Jack Dorsey, the CEO of Square and Twitter, recently angered many mainstream economy experts and analysts. He did the same for political commentators as well, but also everyday people across the developed nations who followed through to hear his latest message about the state of the global economy. In a tweet, Dorsey warned about the incoming threat of hyperinflation and what it could mean not just for the world right now, but also for the times that are only to come. There are two main reasons for the backlash.
First, Dorsey suggested that the global economies are not only heading towards a point where hyperinflation is a reality but that they are well inside of the same space. Secondly, he also suggested that cryptocurrencies are a means to tackle that process not only as a measure of correction but as something that could change the entire economic setup for the better. Both notions came across a very hard audience, even though countless experts in the domains of economy and cryptocurrencies basically agreed with Twitter’s CEO. However, more than anything else, the backlash itself shows that there is more than smoke to this very combustible issue of inflation spurred on by the public financial stimulus in the wake of the COVID-19 pandemic.
One of the key elements that Dorsey used to showcase his opinion is a wave of rising prices in the US. That is not an anomaly, but a standard element of life in the past couple of months. The price gauge has been going up across the world as well, gradually bringing up the value of goods and commodities. However, some experts were quick to point out that this is not a valid showcase of impending inflation or hyperinflation. Some accused Dorsey of pushing the narrative of the price change in the favor of cryptocurrencies, which is a domain he is heavily invested in.
Others called his line of reasoning problematic and not something that is fully based on economic reality. Instead, the warning call could become a trigger for reckless behavior, where people try desperately to ensure the safety of their funds and thus actually begin a negative economic climate. That is what the economist would say is a self-fulfilling financial prophecy. However, despite all of that, the fact remains that the prices are still steadily going up.
Opposite from the critics in the mainstream political media and economics, many in the crypto community, but also those active in things like esports, online entrepreneurship, and so forth see a lot of wisdom in Dorsey’s words. Even individuals and organizations from the NGO sector believe that this is an important topic that many overlook, possibly intentionally. For them, the important aspect in the statement about hyperinflation is not so much cryptocurrencies, but the fact that individuals across the globe are experiencing this loss of monetary value in their everyday lives.
The aspects of that problem are numerous and point towards an even more dangerous and rapid escalation. However, under all of it lies something that simply did not exist a generation or two ago – global cryptocurrencies. Unlike traditional inflation-safe assets, like valuable art or precious metals, cryptocurrencies are on offer to everyone and recognize no borders of physical limitations. That means that anyone can acquire them and use them as a form of hedge against the rapid and continued loss of value in traditional fiat currencies. That presently goes even for the big fiat options like USD or EUR. Even the big countries like the US or European Union now seem in an inflationary zone and thus danger for its currencies.
Unclear Signs of Hyperinflation
Apart from the biggest critics of Jack Dorsey’s statement, there are those who in general agree with his notions of what happens when hyperinflation hits, but take issue with the fact that he believes that phase is upon the world. In general, economic theory sees the process of hyperinflation as a process of inflation that is over 50 percent per month. That means that the compound results go to about 13,000 percent of the annual increase.
However, big economies are nowhere near that number right now. For example, the US saw a consumer price index growth of 5.4 percent from the same period in 2020. It is true that this is the highest rate in over 30 years. But, saying that it is the Weimar Germany in the 1920s is a bit of an overstatement. The same goes for other famous cases of hyperinflation that occurred mainly in the 20th century and countries like Yugoslavia.
Problem of Trust
Banks fully agree that monetary conditions greatly contributed to inflation. However, banks often avoid taking the blame for those conditions and more readily focus the narrative on the general behavior of individuals. That involves the consumers, but also investors and producers who dictate the process of supply, demand, and finally price expectations. It is true that irrational behavior and herd mentality leads to the biggest quick calamities. Sudden crises spur on people to try and get their money into paper form, which triggers a rush on banks. That happened time and time again, even though everyone understands that the self-fulfilling prophecy potential lies precisely there. In a climate like that, hoarding of hard money variations, which are now both bitcoin and gold and other similar non-fiat resources, creates scarcity.
It also reduces transactions and ushers even more inflationary ingredients. However, there is also the issue of a massive loss of trust that occurs in these moments. Policymakers in moments of huge inflations lose the support from the wider public and there is a strong and omnipresent sense of everyone for themselves. At the same time, without public trust, fiat money can mean next to nothing, as so many cases in history clearly show. That is why Dorsey’s concerns are legitimate and his assertion of bitcoin and crypto into that somber potential equation is more than sensible. Everyone just hopes that his theory is not put to the test soon.