Economist John Williams of ShadowStats.com stated in an interview that the budget crisis of the US government could lead to a sell-off of the dollar in May. The federal government is simply insolvent with no hope of resolving the budgetary problems due to gridlock, according to Williams.
He also suggests that a dollar sell-off could trigger the beginning ofhyperinflation. While this is certainly possible I don’t think the Federal Reserve will allow hyperinflation to happen, which would be 50% inflation annually or more. There is simply too much awareness of the central bank and its culpability in causing inflation and dollar devaluation, thanks to Ron Paul.
And hyperinflation would mean destroying all of the government pension programs, which the Fed certainly would not want to be blamed for.
But we could be facing a situation of mass inflation, however, which would be inflation rates between 20% and 30% per year. Obviously this level of inflation would be devastating to the middle class.
It can never be predicted exactly when these scenarios will play out but we can be certain that something will have to give eventually with federal budget. Sooner or later people will stop lending to the government when confidence in its ability to pay them back is totally lost.
Watch the interview: