The battles launched in 2007 and 2008 to salvage the banking system and to rally the economy have not worked. The crises of 2008 still are being fought. The inflationary costs of all the government and Fed actions and interventions still have to be faced, and the Fed’s next salvo in the war for systemic survival is a good bet for detonating the early inflation issues that quickly can build into a massive, severe and uncontainable problem.
The official recovery simply is a statistical illusion created by the government’s use of understated inflation in deflating the GDP. Use of understated inflation in such a manner results in overstated economic growth.
The long-term fiscal solvency issues of the United States – where GAAP-based accounting shows annual deficits running in the $5 trillion range – are not being addressed, and the politicians currently running the government lack the political will to address those issues. That circumstance initially suggested a hyperinflation crisis by the end of this decade, but the systemic-solvency crisis of 2008 accelerated the process, indicating a hyperinflation problem by no later than the end of 2014.
Neither economic nor systemic-solvency issues have been resolved by U.S. government or Federal Reserve actions. With the economy weak enough to provide cover for further Fed accommodation to the still-struggling banking system, the next easing by the Fed likely will trigger a massive dollar selling crisis and begin the process of a rapid upturn in domestic consumer inflation.