the federal deficit is being adversely impacted two ways. Federal spending is soaring while federal revenue from taxes is collapsing. Dow Jones described it accurately: "The U.S. budget deficit closed in on $1 trillion just halfway through the fiscal year, driven by a recession that's sucked away tax revenues and sent millions of people scrambling for jobless benefits."

In my article "On the Cusp of Hyperinflation" I noted that hyperinflation does not arise from banks lending too much money. Rather, hyperinflation invariably occurs for only one reason - too much government spending that leads to too much government borrowing and these debts are then turned into currency by the government's captive central bank. And that scenario describes exactly what is happening in the United States today.

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