Hyperinflation has been a threat to fiat money economies throughout history, but modern bankers at the Federal Reserve assure us that today’s financial system is immune to such a fate. Austrian business cycle theory reveals that current economic stimulation may be propelling us toward a catastrophic crisis: a crack-up boom that marks the dramatic end of the boom-and-bust cycle. When a central bank expands the money supply to reinflate bubbles, it destroys the currency’s purchasing power, representing the ultimate failure of interventionism.
The American monetary system’s instability can be understood through the boom-and-bust cycle, as formulated by Ludwig von Mises and the Austrian school. Central bank suppression of interest rates leads to an unsustainable economic boom, promoting malinvestment. The bust phase follows, with unemployment and output contractions. Policymakers add stimulus, creating a larger bubble and more painful bust. People panic and exchange currency for real assets, leading to rapid devaluation and hyperinflation. This psychological shift renders monetary policy impotent, wiping out personal savings and societal stability.
The current economic situation is characterized by deficits that are out of control due to the Fed’s interventionism in response to financial crises. This approach, which prioritizes short-term gain over long-term stability, has severe consequences, as it suppresses market corrections, inflates asset bubbles, and encourages high-risk debt. This constant flood of stimulus promotes moral hazard, optimizing the economy for speculation while curtailing organic productivity.
Despite the facade of stability, individuals perceive the economy as resting on a precarious foundation of debt and deceit. Capitalism has transformed into cronyism that disproportionately rewards those with political connections, leading to concentrated power, unrestrained money creation, and escalating inequality.
Hoping for a return to monetary and fiscal restraint may be naively optimistic, as politicians face overwhelming incentives to maintain short-term stability through stimulus, spending, and low rates. Restructuring programs with enormous and unfunded liabilities like Medicare and Social Security would spur public backlash, even if it was fiscally prudent.
The economy is addicted to perpetual stimulus and deficit spending, and the prevailing social mindset assumes that unending, debt-fueled growth is the natural state of affairs. With little political will for discipline, reform may depend on a crisis to force change. Central banks are likely to continue expanding the money supply to delay the day of reckoning until the inevitable hyperinflationary boom.
A crack-up boom would erode the power of the federal government, leading to a decline in the currency’s purchasing power, deteriorating administration funding, Treasury bankruptcy, and the erosion of trust in centralized authority.
As the federal government becomes weaker, power will naturally shift to individuals and local communities. Communities should strengthen their networks to weather economic challenges, increasing local involvement and cooperation. Joining area organizations and neighbourhood groups can foster mutually beneficial relationships and support systems, enhancing their capacity to withstand the crisis. Practical skills and knowledge are equally vital, as they provide value to others when centralized systems fray.
Pursuing expertise in fields like food production, energy generation, medicine, and engineering can equip people to meet local needs. Proactive societies can cultivate the true source of lasting wealth: strong social webs and skilled human capital. Austrian economics’ pragmatic reflection methodology can expose the unsound foundations that stretch currencies to their breaking point, guiding human action towards stability and prosperity.