This is why a hedge fund fears 'hyperinflation' in developing nations

Another consequence of that policy was to send money out of emerging economies and back to the US. A strong dollar and higher interest rates attract capital, Gallagher said, reducing the value of their currencies and making imports more expensive.

"If you need dollars to be able to pay for food, energy, and just about anything else you import, you're in trouble," he said. While Gallagher said hyperinflation wasn't happening yet, the frameworks in place to protect emerging economies from hyperinflation and a debt default were breaking down, leaving countries to fend for themselves.Gallagher said an end to the war in Ukraine, China loosening its aggressive pandemic policies, and a focus on supply-side reform were the easiest way to neuter any threat of hyperinflation in emerging markets. Adding that the US won't be immune from potential consequences.

If several countries defaulted on their debts, global trade could be hampered, exacerbating supply chain issues that are contributing to inflation in the US, he said. Stock markets could also suffer more pain. A humanitarian crisis could also beckon. Hyperinflation, in addition to violence and shortages, displaced six million Venezuelans,"Impacts in the US might not be huge in terms of economics, but the lack of action politically will hurt us globally," Gallagher said.Subscribe to push notifications

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