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)
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.
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?
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.
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.
"[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...
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.