Sunday, March 6, 2011

Oil Price Increases Result of Terrorism in New York, not Middle East

Lately the fallacy has been spread that Libyan unrest combined with Egyptian and Tunisian uprisings have caused oil prices to spike up to over $104 per barrel as of the close of business on Friday March 4. Proponents of this theory declare that real concern exists that Saudi Arabia is also susceptible to such unrest leading to severe supply shortages in the future.

That said, there have been no substantial supply disruptions. In addition, US oil inventories remain at record levels. Further, OPEC has pledged that it will continue to meet its supply target regardless of disruptions in Libya, as Libya only represents less than two percent of the world's oil. Finally, Saudi Arabia has shown no sign of instabillity except for its proximity to the unrest, even though Southern Europe is far closer to Libya than the Middle East.

Since the last collapse in the price of oil in 2008, numerous OPEC leaders have said that $70/barrel is the requisite price for speculative oil exploration to remain profitable outside of the Middle East. This $70/barrel represents an apex in prices, where non producers find it profitable to become producers. Think of it as the wage necessary to make an engineer change professions to a carpenter. $70/barrel equals cost to remove + reasonable profit + premium to change behavior in a country that has made a decision oil drilling is not in their best interest economically.

So why are we at $104/barrel? Long positions by hedge funds and speculators has increased thirty percent since March 1, 2011. These individuals are unilaterally buying up oil contracts with the cover that the media will present the Middle East uprisings as dire. What is undesirable about these individuals behavior is that they are not end users of oil, such as refiners or power companies, they are merely adding as much money on margin as possible to exacerbate the oil increase. Why do they want to buy oil, simply to sell it to those end users at the end of the month's contract at a premium. Since the NYMEX crude oil market is relatively small in market cap compared to the NYSE or NASDAQ, relatively small amounts of money can create price changes. Also the availability of purchases on margin with little down payment reqyirements make the NYMEX an attractive place for market manipulators who desire to disrupt the purchase and sale transactions of drillers and end users.

The paramount issue is not supply, not producing countries and not the market.... it's simply American traders who want the price to move up at the expense of the entire country for their individual greed.

Three weeks ago, the market saw oil lose 3 percent in just under three hours when the CFTC and ICE raised speculators margin requirements 12 percent to purchase oil. This meant speculators had to put 6% down instead of the 5% that was previously mandated. Six Percent?????!!!!!!! Well, perhaps the inability of regulators to demand a reasonable hard money commitment is the issue in and of itself.

Aside from the common sense solutions of disallowing all participants except for end users to access auctions or the elimination of auctions all together, an effort to end price manipulation in oil markets should also include a commitment of over $6,300 to purchase $100,000 of oil contracts.

Wednesday, January 26, 2011

The Currency Seesaw

Picture two children on a Seesaw. One child elevated in the air feverishly jumping on his seat in an attempt to push himself back towards the ground. The other child sternly seated on his seat with his feet anchored under steal stirrups in the sand refusing to allow his seat to move up towards the sky. Can you picture it? Could you picture the balance difficulties of the child in the air as he pounces on his seat to push it down? Can you imagine the bruising of the crotch being experienced by the child who is attempting to anchor himself down? If you can, you now understand precisely the relationship of the US Fed vs. emerging markets' central banks.

If you ever wondered why the Federal Reserve Policies are failing to create the desired inflation in the United States, the answer would clearly be the trade deficit. If you then wondered why the rest of the world is struggling with food and commodity inflation, the answer would clearly be their resistance to currency appreciation.

Of course it is no secret that every country is better off as a net exporter. Collecting money instead of paying it is always the path to greater wealth. That said, the great equalizer is currency appreciation. Currency appreciation is the only way that the two children peaceably stay in balance on the seesaw. As one country purchases, or imports goods, from another it must purchase the exporting country's currency (a capital inflow) to complete the transaction. When this purchase occurs on a frequent basis the exporting country experiences currency appreciation which reduces the cost advantage it has in producing exports. With that appreciation, the population of the exporting country realizes greater purchasing power and higher standards of living for its population. The exporting country over time becomes better able to import at a more affordable rate and becomes progressively more stable as an economy due to purchasing power. Thus, the seesaw is able to balance the children according to their actual weight or on each country's production on the merits of the goods, rather than just input costs.

However, what does a net exporter do if they wish to protect their status as an "Exporter?" Well, you surely figured this one out. They manipulate their currency by making capital inflows less attractive and/or interfering in the currency exchanges. Sound familiar? Japan selling Yen for US Dollars, Brazil placing exorbitant taxes on capital inflows, China exchanging Yuan for US Dollars in a closed government controlled non-market based exchange and India raising interest rates (In India's case this certainly isn't going to work in battling currency inflation is it? But that is a topic for a different article. Higher interest rates=greater rates of return for foreign currencies).
What is the fallout of a country purposely holding its currency down? Items that are valued in US Dollars such as food, fuel and steel etc. get rather expensive for its population as they are being paid for their production in the currency that is being devalued by their government. Unable to provide comfortably for basic needs such populations may resort to civil unrest or similar types of behavior. Sound familiar?

The net result is exporters that refuse to accept currency appreciation disallow the seesaw to find balance. The country in the air (the US) will stay in the air unable to create substantial jobs due to its HIGH currency valuation and inability to compete with lower employment costs. Its population will be reduced to balancing deficits, both fiscal and trade, while confined to its space on the surface area of the seat well above the ground. Unable to expand, the US may attempt to print its currency at an alarming rate- effectively jumping up and down on that seat to become more competitive and create growth. Emerging markets may insist on anchoring into the stirrups on the ground and edure the great discomfort from the seat punding against their unmentionables to maintain their position. In such a scenario the worst of results occurs if one of the parties breaks the others resistance sending one into the tree and the other face down into the dirt.

So, the next time the US Treasury Secretary states that China, "Must allow its currency to appreciate to create balance," think of him saying, "Let us down you creeps." Conversely, when you hear China respond with "It is in both of our interests for our currency to appreciate but it must be gradual,"- remember it is better to take it groin than to be hopelessly stuck in the tree.

Wednesday, December 29, 2010

The 99 Week Dilemma

With the recent passage by the United States Congress to extend the availability of 99 weeks of unemployment insurance for an additional 18 months a unique question arises, "Does longer term unemployment benefits affect migration flows?"

From a humanitarian aspect I am a supporter of unemployment insurance. For intervals of somewhere between ninety days and six months, unemployment insurance is an important facet of civilized society. Unemployment insurance reduces the inflammation of societal unrest and generally provides a much needed safety net for not only the unemployed individual and his or her direct creditors, but his or her community as well. That said, is long term unemployment insurance creating distortions in the labor market?

Here is the rub: Joe loses his job in California where he lives with his family. His children are in school, his mother works in town and all his brothers and sisters are nearby. It is a perfect situation, well at least until the factory closed last week. Now, Joe really needs, and in fact wants, to get back to work. The problem is that the town has been hard hit and jobs like his just aren't available. What does Joe do?

Well, assuming unemployment benefits are a "necessary" safety net, meaning Joe doesn't have adequate savings to wait for employment, Joe would certainly be forced to move if no benefits were available. As a national average, despite recent trends indicating the savings rate of Americans is on the rise (over 7% at last reporting), Americans are ninety days from being broke. This means that if our Joe is in fact an "average Joe," he has ninety days to replace his paycheck or face a dire circumstance.

With the extension of unemployment benefits, workers are given a longer period to replace employment. With ninety-nine weeks of benefits and ninety days of savings, the unemployed are given the option to "wait and see." The drastic, life altering, option of uprooting oneself and leaving family behind, becomes a more distant last resort. While quite understandable, is this behavior causing market distortions in the National labor market?

Currently the Midwest, meaning Nebraska, Iowa, South Dakota, North Dakota, Kansas, Oklahoma all have unemployment ranges far below the National Average. That said, California, Nevada, Arizona, Florida are well above the National Average. Also, these relative levels have remained since the first of signs of the Great Recession in 2008 three years prior. With the current era's speed of travel and the ability of job seekers to connect with prospective employers in an instant through the Internet, why is it taking so long for people to move to more favorable job markets?

Desirability ? Inability to sell one's house? Familial roots? Perceived standard of living? Regardless of the validity of one or all of these reasons- all of them are luxuries. Starvation, homelessness and inability to provide the basic necessities certainly would trump them. During the Reconstruction Era Depression or the Dust Bowl Americans migrated far and wide to search out opportunities for work. Even in more recent recessions such as the energy crisis of the 1970's, I had the personal experience of watching my father move away to find work leaving my working mother behind to care for me while he settled into a more prosperous region. Labor moved to meet capital. The rebuilding process inert in capitalism's cycle of life thus began again.

While I am not selling one that capitalism is the paramount economic system, nor am I suggesting that providing those without isn't noble- I am merely asking whether in a capitalistic system prolonged benefits are distorting the natural reallocation of labor and capital? If the answer is yes, the more important question is: Whether the prolonged benefits will in fact work in putting Americans to work in their hometowns or whether in the end the invisible hand will force these individuals to move regardless?

Wednesday, November 3, 2010

Exchange Rate Roulette

The world is engaged in a game of "tug of war" that is as unprecedented as it is unpredictable. In the past, the quest to be a net exporter was often managed by import taxes, supply restraints and trade agreements. In the new world of "free" trade countries now are using indirect means to achieve the desirable end of being the world's supplier.

While this concept of currency manipulation is not new, the United States attempts to answer through quantitative easing is in fact new. The real question is what took so long for the United States to answer? Leverage certainly masked the problem for quite some time as corporations created multinational identities with no allegiance to any given population. As Americans saw their wages flat lining due to deflationary wage pressures from overseas and technology advances, Profits soared due to the lower input costs. These profits unfortunately were unsustainable because the American worker no longer fashioned the same sense of purchasing power.

In other words, instead of paying the cost to build it at home so we could afford to consume it, corporations built their goods elsewhere. Through a favorable credit corporations could enjoy these maximized profits by selling their goods to the debased American workforce over time. The problem of course is that one can only lend to a certain threshold and still expect repayment. The second problem is that because of the insufficiency of wages paid to workers in foreign manufacturing countries those workers were not viable as consumers for the goods produced.

Since wealth is not created by income, but rather sustainability of one's standard of living- the American practice of being a net importer was doomed to fail. This failure was systematic and without reprieve. Eventually lending had to slow due to ability of the borrowers to pay. Without lending deflation was almost certain. So it is certain the American worker in mass must produce as much or more than they consume to create sustainability. Americans cannot continue to consume and not produce, because production creates the wages with which they are able to consume. Conversely, wealth is assured if the Americans can produce more than they consume because that surplus is savings. Of course this is the benefit of being a net exporter.

That said, with countries such as Brazil and North Korea limiting and taxing capital inflows that would cause their currencies to naturally appreciate, how does this game end? With Japan and China dedicated to purchasing US dollars to diffuse currency appreciation and undermine the Fed's efforts to devalue the currency, is the end a net wash? Perhaps its a game of chicken that dares the other to veer off of collision course first. If we keep printing money simply for them to buy it up to maintain status quo can capital flows ever reach equilibrium?

In sum, the end game will have to be accomplished through direct means such as treaty or taxes since no one seems to be willing to say "uncle." Of equal importance America will have to deregulate the workplace requirements and union strongholds on issues of workplace standards if America is to compete for the world's jobs in the future.

Saturday, October 2, 2010

The Mirror and the Window


A Carney, of sorts, travels the continent with his magical house of mirrors. His mirrors are magical because they represent all the ways in which man could judge him or herself. Each mirror- a standard for which purpose is usually derived.

There is a mirror of Morality, Society, Capability, Purpose, Strength and many more. The traveling man sets the mirrors along the edges of the room surrounding an empty center. Standing alone in the middle of the room is a four sided mirror that reflects Success.

Visitors are encouraged to look in each mirror individually and then use each mirror to angle its reflection into the Success mirror so that both reflections are revealed in one frame of vision. At the end of a trip through the perimeter mirrors, guests are directed to walk slowly around the four sided mirror of success in the center of the room and "re-read" the reflection of the numerous perimeter mirrors in the reflection of the the Success mirror.

Some hover in the Success mirror with it reflected against Morality. Others read the reflection of Success against the mirror of Capability. As people vary in taste, they also tend to value the amount of time spent in each mirror differently.

Some cry when they view the mirrors, some cheer, some are awestruck and some get angry at what they see. The Carney does his best to be a good host to his guests and always offers to adjust the lighting and change the angles of the mirrors to best suit his customers' preferences. Should a woman feel wronged by the Societal mirror, for instance, years of experience allow the Carney to adjust the lights and add props, such as clothing and lenses, to satisfy her. As a disclaimer to those who may be offended by the mirrors the Carney proclaims, "My mirrors are not calibrated for every height and proportion so please ask for assistance should the mirrors not accurately reflect the requisite standard to your satisfaction and I will be happy to make the necessary adjustments."

Over the years, the Carney is engulfed with observing his guests encounter the mirrors. He rarely takes a break from his work. The Carney actually rarely even goes into the outdoors. Rather, he keeps a detailed journal of all of that happens and every unbelievable encounter that occurs in his house of mirrors. There aren't many days that the Carney doesn't feel like the luckiest person in the world for being the possessor of such important and fulfilling items.

Queens, socialites, Wall Street billionaires, mystics, artists, musicians and clergy come and go. The responses of these people seldom disappoint the ever watching Carney. In fact, as time passes there are two fairly predictable occurrences: 1. When in the house of mirrors people tend to distance themselves from other guests, whether acquainted, related, in love, best friends or strangers, and 2. People spend disproportionate amounts of time at each mirror. That said, a line always forms at the coup De teat- the Success mirror.

One day a very simple and normal looking man pays his admittance and enters the mirrors. The simple and normal man acts peculiarly once inside the the room. He first weeps and then proceeds to scream. The Carney finds this simple and normal man's behavior to be extremely odd as the man had yet to even reach the first mirror. The simple and normal man walked towards the participants and began to plead with them. He proclaimed:
"Leave this place. It is not you in and of yourself, by yourself and thinking of yourself, that determines your relevance."
The customers began to work their way away from the simple and normal man attempting to create space from him and still find the answers they sought with their admission ticket. The simple and normal man continued his mission by walking in front of many of the guests and blocking the mirrors. He said:

"Your worth, your answers, your self, is not found this way. It is not the reflection of light that is reality, it is the light itself."

Having disturbed the client base substantially, the Carney came out of his perch high in the rafters and demanded the simple and normal man to leave. After restoring order, the guests once again began to gaze and pose, smile and frown, turn and shift in the mirrors as they always had. The magic of the mirrors was restored and all was calm as the Carney liked it.

After that strange day many more years passed in the manner they had always passed in the Carney's world. The Carney had grown quite wealthy through providing his service of magic mirrors. Then one night at closing time the simple and normal man from many years ago appeared at the door. The Carney greeted him cordially but cautiosly by saying, "I want no trouble please let us be."

The simple and normal man looked deep into the Carney's eyes, something the Carney hadn't experienced since he was a child, and gently said:

"Walk with me through the mirrors. You and I will come to an understanding."

The two entered the room as the simple and normal man took the Carney's hand. He looked at the Carney as they walked the perimeter in a forced, but even, pace. As they walked, the Carney's eyes filled with tears. His skin prickled with anxiety and sweat began to surface on his back and coat his skin beneath his clothes. The Carney felt the tears come on even stronger and his throat close down as the simple and normal man made no reflection in any mirror. The two reached the Success mirror, one in blithering tatters comprised of red wet eyes and shuttering- the other calm and compassionately resolved to finish the gauntlet. The Success mirror bore no reflection of the two men, one supporting the other as a soldier carries the wounded to safety on the battlefield, the mirror only reflected the lights of the room. With this the simple and normal man, while staring forward into the mirror bearing no image and essentially holding the Carney up, said:

"Our Journey is to comprehend and find happiness in the light, not it's reproduction."

Crying and chilled to the bone the Carny finally broke the simple man's grasp and fell to his knees. The simple and normal man knelt directly in front of him and stared into the top of the Carney's bowed head as if speaking into his soul directly and whispered:

"One must let go of self to find bliss. In the world it is impossible to truly see one's self if it is isolated from its place.... the web that connects all."

The simple and normal man then left the room never to return and the Carney followed him into the wilderness.

Monday, June 21, 2010

Why the US struggles with a Budget

Americans in general seem to be concerned about the Federal Budget Deficit and the level of the National debt. While valid, do these same Americans know how to create a surplus? Is this simply partisanship and saber rattling or are they serious? As an independent voice in the era of politically owned media- this blog will explain the necessities to create a budget surplus and then reduce the National Debt. Be warned, budget discussions are always uncomfortable and often take sacrifices. Since I am not a partisan- this discussion is sure to upset all who are.

Let us start with the latter, reducing the National Debt. This is simple, once we have a budget surplus we must dedicate no less than 50% of that surplus to paying down our debt. So how do we create a budget surplus?

1. National Defense. The most expensive portion of our expenditures is National Defense. From a budget perspective it was pure insanity to enact the tax cuts of 2000 and then start a war in 2001. Even dumber was the choice to start two. Even worse is our continued choice to fight them both.
Since the beginning of time, war constituted assessments on that country's citizens to pay for them. War is extremely expensive and not an attractive behavior for fiscal responsibility. War bonds have been floated, taxes raised, and rationing instituted in the past to help bear the costs of going to war. None of these measures have been instituted in these two current wars that have lasted twice as long as World War II.

Solution: End the wars immediately, we can't afford them. This may cause future danger to some Americans, but safety is never a guarantee. There will always be violence, always. The point is to minimize it in a cost effective manner. In addition, TSA, defense spending, military spending, CIA, FBI, DEA and all other public safety must be cut. Seventy percent of the US Government's budget goes to the military and public safety. Cuts in this arena is the fastest track to fiscal discipline. The balancing act is not what does it take to keep every American safe, but what can we afford to spend to keep the most amount of Americans safe.

Second, to help fill the hole created in our budget, the United States must ensure payment of reparations from the defeated countries of Afghanistan and Iraq. Should currency be insufficient, natural resources that can be easily exchanged for currency would suffice. This second part is very difficult to enforce because the United States was the aggressor in both wars and thereby not truly eligible for reparations. That said, the victor in war has traditionally had reparations paid in exchange for relinquishment of control and/or peace.

Social Security and Medicare. The second largest portion of the Government's budget is Social Security and Medicare. This is the time old political trap because folks eligible for Social Security and Medicare tend to vote at a higher percentage than those not receiving these subsidies. That said, cutting defense spending is not exactly politically popular either. Remember the point of this article is not the political double speak one finds in the Republican and Democratic controlled news stations- this is the straight stuff.

Solution: Social Security and Medicare must be made smaller. Privatization does not work, because whenever the market gets involved the trademarks of markets, greed and fear, take hold. Those trademarks create volatility not suitable for people of age. Since we live longer, the programs need to reflect our ability as a people to work for more years. Remember the intent of these programs is to provide for those who CANNOT provide for themselves. Social Security was never created to be a retirement program. Clearly, there is an age when we as citizens no longer can gainfully be employed, but at the current age limits we see seniors engaged in massive fraud to make sure they qualify for these social programs when it is not yet necessary. Manipulating income and assets is rampant in the United States to ensure qualification. In fact, many financial planners encourage and assist in such crimes. Simple fix, increase the age by ten years retroactively. Remember, this is not about being fair or proper, this is serious budget talk.

Unemployment, AFDC, and Disability. These programs need to be budgeted per the revenue of the Country as a whole and pegged to that revenue as a fixed percentage. Businesses may plan for the future, 5, 10, 20, 50 years, but they do not budget by the year because they cannot forecast sales that far in advance. Businesses budget by the hour by fixing expenses to a percentage of sales. The government must adopt this practice when it comes to entitlement spending.

Solution. Entitlement spending must be tied to revenue in the given quarter. Currently these programs encompass approximately 18 percent of the Federal Budget. So, the Government must ensure that these programs never exceed there intended level of impact. In other words, if the Government chooses entitlement spending is appropriate for 15% of the total budget, then benefits shall be reduced pro rata by any declines in Federal tax receipts and also increased by the same measure. This is simple budgeting. If the Federal Receipts are trending lower by 3 percent per the oodles of payroll and earnings reports generated on a weekly basis, then benefits shall be three percent less in that quarter (notice the cut comes in the current quarter when a businessman budgets, because the preceding quarter is irrelevant and the future is never certain). If those reports show an increase of 6%, then everyone receiving aid gets a raise.

One more important thing about this system is that it is mathematical and cannot quantitatively be abused. If too many people are using the benefits, payouts will be too low because the receipts generated by taxes will be lower and benefits will not create enough money to live well. Subsequently, those that can work and do better will. Once the marginal recipients return to work, those who truly cannot work will get a raise because of increased revenue in the system. From a budget standpoint the equilibrium of entitlements (where people will enter and leave the entitlement programs based on individual payout amounts) described in the preceding sentence doesn't matter because the payments shall never exceed the designated percentage.

Natural Disasters. Simply stated, we cannot budget for something that would happen by surprise. As a result, localities must be responsible for their own natural disasters. Volunteerism, charity and local authorities must right these occurrences.

Environmental Agencies. Simply stated, Environmental Agencies such as the EPA must be self funding without any dedication of tax payer monies.

TARP, FDIC and Redevelopment. The government should always take chances such as these when available as a lender or contractor of last resort because they are necessary to ensure tax receipts for the future and are generally revenue positive. TARP, for example, was a massive success of the Bush Administration. Currently with many loans yet paid back the program is already ahead in sum without those repayments. Should the outstanding debts be paid back without default, the program will yield over a 14% per annum return on investment. That's revenue positive and budget friendly.

Solution: When feasible, and sufficient collateral or equity available, the Government should act in its best interest fiscally. No business could budget itself with flat lining or declining revenue streams. As a staunch believer that raising taxes beyond its optimum level actually reduces revenue, the Government should always tax at its maximum level of efficiency (which is most likely lower than current levels). To supplement income, the Government should make business ventures that provide adequate return on investment. After all, there is little risk since the Government is immune to bankruptcy laws making its investments always collectible.

So after this brief common sense budgeting exercise are you truly concerned about the budget? I can assure you that many cannot honestly answer yes. Most say yes to some of these basic budget principles, but no to others. Many only want to budget when it is convenient. Tea Party constituents are generally not willing to cut defense, even though its the biggest and most over spent portion of our budget. Many others want to end the war, but won't stand for poverty. If one truly claims to be pro balanced budget or budget surplus, there can be no emotion and no gray area. After all, its all just simple addition and subtraction with a few fractions. The numbers are neither good nor evil, they are just numbers. Right?

Tuesday, May 4, 2010

The Truth about Inflation

My senior year thesis in Economics was Brazilian hyperinflation. After creating oodles of econometric models based on numerous commonly held truths about inflation, the only factor that was significantly correlated to hyperinflation was inflation expectations.

The news, the financial analysts and even the Wall Streeters love to talk about inflation and its roots being firmly grounded in money supply. The truth is that while money supply is a factor, the issue of inflation is psychological. A government can theoretically print money until kingdom come, so long as the population values those dollars the same.

This reality of people not realizing increased money supply as inflationary is often explained by financial spinsters as the theory of the velocity of money. In other words, whether money is actually being circulated or whether it is parked in places where it isn't creating new capital or purchasing goods and services. In other words, under this theory the printing money without that money being used is a canceling of sorts of inflation.

While I believe from a strict construction stand-point these two theories may amply define the causes of inflation- the real question still comes down to people's perception of money's value. With record deficits and the printing presses hard at work, the dollar just hit a one year high today against all major currencies. Why? How?

First, in a globalized world the dollar is either strong or weak based on what it is compared against, another currency. The dollar no longer can be evaluated in a vacuum. Every day dollars are evaluated based not only on the demand of individuals and entities for dollars to use for purchases, dollar value is also based on institutional investment preferences to hold dollars instead of another currency or asset. This preference influence in the short run is more relevant than fundamental needs.

Ask yourself this, "If Europe just approved a one trillion dollar Euro infusion on May 20, 2010, why did the Euro increase in value to a value of $1.26/Euro from $1.23/Euro one day prior to the infusion commitment?" If there is more Euros to be circulated wouldn't that increase in supply devalue its value? Yes, maybe but no, is the answer currency investors have given. Some maintain increased money supply in Euros is less inflationary than allowing the credit woes of Greece, Portugal and Italy spread across the region because that would make goods and services far more expensive due to borrowing costs to procure them in a currency under fire.

But wouldn't a debt crisis be deflationary? Well, it should, but the investors preference to hold Euros now that an orderly support has been set in place has counteracted that premise. Sound confusing, it sure ought to.

The simple truth is that no one, including myself, can tell you why inflation and moreover hyperinflation occurs. It's a psychological and sociological phenomena. If inflation can be correctly determined to be a vote of confidence in prices and the economy, hyperinflation is the loss of confidence in paper as a proper valuation of goods and services. In sum, the two are very different causes of a devaluation of currency. One is based in beliefs based in strength of the underlying assets, while the other is based in beliefs of the weakness of purchasing power of money. The most important takeaway is both are created by beliefs and neither are based directly in the concepts of supply and demand.

Regardless of our current deficits, money supply, or central bank subsidies, if people are unable to see wage appreciation (mostly because of excess supply in labor and global pressure on wages) the US will not experience inflation. A simple look at the producer price index from April demonstrates this reality (0% price inflation). The reader can come to this same conclusion through common sense. If you were a business owner would you favor raising your prices to consumers today? If the answer is "No, the economy won't sustain increased prices," the disconnect becomes clear. Inflation is a vote of confidence that assets will appreciate versus the currency. Hyperinflation is the ability of a public to rapidly increase prices on fears the currency isn't worth the assets. The US cannot raise prices on either account because the average citizen doesn't have the currency in the first place.