February 10, 2022, 3:20 pm EST
The Outcome of Hyperinflation
January 2022 CPI is released today with a 7.5% increase on an annual basis. As we can see from the featured chart that this level surpassed 40 years of history back to 1982. It is halfway toward its highest level 15%. Nobody can deny the possibility of creating a new high of CPI 15% in 2022 or beyond. But, the question is what is the outcome of such high inflation for the economy.
Inflation can occur from either strong economic growth or monetary policy. Obviously, there is no strong growth in the past two years of the COVID-19 pandemic periods. It is the government policy to set a zero interest rates, pump cash, and numerous spending efforts to made artificially growth images in the stock markets, housing markets, and commodity markets.
The payback time is coming in 2022 for sure. The tightening process will first impact the stock markets and housing markets. Then, we should expect a slowdown in consumer spending. The most important milestone will be the shrinking of job markets of layoff. It would be very difficult for most people trying to get a peaceful life at that time. Thus, Fed would try to balance the process so that it does not cause these outcomes.
Our view is that it will be a difficult task because the bubble is already too big. Either soft-landing or hard-landing will be a tough time ahead.
Rasing cash level and preserving cash would be a sound strategy to go through these tough periods.