There are a lot of economists, you can find at least one to support pretty much any prediction you want... And this is not the wildest prediction of 2021 by far.
And we should care about Dorsey's prediction because... ?
The actual experts who study these things can't agree on much regarding the future, so I don't expect anything profound from any rich geek off the street.
It’s a proxy for adaptive success. He accumulated lots of resources so we pay attention and emulate him because his strategy has paid off. Not saying it makes sense in a modern context.
I agree that tech CEOs say a fair amount of dumb shit (because they tend to be brainstorming, free associative thinking types) but if you think any guy off the street could have been Jack Dorsey, if the dice had just rolled differently, then I would disagree hard.
"Any guy"? No. At least tens of thousands if not more? Probably. How many African tech billionaires do you know of? And is it a coincidence that the only two I can think of from the entire continent of 1.3 billion people (over 4× of the US) are white Afrikaners? Probably not.
Tens of thousands I think is possible- The problem is we don't know the identities of those 9,999 people. If we did, I agree the opinions of those people should be given a ton of weight.
Perhaps he had something special to start two successful companies, but I still agree with GP, that doesn't necessarily transfer to special insight into global economics.
Still, a broken clock is right twice a day, and it isn't too hard to predict inflation when inflation is already happening at higher than normal levels. That's like predicting floods when its raining.
If by hyperinflation, he means higher inflation, I can see that. It's not uncommon for periods of lower inflation to be followed by periods of higher inflation.
Isn't that trivially true, though? Even if there's zero causation, when `n` is closer to its minimum, the possibility space for `n`'s future is mostly above it.
The HN party line has moved from disavowing inflation to embracing it as a great time to buy stocks.
High inflationary periods will be low growth...demand softens as buying power erodes. The time to buy stocks was the beginning of the Era of permanent QE (2009), not now.
Either inflation erodes buying power and stocks suffer a grueling, long term erosion...or the Fed raises rates and you get a massive reset. When a society is as indebted as ours, you can't just casually raise rates. If the ten year bond reverted to the historical avg yield of 4.5%, national debt interest payments would eat 30% of the US Federal Budget...and that's just to pay interest, not principle
Maybe he does think that his life as a wealthy person is going to improve in any way with hyperinflation. I'd disagree completely.
In fact, I think hyperinflation in the U.S. could likely stir up wars that (as we've imagined since the cold war) could very well break the world. Of course I know nothing of value about this, but chaos followed by violence and escalating into full blown war sounds possible. Or at the very least more possible than now, with a stable structure of power(s) that only shift gradually.
I don't think crypto coins are useful if the world order dissolves and we have trouble keeping up eletric grids, much less a working internet.
Let’s entertain him. If this happens, you gotta own equities and housing right? These should keep your savings on par (at least stocks, housing is not realistic for everyone).
Or are we royally fucked and there’s no keeping up?
I lived through hyperinflation as a kid (obviously not in the US). One of the things that kept us afloat were the 2 family cars - my parents sold them for a big profit, then sold the new cars again couple months later. Owning equity was a risky proposition at the time, as many companies went bankrupt overnight (including banks). You either kept the money in savings accounts that were indexed by gov bonds, or you’d lose most of your money value in a week.
Would be nice to see some math on how he arrived at that conclusion. Common definition of hyperinflation is 50% inflation on monthly basis, which would be about 10,000% in a year.
Inflation hurts those without assets most (the poor). When you see pundits, opinion writers, and politicians try to explain away inflation as temporary, no big deal, a “first world” problem, “only” 5%, and so on just remember it’s a scam. They are stealing money from people who can’t afford assets, like houses and stocks, which protect the rich.
It's a double-edged sword. For people with debt, the value of their debt decreases as inflation rises. If salaries rise with inflation, even with some lag, the debt becomes easier to repay.
There is a small benefit. However it’s a negative to the lenders which include many socially advantageous institutions like pension funds which purchase securitized debt.
The negatives are so numerous it’s a struggle to find any upsides. Luckily I am rich and own property with government-subsidized fixed rate mortgages so I will ride out all the terrible outcomes with a shrug.
While your stock portfolio drops massively as people move to i-bonds/commodities and your property prices fall as well since noone can afford to buy property at the higher interest rates.
Why would anything drop massively when they are endlessly printing money and handing it out? And yes commodities are an obvious choice during inflation. I am very bullish on oil.
To bet on Hyperinflation you don’t only need to bet the rapid devaluing of currencies, but also bet that the government would do nothing to stop it. Which seems ridiculous to me given how easy it is (raising interest rate)
At the moment we have a monetary system that's a debt based monetary system. In practice this means that many people are operating under the assumption that someone's liability is someone else's asset, I think this assumption is rather systemic at the moment. Beyond a certain level of indebtedness a rise in interest rates triggers off a chain of defaults and that can cause a situation of credit contagion. An uncontrolled credit contagion event could very conceivably destroy the financial system. Much power is currently held by creditors and they will likely try to fight any attempts to change policy in such a way that reduces their power.
Thanks, and thanks for the linked newsletter. I’ll read it. I’m curious to learn how the current situation compares to the 80s when rates were pushed to 15% to stop inflation.
Simple. As your interest increases, sondo your payments as a % of taxes
At some point, if interest payments are too big of a slice off total spend, investors will start believeing the debt will never be repaid... And thus monetise debt instead.
Debt levels being high means that a significant portion of the revenue is there to service the interest payments and the remaining is not enough to cover all other expenses.
Therefore you either raise more debt, or default.
> With debt to GDP at such high ratios raising interest rates has some challenges
No, it doesn't. I mean, it would have political problems if Congress had to do it, but that's literally why we have an independent central bank managing monetary policy, so decisions that would be difficult given fiscal policy preferences aren’t difficult to make.
Some argue that current US debt level blocks country from meaningfully increasing interest rates as it will balloon interest payments which are paid (in reality) by printing money. I am also not confident than US politicians are smarter than ones in Venezuela
Print and spend dollars at value ‘A’, right after the money gets in circulation, value decreases to ‘B’, the spread between ‘A’ and ‘B’ acts like a tax on all cash. This results in an increase in tax amounts (not actual value) because of price increases, making revenue numbers go higher, making it easier to pay off old debts
It benefits those who holds the most debt, and is horrible on anyone who is on fixed income. Presumably capital gains will still be taxed, which means that inflation + tax can wipe out any income from gains.
Raising interest rates won't be easy — up to 30% of the federal budget could be spent servicing the debt. From Drunkenmiller's interview in May of this year:
"[Drunkenmiller] projects that if yields on the ten-year Treasury rise to the projected level of 4.9%, the government would be spending close to 30% of GDP each year simply paying back interest expense (compared to 2% last year) unless it monetizes the debt, which experts think is unlikely and Druckenmiller believes would have “horrible implications” for the U.S. dollar." [0]
The Fed has less actions available than you expect. Either the Fed lets inflation run hot, or the Fed raises interest rates to combat inflation, wiping out discretionary programs from the federal budget.
The last two years make me think the government is quite capable of "doing nothing to stop" bad things from happening.
It is no longer ridiculous- I mean, they're working on trillions of dollars of economic stimulus as we speak, in the middle of an inflationary economy. You don't think that that will add fuel to the fire?
What rock are HN viewers living under? You guys just going to deny that hyperinflation isn't a reality because your hard on to hate a billionaire outshines any rational your brain might manage to produce? Billionaires suck, but he isn't wrong.
Historically, Dorsey has come across as more of a wishy-washy stoner than a sharp business mind.
He's bought a lot of BTC, so any prediction he makes that's bullish on crypto should be treated with suspicion. I don't think he's a pump-and-dump artist like Musk, but he's still not an objective forecaster.
Also, he's either predicting something catastrophic (meaning something that would crumble the world economy) or he doesn't know the meaning of the word "hyperinflation" as most people use it[1].
For some other examples of why I don't trust Dorsey to predict anything, he also said that Bitcoin would be "the" digital currency in the near future (before 2028, but perhaps sooner)[2]. If anything, it's less likely to happen because of the rise of stablecoins.
Finally, there's a paper published recently[3][4] finding that, over the last 10 years, professionals (economists and businesses) were "substantially" better at inflation predictions than consumers.
Most economists expect inflation to peak something before the end of this year, and next year to have high-but-not-dangerous[5] inflation.
This makes sense if the cause of currently high inflation is supply-chain problems, which we have no reason to doubt so far.
So far we've had demand outstripping supply in many area without inflation happening.
Apparently, that's because in a lot of areas, consumers and businesses have demand but it's still price sensitive. And the chances are price increases aren't going to result in wage increases, so it's hard to see a cycle of inflation happening.
The US has spent it's way out of all the crises of the last twenty years and so far hyperinflation has been avoided (but other distortions have appeared, surging commodity prices, surging rents, etc).
Efficiency that comes from increased technology and automation is strongly deflationary. COVID related stresses have only pulled forward investment in tech and automation. There’s a strong case to be made that the concern in a few years will be too little inflation.
Don't see how this is possible, strictly mathematically.
The money supply (M2) did increase 30% in a year, but for hyperinflation it would have to continue at a rapid pace.
I could see a situation where the Fed starts to taper/raise interest rates which triggers some turmoil, and then re-engages QE in a much more aggressive manner or goes negative rates. That could lead to extreme levels of inflation.
The truth is when you ease monetary policy, you somewhat trap yourself at that level, as people will take on additional debt due to lower carrying costs. This makes tightening more challenging, as the higher debt levels become more expensive to service.
Likely the only way we go hyperinflation is to monetize fiscal spending, thus fiscal spends more, thus we need to monetize more etc.
It is true that the Fed is currently buying 60% of newly issued treasuries, e.g. monetizing fiscal spending by money printing right now. So we're kind of on the verge of MMT here as it is.
Unfortunately the Fed has been pretty cowardly and optimizing for short term outcomes/political appeasement rather than doing the right thing for the long run.
If tightening monetary policy leads to disruption in the markets, we may just need to eat the short term pain. The consequences of continuing to monetize deficit spending and stoking rampant speculation are too great IMO.
We may see very high short term inflation if supply issues continue to worsen and widespread shortages develop. In that scenario prices would rise to compensate, and demand destruction would likely lead to a resolution. Of course, that's how layoffs start, and the whole thing becomes stagflationary.
The hallmark of hyperinflation is that the velocity of money increases rapidly, seemingly without control of the central bank. Basically it's a feedback loop where everybody thinks the currency is going to be worthless tomorrow, so they rush to spend it today, which makes money change hands more quickly than normal. Or on the supply side, they believe the currency is going to be worth less when they can spend it, so they pre-emptively raise prices to compensate for that.
Zimbabwe, Venezuela, Germany... all modern examples of hyperinflation where the root cause was primarily through excessive money printing to fund debts/deficit spending.
There are other causes as well of course, but excessive printing seems the common thread between all of them.
I agree that an inflationary mindset is psychological and contributes, but without an increased money supply, people are constrained in how much they can spend.
E.g. how could a loaf of bread ever sell for 1000 USD without printed money? Nobody could afford those prices.
I doubt increased velocity of money alone is enough to sustain hyperinflation. Assuming velocity within the bounds of realism. Wages would have to rise significantly, creating a wage price spiral.
Root cause yes, but that's not what sustains the inflation. Inflation is sparked by an increase in the money supply. Hyperinflation is what happens when rising prices then trigger an increase in the velocity of money. The government has control of money supply but not velocity, which is why hyperinflation is essentially impossible to stop without abandoning the currency once it gets started.
The concrete manifestation of an increase in money velocity is things like people running out to the store to spend money as soon as they get paid; wages getting set month-to-month or even day-to-day rather than annually; prices not being posted, and instead being set as you walk in the store; and zeros being added to dollar bills. The wage/price spiral is not a separate thing; it's the concrete manifestation of the abstract model of money velocity increasing.
While inflation is a monetary phenomenon I think hyperinflation is mostly a psychological phenomenon characterized by a lack of confidence in a currency. Fiscal policy changes could certainly change confidence or so could a number of other things.
I feel like when currencies are abandoned there's a de-facto hyperinflation involved in the old currency if looked at from the exchange rates involved. Perhaps there's been examples of currency replacement in the past that have been driven by non-economic factors?
Sadly he is right on this, the last 50 years or so the growth in the Chinese economy has created a high growth low inflation world economy, this has ended.
Twitter is like click-bait, but without the actual article.
Prominent personalities spew cryptic "profound" comments. The masses are supposed to fawn over them and speculate whatever this enlightened sage might mean by it. Like we just discovered the meaning of life scrawled on an ancient rock if only we could decipher those symbols.
My advice is ignore any prediction unless there's enough data and logic to back them up. Even if someone has a track record of predicting correctly, there's little to gain when you have no substance to triangulate between viewpoints and form your own view.
There might be some utility in looking at a poll of subject matter experts asked the same question(s), or a prediction market, but one person's idle speculation is noise.
98 comments
[ 2.8 ms ] story [ 178 ms ] threadI'd say he isn't just shooting off his mouth. He rarely makes inflammatory statements, unlike other public billionaires!
Dorsey has his faults, but talking shit in public hasn't been one of them AFAIK!
I guess we shall see!
Things are certainly getting interesting!
The actual experts who study these things can't agree on much regarding the future, so I don't expect anything profound from any rich geek off the street.
Historical context: https://www.google.com/amp/s/www.robesonian.com/opinion/1359...
https://news.ycombinator.com/newsguidelines.html
Getting lucky and becoming rich doesn't make you an expert on anything.
I'm skeptical.
Still, a broken clock is right twice a day, and it isn't too hard to predict inflation when inflation is already happening at higher than normal levels. That's like predicting floods when its raining.
Learning takes time.
I'm not saying this was a good article, but adding a bad comment article just adds more badness.
[1] https://en.wikipedia.org/wiki/Hyperinflation
High inflationary periods will be low growth...demand softens as buying power erodes. The time to buy stocks was the beginning of the Era of permanent QE (2009), not now.
Either inflation erodes buying power and stocks suffer a grueling, long term erosion...or the Fed raises rates and you get a massive reset. When a society is as indebted as ours, you can't just casually raise rates. If the ten year bond reverted to the historical avg yield of 4.5%, national debt interest payments would eat 30% of the US Federal Budget...and that's just to pay interest, not principle
How would Square benefit from hyperinflation?
In fact, I think hyperinflation in the U.S. could likely stir up wars that (as we've imagined since the cold war) could very well break the world. Of course I know nothing of value about this, but chaos followed by violence and escalating into full blown war sounds possible. Or at the very least more possible than now, with a stable structure of power(s) that only shift gradually.
I don't think crypto coins are useful if the world order dissolves and we have trouble keeping up eletric grids, much less a working internet.
Or are we royally fucked and there’s no keeping up?
Hmmm, I really wonder why?
The negatives are so numerous it’s a struggle to find any upsides. Luckily I am rich and own property with government-subsidized fixed rate mortgages so I will ride out all the terrible outcomes with a shrug.
Perhaps this holds true if you are an economist from clown world, but I'm afraid things work differently here on Earth.
Here's a much more long form article that talks about the dynamics in play: https://desogames.substack.com/p/the-problem-is-too-big
At some point, if interest payments are too big of a slice off total spend, investors will start believeing the debt will never be repaid... And thus monetise debt instead.
No, it doesn't. I mean, it would have political problems if Congress had to do it, but that's literally why we have an independent central bank managing monetary policy, so decisions that would be difficult given fiscal policy preferences aren’t difficult to make.
> why do you think this is easy to deal with?
Because it is.
The problem is that we are issuing new debt to pay off the old debt, and that new debt is using the new interest rate.
By the time hyperinflation is possible, the federal government will have two choices, keep interest rates low and keep borrowing, or to default.
It benefits those who holds the most debt, and is horrible on anyone who is on fixed income. Presumably capital gains will still be taxed, which means that inflation + tax can wipe out any income from gains.
"[Drunkenmiller] projects that if yields on the ten-year Treasury rise to the projected level of 4.9%, the government would be spending close to 30% of GDP each year simply paying back interest expense (compared to 2% last year) unless it monetizes the debt, which experts think is unlikely and Druckenmiller believes would have “horrible implications” for the U.S. dollar." [0]
The Fed has less actions available than you expect. Either the Fed lets inflation run hot, or the Fed raises interest rates to combat inflation, wiping out discretionary programs from the federal budget.
[0] https://www.forbes.com/sites/jonathanponciano/2021/05/11/bil...
It is no longer ridiculous- I mean, they're working on trillions of dollars of economic stimulus as we speak, in the middle of an inflationary economy. You don't think that that will add fuel to the fire?
He's bought a lot of BTC, so any prediction he makes that's bullish on crypto should be treated with suspicion. I don't think he's a pump-and-dump artist like Musk, but he's still not an objective forecaster.
Also, he's either predicting something catastrophic (meaning something that would crumble the world economy) or he doesn't know the meaning of the word "hyperinflation" as most people use it[1].
For some other examples of why I don't trust Dorsey to predict anything, he also said that Bitcoin would be "the" digital currency in the near future (before 2028, but perhaps sooner)[2]. If anything, it's less likely to happen because of the rise of stablecoins.
Finally, there's a paper published recently[3][4] finding that, over the last 10 years, professionals (economists and businesses) were "substantially" better at inflation predictions than consumers.
Most economists expect inflation to peak something before the end of this year, and next year to have high-but-not-dangerous[5] inflation.
This makes sense if the cause of currently high inflation is supply-chain problems, which we have no reason to doubt so far.
1. https://www.investopedia.com/terms/h/hyperinflation.asp
2. https://www.cnbc.com/2018/03/21/jack-dorsey-expects-bitcoin-...
3. https://www.clevelandfed.org/en/newsroom-and-events/publicat...
4. https://www.reuters.com/article/us-economy-inflation-expecta...
5. https://www.cnbc.com/2021/10/12/inflation-gauge-should-be-ho...
Apparently, that's because in a lot of areas, consumers and businesses have demand but it's still price sensitive. And the chances are price increases aren't going to result in wage increases, so it's hard to see a cycle of inflation happening.
The US has spent it's way out of all the crises of the last twenty years and so far hyperinflation has been avoided (but other distortions have appeared, surging commodity prices, surging rents, etc).
The money supply (M2) did increase 30% in a year, but for hyperinflation it would have to continue at a rapid pace.
I could see a situation where the Fed starts to taper/raise interest rates which triggers some turmoil, and then re-engages QE in a much more aggressive manner or goes negative rates. That could lead to extreme levels of inflation.
The truth is when you ease monetary policy, you somewhat trap yourself at that level, as people will take on additional debt due to lower carrying costs. This makes tightening more challenging, as the higher debt levels become more expensive to service.
Likely the only way we go hyperinflation is to monetize fiscal spending, thus fiscal spends more, thus we need to monetize more etc.
It is true that the Fed is currently buying 60% of newly issued treasuries, e.g. monetizing fiscal spending by money printing right now. So we're kind of on the verge of MMT here as it is.
Unfortunately the Fed has been pretty cowardly and optimizing for short term outcomes/political appeasement rather than doing the right thing for the long run.
If tightening monetary policy leads to disruption in the markets, we may just need to eat the short term pain. The consequences of continuing to monetize deficit spending and stoking rampant speculation are too great IMO.
We may see very high short term inflation if supply issues continue to worsen and widespread shortages develop. In that scenario prices would rise to compensate, and demand destruction would likely lead to a resolution. Of course, that's how layoffs start, and the whole thing becomes stagflationary.
There are other causes as well of course, but excessive printing seems the common thread between all of them.
I agree that an inflationary mindset is psychological and contributes, but without an increased money supply, people are constrained in how much they can spend.
E.g. how could a loaf of bread ever sell for 1000 USD without printed money? Nobody could afford those prices.
I doubt increased velocity of money alone is enough to sustain hyperinflation. Assuming velocity within the bounds of realism. Wages would have to rise significantly, creating a wage price spiral.
The concrete manifestation of an increase in money velocity is things like people running out to the store to spend money as soon as they get paid; wages getting set month-to-month or even day-to-day rather than annually; prices not being posted, and instead being set as you walk in the store; and zeros being added to dollar bills. The wage/price spiral is not a separate thing; it's the concrete manifestation of the abstract model of money velocity increasing.
But I think increasing money supply is a necessary component for hyperinflation as well.
At least, in all modern examples of hyperinflation I've reviewed, there has always been a component of monetizing the debt/deficit.
Are there examples of hyperinflation where the money supply was largely fixed? I would be very curious/interested in that.
https://twitter.com/jasonrantz/status/1449144813291331588
Source article: Psaki Defends Rising Prices: ‘Good Thing’ Because It Means ‘More People Are Buying Goods’ https://www.dailywire.com/news/psaki-defends-rising-prices-g...
Prominent personalities spew cryptic "profound" comments. The masses are supposed to fawn over them and speculate whatever this enlightened sage might mean by it. Like we just discovered the meaning of life scrawled on an ancient rock if only we could decipher those symbols.
My advice is ignore any prediction unless there's enough data and logic to back them up. Even if someone has a track record of predicting correctly, there's little to gain when you have no substance to triangulate between viewpoints and form your own view.
There might be some utility in looking at a poll of subject matter experts asked the same question(s), or a prediction market, but one person's idle speculation is noise.
Meta-meta-clickbait?