Update: I expanded the post below into a more general Hyperinflation FAQ. I also update that post from time to time. I recommend readers go to that instead of this.
Mish wrote another post on hyperinflation, something he has called nonsense many times. I think he is wrong about hyperinflation in many ways.
I think Mish's biggest mistake is that
he defines hyperinflation differently than everyone else. The International Accounting Standard of IAS 29 says there is hyperinflation when "the cumulative inflation rate over three years approaches, or exceeds, 100%.". This works out to 26% per year. I have seen many other definitions for hyperinflation but they almost all have something like "inflation over X per year" or "inflation over Y per month". People pick some inflation rate as the cutoff between regular inflation and hyperinflation. It is just the values for X or Y that differ. Mish; however, looks at
the typical end result of hyperinflation (currency becomes completely worthless)
and then defines that as "hyperinflation". This is wrong.
Hyperinflation is the journey, not the end result. It is the time of
high inflation, not after inflation stops. Hyperinflation is a process, a positive feedback loop, that once entered is very hard to get out of. This process can go on for years.
Mish thinks there is no chance of hyperinflation for the US dollar. Hyperinflation happens when debt is
over 80% of GNP and deficit is over 40% of government spending. The US
is at or near these numbers, so the danger of hyperinflation is real. What happens is that the more the central bank
prints money and buys bonds the less other people want to hold bonds. But the
less other people hold bonds, the more the central bank has to buy them
so the government has enough money to spend. You get a positive
feedback loop or death spiral. Please see my writing on hyperinflation.
Mish thinks that the US having around $400 billion in gold would prevent a complete loss of faith in the currency. Having assets could delay a complete loss of faith in a currency, but does not help so much at preventing inflation over 26% per year. It does not matter how much gold the US is
holding if they are spending 50% more than they get in taxes. They will
have to keep printing money, so there is not a finite amount of paper money. With a constantly increasing quantity of paper money it is not possible to hold any fixed exchange rate of dollars to gold. It is the debt and deficit and the fact that when
the government will always get the central bank to print money and buy
government bonds when things get desperate that causes hyperinflation. When France took the extensive church land holdings and used that to back a currency they still got hyperinflation. By Mish's logic this should have prevented a complete loss of faith in the currency, but it did not. The ongoing deficit meant there was not a finite amount of paper money. I highly recommend this article on France's experience. A more recent example is hyperinflation in Iran even though they have huge amounts of oil, which should have protected them if gold could protect the US.