What is Hyperinflation
Very accurate look at what inflation / hyperinflation is as well as some of the politics behind it. (I am trying to track the source)
Inflation is the increase in the number of money in circulation. This usually results in a “price inflation” meaning that with more money available, the price of every thing gets eventually bid up. When the Fed prints more money out of thin air (Bailouts 1 and 2) federal guarantees of Freddie and Fannie, BofA, Citi, GM, etc. this takes money out of productive projects (steals money from the citizens and gives it to someone else; like friends of politicians) but can and usually means price inflation is not too far away. This is exactly what happened during the Great Depression. First Hoover cajoled big business into maintaining high wage rates (usually one of the cures to recession/depression is falling wage rates) which resulted in fewer workers being employed (an unintended consequence of this government intervention which led to 25% unemployment). He also created various price supports for housing and all manor of crops. But these efforts made everything worse with deflation resulting. And to make matters worse raised taxes. FDR campaigned on a platform of returning government to its senses and severely criticized Hoover’s policies. After being elected, he continued the same policies but even worse. Both the actions of Hoover/FDR resulted in deep deflation, and an extended depression which ended up lasting through the end of WWII.
Hyperinflation happens when the users of a currency lose faith in the currency (there are too many, in our case dollars, with the result that the purchasing power of the dollar falls very rapidly. This can has has happened several times (post WWI Germany, Zimbabwe, Iceland, etc.) With China and Russia making remarks about the value of the dollar, and suggesting that the dollar be replaced as a standard currency for international settlements, and the Fed beginning to monetize its own debs (buying treasuries instead of selling them to foreign buyers, this could be the beginning of hyperinflation for the US.
Wikipedia offers a very general political neutral look at hyperinflation. Nice look at the huge denominations of currency that some countries printed in order to keep up with inflation. After reading the root causes look at the list of countries that have been brought to their knees by hyperinflation. Then ask yourself, “Under the current conditions, what makes the US immune from hyperinflation”?
In economics, hyperinflation is inflation that is very high or “out of control”, a condition in which prices increase rapidly as a currency loses its value. Definitions used by the media vary from a cumulative inflation rate over three years approaching 100% to “inflation exceeding 50% a month.” In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.
The definition used by most economists is “an inflationary cycle without any tendency toward equilibrium. A vicious circle is created in which more and more inflation is created with each iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply (or drastic debasement of coinage) usually accompanied by a widespread unwillingness to hold the money for more than the time needed to trade it for something tangible to avoid further loss. Hyperinflation is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.
Further information from this source can be found at:
http://en.wikipedia.org/wiki/Hyperinflation
From the Library of Economics and Liberty a very good technical article.
Inflation is a sustained increase in the aggregate price level. Hyperinflation is very high inflation. Although the threshold is arbitrary, economists generally reserve the term “hyperinflation” to describe episodes when the monthly inflation rate is greater than 50 percent. At a monthly rate of 50 percent, an item that cost $1 on January 1 would cost $130 on January 1 of the following year.
Hyperinflation is largely a twentieth-century phenomenon. The most widely studied hyperinflation occurred in Germany after World War, I. The ratio of the German price index in November 1923 to the price index in August 1922—just fifteen months earlier—was 1.02 × 1010. This huge number amounts to a monthly inflation rate of 322 percent. On average, prices quadrupled each month during the sixteen months of hyperinflation.
The rest of the article can be found here:
http://www.econlib.org/library/Enc/Hyperinflation.html
Here is a great Article from associated content on the hyperinflation suffered by Germany after World War 1. Please Note the problems caused by a nation that “borrows” to pay for any national program.
In 1914, just before the start of the Great War, the German mark traded at a value of four marks to one U.S. dollar, a rate roughly similar to the exchange rates of the British shilling, French franc, and Italian lira. With a booming industrial economy, Germany was poised for economic prosperity. However, the start of the Great War changed many things. Anticipating a short war, Germany announced that it would fund its military efforts solely through borrowed funds, rather than increased taxation. While war loans can be used as the sole source of funding for such operations, they rely on the borrowing nation to win the war and be able to impose reparation payments on its defeated foes. By the end of World War I, the German mark was trading at fourteen marks to the U.S. dollar as a result of Germany’s borrowing.
Read the rest of the article here:
http://www.associatedcontent.com/article/230204/from_princes_to_paupers_the_german.html?cat=37
Would you rather watch a video? Here is a look at the hyperinflation predicted for the US. The video covers a short definition of hyperinflation and the cause. The larger and more important part of the video is the current events driving us to hyperinflation. Towards the end of the video it gets a little preachy concerning gold/silver and commodities as an investment along with shutting down the Federal Reserve. However, if you can handle that then you will really appreciate the research that resulted in this work.
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