hyperinflation – (en)

Hyperinflation is an extreme case of monetary devaluation in which prices increase as rapid and out of control as a currency loses its value. Normal concepts of value and prices become meaningless, so, frequently, people go back to trading and bartering and, by this way, try to avoid the loss of the value of money.
If the price rise is up to 3% a year, it is called ‘creeping’, a 3% to 10% rate is known as ‘walking’, and more than 10% is known as ‘galloping’. When the rate of inflation is unusual or too high (say 50%), it is termed as ‘hyperinflation’.
This catastrophic economic situation, although a rare event, has occurred many times throughout history, and affects almost everyone, therefore it is hard to avoid. Germany between the world wars experienced inflation that reached 322 percent per month. Hungary incurred 19,000 percent inflation briefly after World War II, and more recently, Zimbabwe’s inflation rate peaked at 231 million percent. In every instance, inflation was caused by the government printing too much money, either to provide social services that it could not afford or to pay off debt –war reparations in the case of Germany, foreign debt in US dollars in Zimbabwe’s case. In Germany, workers were paid twice daily and given time off to shop because the money they were paid in the morning was worthless by evening. In 1918, you could have bought five hundred billion eggs for the same money that would cost you, five years later, a single egg.
Hyperinflation can occur when a country increases its money supply while its gross domestic product stagnates or shrinks. Generally, is a man-made disaster, a function of mismanagement. When Central Banks struggle to spur economic growth, the orthodox monetary policy tool is quantitative easing (QE), which provides capital to financial institutions. This capital theoretically promotes increased liquidity and lending to the public, since the cost of borrowing is reduced because there is more money available. But sometimes the result is not the expected, with banks hoarding money and corporations using debt to fund buybacks, both factors that make the economy to slow down. Consequently, Central Banks end up looking for new ways to spark economic growth, such as «helicopter money,» which provided an alternative to quantitative easing (QE). Unlike helicopter money, the effects of QE could be reversed by the sale of securities.
Helicopter money involves the central bank or central government supplying large amounts of money to the public, as if printing giant gobs of money out of thin air and dropping it from helicopters over the countryside.
One of the primary risks associated with helicopter money is that the policy may lead to a significant currency devaluation in the international foreign exchange markets. The currency devaluation would be primarily (but not only) attributed to the creation of more money. Historically, all money printing experiments ended badly.
Contemporary examples of the failure of Modern Monetary Theory (MMT) include Zimbabwe, Venezuela and Argentina. The main reason for the failure of MMT in these sovereign states is their need to borrow in foreign currencies because they typically transact with trading partners in US dollars and not in their own fiat currencies.  Printing money in their sovereign currencies has stimulated domestic demand, but domestic supply has been unable to meet the demand, particularly with specialization in production under globalization.  Hence the disequilibrium from deficient domestic supply was remedied by imported supply from foreign countries, resulting in chronic trade deficits, current account deficits and mountains of foreign debt.  Printing domestic fiat currencies to meet financial obligations in foreign currencies led eventually to the destruction of the domestic currency and hyperinflation.
ZIMBABWE. 100,000,000,000,000 (1X10¹⁴) ZIMBABWEAN DOLLAR BANKNOTE. 2009
Practical financial protective measures
If you fear that currency will be debased, you must find alternative ways to store value and stockpile assets that will hold value. Items such as jewelry, fine art and antiques are excellent ways to protect wealth, but they are not readily tradeable if you need to barter for food and necessities. Precious metals such as gold and silver are excellent assets to hold but be sure to have some in small increments for modest transactions. Other barter items could include liquor, cigarettes or flashlight batteries. You might wish to hold part of your assets in an offshore account. If you had access to foreign currencies you could buy a flat, with the payment due sometime in the future. This would allow you to get it for a fraction of the asking price.
HUNGARY. 100,000,000,000,000,000,000 (1X10²º) PENGŐ BANKNOTE. 1946
Practical physical protective measures
Depending on the severity of a hyperinflation, survival may become an issue. People who live in cities and have no food source other than what they can buy with currency, which rapidly becomes worthless, have a serious problem. Maintain a three-month supply of food, medical supplies, toilet paper and a reliable way to cook in case there are power outages. A scooter or motorcycle –even a bicycle– provides reliable and inexpensive transportation. A portable shortwave radio can keep you in touch with the world. If your income allows it, buy some farmland. Even several acres can produce food much cheaper that you would find at hyperinflated prices at the grocery store.
Hyperinflation – Dugutigui

Acerca de Dugutigui

In the “Diula” language in Mali, the term « dugutigui » (chief of the village), literally translated, means: «owner of the village»; «dugu» means village and «tigui», owner. Probably the term is the result of the contraction of «dugu kuntigui» (literally: chief of the village).
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9 respuestas a hyperinflation – (en)

  1. barbaric dijo:

    Muy buenos.. jaja!! Yo he salido de cena con 170.000 de «Cedis» en Ghana.. jajaja… ; )***

  2. barbaric dijo:

    Jaja! sí, todo el día contando pasta y con las mochilas hasta arriba de billetes de aquí para allá.. very funny!! haha!! ; ) ***

  3. Yes, I have lived this myself in Romania after the Revolution in 1989… It was really tough, you bought a bread with a price in the morning, a double one at lunchtime and a triple one in the afternoon… That was a time when my mom, a lone parent with a minor child , had to face unspoken stress and problems to keep us alive…
    the human tragedy is direct proportional to the number of zeros on those money… there are things people will never understand unless they live them…

    • Dugutigui dijo:

      You are right, many people never experimented this kind of situation. I did. In the market they used to put the new price labels at the opening, and at the end of the morning, when you were around the supermarket with the cart, one clerk will follow you correcting up the prices of what you were buying, rather unpleasant … hahaha … for everyone, of course 🙂

      • That is tough, and the toughest it is if you dispose of a limited amount of money… as you say, it is unpleasant but also humiliating if you happen to no longer afford the thing you wanted to buy… Crazy world, really… 😀

  4. oh, there’s the comment, it must have been an error… 🙂

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