Is The World Going To Hyperinflation?

21 min readMar 7, 2022

This article was written by Alparslan Mesri, Aslı Tolaman, NisanurOzbey.

Before writing this article, we had the purpose of answering a practical question in mind. “Will there be hyperinflation in Turkey? and in this hyperinflation environment, will the real estate market collapse due to state regulations as in the Weimar Republic? If so, would it be a logical move to invest in real estate during this collapse?”. However, as we thought about this question, we realized that we needed to find answers to other questions about the world first, and these questions led us to interesting results.

The conclusions we reached in the article are our own conclusions and are the first in the world. As far as we have researched in the mainstream media and on the internet, we have not come across an analysis similar to the results obtained in this article. As with every hypothesis, the hypotheses we put forward here can be falsified by opposing arguments. But we think that there is no other hypothesis that can provide such a logical explanation for the developments in the world and connect these developments within a single framework. We think this article will be useful even for at least a storm of ideas.

Claim1: Inflation is deliberately increased in the world.
Claim 2: Inflation is increased by the conscious cooperation of countries that seem to be in opposition to each other, such as the USA, Russia, and China.

Let’s start by explaining why we think so.

First of all, let us explain what we are talking about when we say hyperinflation.

Hyperinflation is when inflation exceeds 200 percent per year. It is also called galloping inflation. It is the most severe form of inflation in which money loses its value.

1. Reasons for the Increase in Inflation

1.1. Official Comment

1.2. Some Statements of Official Comment

1.3. Inflation and Supply Chain

1.4. A Critical Look at the Supply Chain Argument

1.5. Inflation and Coal

1.6. Inflation and Grain

1.7. Inflation and Monetary Expansion

2. Debt Status of Countries

3. Could the Leading Countries of the World Be Consciously Increasing Inflation?

3.1. About the Method Used to Increase Inflation

4. Conclusion

1. Reasons for the Increase in Inflation

Before we can predict whether the world will go into hyperinflation, we need to talk about the cause of inflation. Different parties have opinions on this matter. First, let’s take a closer look at the perspectives of the parties.

1.1. Official Comment

It is necessary to cite some sections from the statements of important actors that are valid in public opinion. If we group these views in a few items, according to the official view, the reason for inflation is as follows:

Disruptions in the supply chain
Bad metrics the Fed uses
Expansionary fiscal policies
Increasing employment
Trade wars
Energy prices
Food prices

1.2. Some Statements of Official Comment

According to Biden, the reason for the increase in inflation is the deterioration in the supply chain and the increase in energy prices. According to IMF chief Kristalina Georgieva, high employment is driven by rising energy prices and disruptions in the supply chain. According to a report by The Economist, the cause of inflation is disruptions in the supply chain, bad weather conditions affecting agricultural production, and government incentives related to the pandemic. Another important figure is Janet Yellen, the current US Secretary of the Treasury, who previously served as the chairman of the Fed. “Is inflation the result of an increase in the monetary base?” Yellen asked in one program. Yellen gave an answer to the question that inflation is caused by bottlenecks, that is, breaks in the supply chain.

1.3. Inflation and Supply Chain

If we go into the details of the disruption in the supply chain, according to one view, employees in American ports fell ill as a result of Covid, and thus the cycle time of the containers in the market, that is, the circulation speed was reduced, as the unloading and reloading times of the containers were prolonged. Container prices increased as the number of containers available per unit time decreased. The world’s major manufacturers were procuring the necessary chips for their products from Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan. Due to bottlenecks in ship transportation and ports, a sufficient amount of chips could not be supplied to the market. As a result of insufficient chip quantity, enough vehicles could not be produced. At the same time, since the truck drivers were also affected by the pandemic and the truck production decreased, the products could not be shipped to the market, thus creating a demand inflation. Especially the explanations of the mainstream media about the supply chain are like this.

Inevitably, people ask some questions about this subject. If the disruption in transportation would affect the economy that much, for example, “couldn’t the number of people working in the ports be increased or couldn’t governments implement some precautionary and incentive policies to stimulate chip transportation and increase its priority?” like. In summary, we do not find the argument that inflation has increased because truckers do not find wages adequate.

1.4. A Critical Look at the Supply Chain Argument

According to the claims of some parties, the supply chain disruption argument is not a very solid argument.

According to one view, the biggest reason for the chip supply crisis is not the lack of employees at the ports, but the USA banning the import of chips from the Semiconductor Manufacturing International Corporation (SMIC) company in China for security reasons in September 2020, a few months after the start of the covid epidemic. As a result, the demand for microchips produced by TSMC company in Taiwan is shown as increasing.

Although this explanation seems logical, the following question arises: Why would America impose such a restriction, increasing inflation and causing a deterioration in its own economy?

That’s not the only interesting thing about the chip supply. One month after the restriction on SMIC company in China, that is, in October 2020, a fire broke out at the facilities of the semiconductor manufacturer Asahi Kasei in Japan. The misfortunes do not end there. Again in March 2021, a fire broke out in a factory in Japan owned by Renesas Electronics, which supplies 30% of the world’s microcontroller product used in vehicles. The fires continue in 2021. Another fire broke out at ASML’s Berlin facilities in January 2022. In this facility, an intermediate product used in the production of microchip was produced. In other words, perhaps the most important reasons for the deterioration in the supply chain are beyond the pandemic epidemic or, in addition to the pandemic epidemic, import bans between countries or fires in this sector. Is inflation rising because of the fires?

1.5. Inflation and Coal

China is an important country when it comes to inflation. When it comes to China, coal is an important commodity. Because one of the main reasons for the low inflation process in the world is the production system in China, and coal is one of the most important factors in providing the necessary energy for production in China.

In April 2020, Australian Prime Minister Scott Morrison made some statements targeting China regarding the Covid process. As a result of these statements, there was a reaction in China, and China began to impose an unofficial embargo on the coal product imported from Australia in the second half of 2020.

On the other hand, China has decided to reduce the coal production it produces in its own coal mines. In such a situation, electricity production fell because not enough coal was supplied to the power plants. There were occasional outages. As a result, the Chinese government, which had to make a choice in electricity distribution, chose to distribute electricity to residences instead of factories. Such a choice would likely reduce Chinese industrial output and lessen China’s suppressive influence on world inflation. Negative developments in the world coal market in recent times are not limited to this.

Indonesia, the world’s largest thermal coal exporter, has ended its coal exports as of January 2022 due to possible coal shortages in the domestic market and has decided to nationalize its coal mines. According to Time magazine, more than 60% of China’s coal imports in the first 11 months of 2021 came from Indonesia.

Another argument for coal shortages is about rising coal prices. According to this view, people started to spend more time at home because of Covid. As a result, electricity consumption has increased worldwide. As electricity consumption increased, thermal power plants needed more coal. However, according to data on Statista.com, Covid has not increased electricity consumption, on the contrary, it has decreased it.

The decisions are taken by China with regard to coal supply also raise question marks. Why does the country follow a policy of reducing its own production and increasing inflation? While it may seem unreasonable to impose a coal embargo on Australia at the expense of an energy crisis from one perspective, if the Chinese state is considering a conflict with Taiwan in the future, it may make more sense to change its energy supplier now. Because in such a case, it is possible for the Anglo-Saxon world to form a united camp and impose serious sanctions against China. It may make more sense to take a challenge now, rather than face these sanctions in wartime and run into an energy crisis. On the other hand, seeing such a situation, the possibility that the Indonesian state may have nationalized the coal mining industry in order to increase prices after Australia disappeared from the Chinese Coal market as a player may come to mind.

When the situation is explained in this way, the scenario seems possible, although unlikely. But if the Chinese state is already changing its coal supplier for a future Taiwan conflict, another question remains: why does a war-preparing country stop production of its own coal mines when it needs to stockpile?

1.6. Inflation and Grain

When we started to write this title, there was not yet a conflict between Russia and Ukraine. According to an analysis published by the Wall Street Journal, Russia and Ukraine provide approximately 30% of the world’s grain exports. In addition, Ukraine is the world’s largest exporter of corn. Experts predict that if Russia launches a full-scale attack against Ukraine, grain prices could double, while a limited attack could result in price increases of 10% to 25%. The Arab Spring broke out when Russia stopped its grain exports in 2010.

According to Bloomberg, Russia has recently introduced an export tax. The higher the price of grain, the higher the tax will be. At the same time, a one-month grain export quota has been introduced in Russia.

Even a military build-up by Russia, which raises the possibility of an attack on the Ukrainian borders, could have an impact on world inflation. It must be an interesting coincidence that Russia was prepared for a military operation at a time when world inflation was rising.

While America has created a bottleneck by banning chip imports from China, while the Chinese government has banned coal imports from Australia and at the same time stopped its own coal mines and created a bottleneck in cheap Chinese production, Russia will attack Ukraine and create a bottleneck in grain. Isn’t it strange how it is?

1.7. Inflation and Monetary Expansion

The fact that none of the actors mentioned monetary expansion as the cause of inflation in the “1.1. Official Opinion” heading will draw the attention of the attentive readers. This is really weird because an ancient rule of the market says:

MV = PY

M = Money Supply, V = Money Circulation Velocity, P = Price Level, Y = Real GDP.

Now let’s look at the amount of money the FED and other central banks have printed in recent years:

While the monetary base was around 1 trillion dollars before 2008, it is now over 6 trillion dollars. It’s a very interesting situation. Since 2007, almost 5 times the current dollar amount has been printed. In such a case, is it possible to expect inflation not to increase?

According to one view, inflation does not increase. Because America exports the dollars it prints, or rather inflation, to other countries in the world. When the inflation of a country is shared by the whole world, this money does not get stuck in the American economy and cause inflation, only a small amount of inflation increase in the world. If we compare the monetary base to water that fills the inside of a circle up to the ceiling of that flat, if we leave this water in a flat, the people in that flat will drown. But if we distribute this water to each flat in the building, the feet of the people in each flat will get a little wet, but this water will not be a vital problem for anyone. However, there are different factors in this case. Not only the United States, but also all other developed countries are printing money. So in reality, the world’s monetary base has not only increased by $5 trillion. In order to maintain the balance between the exchange rates, the amount of other strong currencies also increased. Is it conceivable that this much money would not have an effect on inflation?

The table above shows the ratio of central banks’ assets relative to the country’s GDP. It can be seen that the amount of assets of the Fed was at 20% to 40% in 2020 and much more minimal before 2009. Although this graphic may not reflect the gravity of the situation very well due to scaling at first glance, it can be understood how the world has been in an expansionary environment since 2007 when looked in detail.

Another view is that all these printed money flows into the financial sector. Since the owners of the money are very limited, that is, the money does not reach large segments of the people, the demand does not increase, thus demand inflation does not occur. This is a relatively correct argument, but first of all, $5 trillion, or 500% monetary growth, is too much for any argument. On the other hand, although the transition between the financial sector and the real sector is limited, these sectors are not 100% discrete. Sooner or later, the excess money will leak from the financial sector to the real sector. The best example of this is that the financial sector increases its real estate assets with the excess money in its hands, which in turn contributes to the inflation felt by increasing the prices of family houses. By one estimate, the proportion of company-owned family homes will increase even more in the future. On the other hand, this argument is not true even if we ignore the reasons for the objection we have mentioned. Because the bailout packages made after the crises are not only for the financial system. For example, after the 2008 crisis, in addition to the budget allocated for banks, the American Recovery and Reinvestment Act was enacted for the American people, and a budget of around 750 billion dollars was spent for this work.

The Prince of Tübingen was a nobleman who had intimate connections with the Great Frederick

Another view is that, according to economic theory, in some cases, you can avoid inflation even if you print money. Let’s remember our formula again:

MV = PY

The letter Y here represents real GDP, the letter M represents the monetary base, and the letter P represents inflation. If your real sector is operating at close to full capacity, you may have the opportunity to print some money and distribute it to the public. When the purchasing power of the people increases, people will increase the demand. When the demand increases, the businesses that are already working at full capacity will not be able to produce more products with their current size, so they will have to make new investments to increase their capacity and enlarge their businesses. With the increase in production power, there will be an increase in GDP, that is, in the letter Y, so there will be no need for an increase in the letter P, that is, in price levels, that is, in inflation. However, in this method, the monetary base needs to be increased in small amounts as needed in the long run. If it is added to the monetary base by 5 times in order to avoid inflation, the consumption of Americans must increase 5 times. It is obvious that such an increase in welfare does not exist and it is impossible for it to happen in such a short time.

We introduced the arguments of the official opinion at the beginning of this article. However, in the official view, there is a couple of news that can give clues about monetary expansion. For example, an interesting survey was conducted by CNBC on this subject. Interestingly, 17% of the respondents blamed monetary expansion as the cause of inflation. According to this survey, 24% of the respondents cited financial policies as the reason. Although 24% is an important figure, it can also provide us with very different perspectives to think about whether a government’s ability to use a fiscal policy instrument is independent of the central bank. In other words, perhaps we should ask: Would it be possible for the American government to undertake such financial expenditures under such high indebtedness figures without the expansionary monetary policies of the FED? Undoubtedly, the American government can borrow as much money from the world as it wants for financial expenditures. But without the money printed by the FED, the interest on these debts would never have been so low. So much so that even the debts of financial expenditures made in the current negative interest rate environment of the world are melting in the face of current inflation. What we can conclude from here is that maybe the numbers shown in two different categories in the survey response, 17% and 24%, that is, 41% in total, are actually the result of a single reason. If the FED did not allow this, the American government would never have been able to engage in heavy financial expenditures.

Another interesting statement came from Warren Buffet’s partner Charlie Munger. At the time of writing this article, this clarification had not yet arrived. While no one blames monetary expansion for inflation, except for a small minority of us, Charlie Munger, in a panel attended by the presenter, asked, “Is the FED right or wrong on inflation right now?” Answering the question “I do not criticize them, but they (FED) just threw money at the problem (They just threw money)”, he made a clear statement in the same direction as our view.

2. Debt Status of Countries

Actually, you don’t need to say much about it. According to this table, America is expected to have a debt of 30 trillion dollars in 2022.

https://en.wikipedia.org/wiki/List_of_countries_by_external_debt

When we look at the order we got from Wikipedia, a very interesting picture emerges. But most of the information on this page is outdated. It is especially important to look at the post-2020 figures of debt amounts. We can find more detailed data on this subject on another site.

Let’s make a very simple calculation just to give an idea. Suppose a country has 100 units of debt in dollar terms. If the world experiences 25% inflation for 4 years in a row, let’s see what happens to this amount:

3. Could the Leading Countries of the World Be Consciously Increasing Inflation?

In conclusion, what do we conclude from all this information? There are two possibilities:

First possibility:

Officials at the Fed are unaware of the inflation equation.
The media doesn’t know about monetary expansion.
The American administration imposed a ban on chip imports to China at an inopportune time due to its folly.
The Chinese government has imposed a ban on coal imports from Australia due to its unwiseness.
The Chinese government, because of its foolishness, has curtailed coal production in its coal mines.
The Chinese administration suddenly stocks up on food due to its folly, but cannot think of the effect it will have on inflation.
After waiting for many years because the Russian administration was crazy, it decided to attack Ukraine at this very moment.
The Indonesian government has supernatural powers and is untouchable. So they can ban coal exports, plunge the world into an energy crisis, and no one can touch them.
Because of the incompetence of the American administration, it cannot subsidize the port operators, employ more workers and eliminate the queues.
Fires happen by chance in chip factories.

Second possibility:

The leading governments in the world are not as incompetent and stupid as we think.

In such a case, we talked about the benefits that the leading countries of the world in terms of per capita income will gain. So, what could be the benefits for China and Russia? What can be offered to these countries in exchange for helping to raise inflation?

In 1994, the United States, the United Kingdom, Russia, Belarus, Kazakhstan, and Ukraine signed the Budapest Memorandum, and their nuclear weapons were taken back from these countries, and in return, the territorial integrity of these countries was promised to be preserved. While these signatures were being signed, France and China also gave similar assurances in separate documents. I wonder if Russia would have agreed to clear the world’s debts and play a role in raising inflation in return for not seeing any concrete resistance from these guarantor countries while invading eastern Ukraine?

Taiwan’s Defense Minister Chiu Kuo-cheng said that tensions between China and Taiwan are at their peak in the last 40 years. China has approximately 3 trillion US dollars in reserves. China is one of the countries that will suffer the most in case of an increase in inflation. From a Chinese perspective, would $3 trillion be a fair price for Taiwan? As nice rhetoric as free-market rhetoric is, the Chinese government cannot go and buy a big American technology company with that money. Wouldn’t it make sense to use that money to buy Taiwan?

Let’s take our thinking one step further. In the Ukraine-Russia war, will the crisis in grain prices and supply escalate if the Mediterranean Sea is closed to Ukrainian ships? If the severity of the war increases and countries reduce exports to feed their armies, will there be famine in the world? Could a new step have been added to the microchip crisis in the world, with China’s capture of the microchip factory after invading Taiwan?

Most of the people watching the events, even the experts, look at the current picture in the Ukraine-Russia war and think that Russia has the initiative and that other powers and institutions in the world have suffered a defeat. Plato, who lived in 428 BC, argues that “the truth should be reached not with the senses, but with logic” within the discourses he created from the mouth of Socrates in his work “Republic”. Enlightenment philosopher Rene Descartes, who was born in 1596, doubted everything and tried to prove all the information he knew by thinking that his previous assumptions might be wrong. In this way, he first asked the question of whether I exist or not.

A question may come to mind. But if Russia or any other power is allowed to grow and expand in exchange for some concessions, could this be dangerous for the concessions parties? In his article titled “The Sources of Soviet Conduct”, written in 1947, George Kennan stated that the countries governed by a state party have extra power due to the concentration of power, but this situation also creates a great weakness for them. Because if the party degenerates or is captured, the system is also captured. In fact, Montesquieu, who was also an Enlightenment philosopher, expressed a similar thought in 1748. According to Montesquieu, it is difficult to seize the country in states where the power is concentrated in one place. But once the foundation of the system is captured, it is very easy to retain. The Soviet Union had enormous power in its time. But eventually, the leader of the party dissolved the union. Maybe the same cycle will happen again.

So far, we have interpreted the events at the level of states. We considered the gains and losses as to which states could gain from the upcoming changes. Although not the subject of this article, there may be another possibility that we should not overlook. Although it is beneficial for nation-states to zero debts by rising inflation, the main objective may be the collapse of the existing monetary system and the replacement of a new currency within international institutions. This possibility and scenario is the subject of a different article, but in order to predict how far inflation will increase, we need to be able to predict the “top target”, if any, not the “target”.

3.1. About the Method Used to Increase Inflation

There are permanent and temporary crises that cause inflation to rise. For example, while classifying a fire in a chip factory as a temporary crisis, we can interpret a decision to increase the monetary base as a permanent effect. While doing research, we saw that although some countries create a crisis that will increase inflation, they resolve these crises after a while by returning from the decisions they made. This method is an efficient method if our hypothesis is correct, that is, if world inflation is deliberately increased by governments. If a single country takes all the burden of this business by making just one decision, the cost will be enormous for that country. Whereas, if the countries of the world bring out the crises that fall on them in order and for a few months, the cost will be distributed all over the world. On the other hand, this method has another advantage. According to the article “The Magical Number Seven, Plus or Minus Two: Some Limits on Our Capacity for Processing Information” written in the field of psychology, the number of objects that a person can keep in their short-term memory is around 7. If there was only one source of the increase in inflation in a single time period, people could identify the culprit in their minds and hold a single country or institution responsible for inflation. However, if many sources cause crises in different time periods, human beings cannot blame anyone.

4. Conclusion

After all this information and reasoning, let’s get back to the main topic. Because our aim is not to make sense of the political developments in the world but to give an idea about how we can avoid or benefit from the financial risks that will arise as a result of these political developments.

When we started researching for this article, our thinking was slightly different. We placed more emphasis on monetary expansion as the reason for the rise in inflation. Perhaps the effect of supply chain problems on inflation is not more than monetary expansion, but still above a negligible level. On the other hand, after our research, we realized that a significant part of supply chain problems is created artificially. If these problems were natural events, it would be easier to predict inflation. However, it is not possible to predict how long the problems created by the supply chain will continue and how severe they will continue since these developments are not natural events. However, it is still possible to make an estimation about the course of inflation. In this case, we have two different possibilities:

If the aim is to zero the debts of nation-states, there is no need for inflation to rise to 200% per year. The 25%-30% inflation that will last for 4 years in America may well be enough to reset the world debts.
If the purpose is determined above the nation-state layer and aimed to change the existing monetary system, it may not be enough to write off the debts. At the same time, the currency operating in international trade may need to be rendered dysfunctional. If this possibility describes the reality correctly, the inflation in the USA may well exceed the 25%-30% level and move towards the hyperinflation line.

Finally, we would like to quote you a phrase in the last 30 seconds of a CNBC video titled “Why Printing Trillions of Dollars May Not Cause Inflation”: “Because government debts are set in fixed dollar amounts, higher inflation makes it easier to pay off those debts.” and “We need not worry too much about the size of the Fed’s balance sheet.”