by Greg Barker
Tuesday, 26
October 2021

Why Jack Dorsey is predicting hyperinflation

For the Twitter CEO it's all about Bitcoin
by Greg Barker
Gandalf goes to Glastonbury

After recently adopting a bizarre fashion sense offline— a mix between an adolescent Gandalf and a Glastonbury hipster — Bitcoin thought leader and Big Tech CEO Jack Dorsey logged on to his Twitter account to tweet the unthinkable:

“Hyperinflation is going to change everything,” he said. “It’s happening.”

What prompted Dorsey to believe that we’re already in such a dire situation remains unknown, but he was probably reacting to the financial media’s expansive coverage of skyrocketing consumer price inflation. After over a year of what some claim to be an economic recovery, the U.S. CPI (Consumer Price Index) has reached its highest level since 2008 and shows no signs of stopping.

Everything — from food to rent to artificial Christmas trees — has become so expensive that we’ve witnessed the rise of an inflation hysteria, where almost every economist, market commentator, and Finance Twitter pundit no longer believes in the Federal Reserve and the Biden Administration’s “inflation is transitory” narrative.

Bitcoin maximalists like Dorsey, of course, recognise that inflation is getting out of hand, but they blame this on something other than Covid-induced shortages caused by an end-of-year reopening boom. Espousing the now-retro monetarist ideas of F.A. Hayek and Milton Friedman, Bitcoiners argue that the Fed drastically increasing the supply of U.S. dollars has not just led to rampant rising prices but has — as Dorsey declares — set the stage for hyperinflation.

It’s not that simple. Despite many spotlighting how the Federal Reserve has “printed” over “35% of all U.S. dollars” in the last year, the American economy has yet to experience dangerous, prolonged levels of persistent inflation, let alone a Weimar Republic-style situation. And to know why, we have to understand what “money printing” has become in the 21st-century.

It used to conjure up images of mass printing presses churning out large wads of bills, which changed hands over and over on bustling high streets. Now, in the digital bailout age, it ushers in visions of Fed Chairman Jerome Powell furiously pounding CTRL+Print on his work computer, akin to the popular finance meme: “money printer goes BRRR”.

In reality, “money printing” is just central banks creating bank reserves and using them to buy government bonds which they exchange for cash with financial institutions, who later use the funds raised to lend to consumers.

But as real economic activity has all but collapsed, most of this money has found its way into ever-more speculative assets, creating a hyperinflationary boom not in consumer prices but in asset prices like tech stocks and Bitcoin.

Since this “financialization” began to take over the U.S. economy in the 1980s, other deflationary forces have also emerged, and from the elite’s perspective, these will help surmount hyperinflation for the foreseeable future. With, among other things, declining demographics, speedy technological advances, and a borderline manufacturing apocalypse almost guaranteed to continue, it’s likely inflation really is transitory.

If, however, all these forces start being overpowered by inflationary pressures caused by Covid, shortages, and the reopening boom, that’s when policymakers need to start worrying. Jack Dorsey could become a foreseer of hyperinflationary collapse but for entirely the wrong reasons.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.

Join the discussion

  • Appreciated the clarity of your article, Greg Barker, and the sunlight you shine on a topic that has many of us bamboozled. This wad of money sloshing around has found its way into “speculative assets” you write. You omit housing from your examples. It would be interesting to better understand where house price inflation is leading in this era of Financialization. Houses and Homes have intrinsic values that may not fit the envelope of a money making industry based upon money itself. Now that the trading of houses is an encouraged industry, it competes with those who merely seek a home? Perhaps our intrinsic values have become part of the commodity market too?

  • Did anyone with the barest knowledge of economics and history not think that ‘printing’ vast amounts of dollars/pounds to pump into our economies would not lead to severe inflation?

  • Judy, you obviously have not heard about Modern Monetary Theory (MMT). This is the core of the new wave of bizzaro-land politics and economic activism. It would appear that COVID provided many excuses for grand scale experiments and MMT seems to be one of them.

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