Predicting fiat hyperinflation is a bit more complicated than visualizing hyperbitcoinization. I will attempt to do it here. Surprisingly, it is a very nuanced question.

Current US fiscal situation

The US has $34 trillion of debt. In FY 2023, it spent $6.1 trillion, but only earned $4.4 trillion, creating a deficit of $1.7 trillion.

The strategy thus far has been a combination of selling debt, encouraging the public to borrow from central banks, and printing money (Fed balance sheet). The latter two result in increases in the money supply, causing inflation.

The question is, how long can this debt and money-printing based spending continue until inflation turns into hyperinflation?

Theory based answer

The answer lies in the fact that demand for US debt, and subsequently US currency, is limited.

The demand for US debt is limited by the fact that creditors can clearly see that the US will never be able to pay off its debts in real terms via income (the US hasn’t had income since 2001). No creditor will lend to a debtor when it's obvious that the debtor will never be able to pay the loan back.

Once demand for debt is exhausted, interest rates will rise, as the US will have to sell their debt at a lower price, effectively paying a higher interest rate. However, the US can’t afford the higher interest rate on its massive amount of debt. Technically it can't afford anything because it doesn't have an income, but if interest rates are low enough, it can sell more debt to fund deficits.

To avoid higher interest rates, instead of completely exhausting genuine debt demand, the US can use the Federal Reserve to effectively print money, artificially supressing interest rates. This is a form of funding government expenditures through "inflation taxation", which has two components:

• expected inflation taxation, which is a tax on the monetary base, and is a multiple of the inflation taxation money printing rate and the demand for currency
• unexpected inflation taxation, which is when unexpected inflation reduces the value of government debtholders, taxing them

However, there is a limit to how much government expenditure can be funded from these two sources, because:

• demand for currency goes down the higher inflation is. As money is printed and inflation rises, the demand for US currency drops, and eventually no one will want the currency, resulting in a dead, worthless currency. This final process of currency death would be called hyperinflation.
• government debtholders learn to predict inflation which is at first unexpected, and price that into existing and future debt

The phenomenon I've just described of having to print money to fund fiscal deficits, which creates inflation, is referred to as fiscal dominance. You can read more about it here.

Reality based answer: fiscal dominance is not a new phenomenon

The US has actually been in fiscal dominance one time before, at least within the last century. It printed money during a very significant period in the 1900s - the 1930s Great Depression and 1940s, during WWII. Even after the war, the Federal Reserve continued to buy US government debt until 1951.

So why didn't the USD hyperinflate and die back then?

Inflation was definitely high in those periods, as is natural when money is printed. However, the USD survived because the US won the war - it was able to effectively dictate the USD to be legal tender in foreign trade and used as the global reserve currency. Foreign countries began accumulating dollars and US government debt.

Since then, the money supply has continually been increasing through central banking. However, inflation has been manageable (until recently) due to great increases in productivity through technological advances.

And thus the USD survived "fiscal dominance" and high inflation, and made it to today, slowly inflating itself along the way. Now, we are sliding down the hill, once again, of fiscal dominance.

One way out of the current situation: war

One way out of the debt bubble is to loot other countries through war. Ray Dalio talks about similar themes in his commentary of "The Changing World Order".

So the US (or whoever the main stakeholders in the US-led world order are) may wage war on other rising nations in the world to loot them and force the USD as money on them.

I am doubtful that the US can accomplish this.

Another way out of the current situation: earn more than it spends

The US could reduce spending and increase productivity, finally earn an income, and pay off its debt without printing money. This would enable the USD to survive and prevent fiat hyperinflation.

Otherwise... fiat hyperinflation?

If the US cannot do these things, and maintains the status quo of deficit spending, then money printing and continued fiat inflation are the only possible conclusions.

But what about fiat hyperinflation? Let's play around with some basic numbers.

The US M2 money supply is $21 trillion.

The US deficit for 2023 is $1.7 trillion, which is 8.1% of the money supply.

So it seems that even if the US were to simply print its deficit, US M2 money supply would not grow that much year-over-year.

But what if foreigners dumped their US debt? According to ChatGPT, foreign countries hold roughly 30%-35% of US government debt. At $34 trillion of total debt, that's approximately $11 trillion dollars.

Again, not a huge increase in the money supply. Only 50%, approximately.

What if everyone dumped their US debt? Again, that would only be a 150% increase in the money supply, approximately.

Given these numbers, it seems unlikely to me that the US dollar will experience fiat hyperinflation simply from US money printing to fund deficits or even pay back debt. The scale of the US government deficit relative to the monetary base is simply too small.

I still believe fiat hyperinflation will occur

Despite all this, I still believe fiat hyperinflation will occur due to hyperbitcoinization. The specifics however, you will have to read in another of my blog posts.

Till later!