If you have noticed over the last couple of decades the interest rate spread tolerance in the economy has narrowed. At one time the economy could bear an interest rate hike that is no longer the case. That is normally a sign that the fiat monetary substructure of the economy has reached the terminal point in its life-span. There comes a point when the massive debt upon which the entire fiat monetary system rest becomes so saturated that it begins to siphon off all economic viability from commerce. You may have also noticed that at one time it took far less stimulation by the government to induce economic growth, now it takes a great deal, in fact there are some estimates that to achieve $1.00 of economic growth it now takes nearly $7.00 of government direct and indirect intervention. This too is a sign that the fiat economy is in a terminal stage.
Another problem is that such a contraction, via a drastic rise in interest rates, would absolutely destroy the economy within a short period of time. Remember, part of the problem we now face is due to the FED tightening credit a couple of years ago, this pulled back the curtains on other problems, particularly in the housing sector. Every artificially induced BOOM will eventually BUST, the question is what will be the extent of the BUST and the extent of the reaction taken by the FED? Obviously, just judging from the government’s CPI numbers we are not actually experiencing a deep deflationary slump at the moment; in fact even oil is still above 2003 pricing levels. Food prices are, based on the CPI, still hitting over 6% inflation rate, along with most other sectors measured by the CPI. So, something else is going on, something that is hidden from view. That which is hidden from view is systemic insolvency. This government has been technically bankrupt for the last several years, but now we are witnessing it move into effective bankruptcy. The only difference between a business and the government is that the government can continue to print money to use in its bankrupt state, but only for so long.
Now, all these factors are involved with what is happening this is not the same economy it was even 10 years ago. The FED, in its history, has been a dismal failure if we are looking at its mandate verses its record. Any system that contravenes the natural market forces will always eventually fail. Like all fiat monetary systems eventually reach the terminal point in its life span, so too does the manipulation of the market.
The FED is not, nor has it ever been omnipotent when it comes to money or the markets. Since 1913, it has inflated away nearly 97% of the purchase value of the Dollar, that fact alone eventually has an effect on the overall economy. Since every Dollar is nothing more than a legal notification of a debt obligation, in other words, an IOU, the economy can only operate with double liabilities for a determinate length of time. Similar to our “national debt” it is absolutely impossible to pay that debt down or pay it off under a fiat economy. All that has been done, similar to the Social Security Trust Fund, is a huge Ponzi scheme. They swap old debt for new debt, borrowing and re-borrowing to satisfy the debt obligation; that too can only continue until critical mass is reached and the system begins to implode. We are now seeing the beginning of that implosion.
If you look at historic fiat systems you will basically see a similar pattern of destruction that we are now witnessing. Everything associated and dependent upon the fiat Dollar will meet the same fate as the currency itself: total collapse.
The FED has injected more money in the last few months than has ever been injected in the history of our country in an attempt to keep the life-support going, it will not work.
Hyperinflation is not just a monetary event; it is not like regular inflation. Hyperinflation is a combination of rapid and massive monetary injection combined with a loss of confidence in the money. Normally, as I stated, hyperinflation occurs when there has been a deepening deflationary event combined with a massive response from the issuing institution or government. The people lose confidence in both the money and the government, they lose their trust in the government to provide solutions and the lose confidence in the value of their money or in its security.
In such cases there is no way the FED could control any excesses. Likewise, if there is even extremely high regular inflation, it will be very difficult for the FED to “mop up liquidity” in the very fragile economic environment in which we now live, by doing so, it would simply bring about another massive BUST. In fact, we have been seeing cycle after cycle take place as the FED tries to balance on the edge of the razor. This is a very different economy than the one that Volcker had to deal with, in fact, just about everything is different. There are some very odd things taking place and even odder reactions from the FED, things that have never been done in this country. As I said, they are fighting much more than a simple BUST cycle and we should prepare for what comes next.
I'm more familiar with Mish at this point, so I can't decide yet. Oh, the pressure! 
