As the US economy deals with a likely recession next year, it may face a new threat: hyperinflation in emerging markets.
The world is on the path to "hyperinflation" and the worst economic climate since the end of the second world war, according to a letter from an asset management company.
The "everything bubble" caused by cheap money pumped into the economy during the Pandemic had left global markets vulnerable to high prices, according to a hedge fund.
The fund warned that the situation could descend into global societal collapse and civil or international unrest.
Hyperinflation isn't going to hit the US but it could affect the economy.
Hyperinflation happens when prices go up too much. According to the World Bank, inflation can grow at a monthly rate of 50% or more. There are previous examples that show how it can hurt.
In the wake of the first world war, Germany's Weimar Republic printed too much money to service debts and the prices of goods went up. The price of a loaf of bread went from $3.50 in 1922 to $1,200 in 1923, while households burned cash to heat their homes.
People were forced to pay for everyday goods with huge amounts of cash in Venezuela due to economic, social, and political upheaval. The value of its currency was wiped out.
In the cases of interwar Germany and late-2010s Venezuela, hyperinflation only happens as a result of deeper political, economic, and social instability. The US and other wealthy developed countries are unlikely to suffer a similar crisis, however emerging economies could get caught in a perfect storm of rising interest rates, sanctions on energy and food following Russia's invasion of Ukraine.
The director of Boston University's global development policy center told Insider that the combination of factors could set off a series of events.
The roots of the debt crisis for emerging nations can be found in US policy.
Other central banks have followed the Federal Reserve's lead in raising interest rates to make borrowing more expensive. The US is likely to go into a shallow recession next year.
Money was sent out of emerging economies to the US. A strong dollar and higher interest rates make imports more expensive and reduce the value of their currency.
He said that if you need dollars to pay for food, energy, and other things, you are in trouble.
The frameworks in place to protect emerging economies from hyperinflation and a debt default were not keeping up with the times.
A focus on supply-side reform, an end to the war in Ukraine, and a change in China's policies were some of the ways in which the threat of hyperinflation could be mitigated. The US will be subject to potential consequences.
Supply chain issues that are contributing to inflation in the US could be made worse if several countries default on their debts. The stock markets could be hurt more.
There is a possibility of a humanitarian crisis. Six million people were displaced by hyperinflation and violence in Venezuela.
The lack of action politically will hurt us around the world.
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