Hacker News Reader

Comment by jacquesm | Hacker News Reader

Hyperinflation can have positive effects too for the population: borrow money from a bank to buy a house, see the currency hyperinflate, pay off the debt with a week's worth of work. It's obviously terrible if you have savings, but for those in debt it is pretty good.

View on HN

I lived in Zimbabwe through the hyperinflation era. While true that going through hyperinflation means that your debts are essentially forgiven, there are so many negative knock-on effects in the economy and society as a whole, that you'd have to have a pretty massive debt for that kind of hyperinflation to have a net positive utility for you.

Would you mind sharing some stories about what it was like during that time?

Some stories:

A friend at school brought a giant stack of $500 Zimbabwean bills to use at our school tuckshop. This stack of bills was probably about 2 feet high. This was in 2007, and at that point a meat pie or coke must must have cost tens of thousands of dollars at minimum at the tuckshop. It had probably been a while since I'd seen someone actually try to use such a small denomination bill... I asked to hold his stack, but as I was holding it, some of the bills started falling out of the middle. This was during our recess/mid-morning break, and there were a lot of kids standing around. Someone saw this money fall on the ground, and naturally came over and started throwing it in the air ("making it rain", like Lil' Wayne) and soon more joined in. The school headmaster just happened to be walking by (a large, grim-faced white man) and demanded to know who was responsible for all of this. My peers pointed me out, and I got corporal punishment the next day.

Power cuts were constant (daily at their peek) and we didn't have a generator, so I did my homework by candlelight. The city of Harare stopped delivering water to our residence in 2007, and AFAIK haven't resumed...

Another memory that sticks out is when my dad said "hey, let's go get some petrol for the car". This was at 7 or 8 pm, so I got in my pajamas, and we drove to the neighborhood gas station, where we waited over night to pour a few litres of petrol in the car. I didn't even think _that much_ of it: I'd grown up in an era of shortages and economic decline, and the situation only became worse in my teenage years.

Thank you for sharing your stories. I hope you and your family was able to immigrate someplace more stable.

Except that no one is going to sell you anything for such toilet paper money, banks do not offer any credits, and everything is calculated in USD or EUR that become really, really scarce. Basically, all "official" commerce that uses worthless, hyperinflated, currency ceases, and commerce moves to unofficial grey/black market that does business in hard currency. Add to that the problem that the salary at your official job (if you have any) pays in funny money, so you have an additional problem of earning much needed USD/EUR elsewhere.

This is all from experience since I lived through Yugoslavia's 1992-93 hyperinflation (fortunately, as a teenager).

It is good for those who have current debt. But bad for that same class of people in the society who will want to borrow in the future. The forceful voiding of long term contracts is rarely good for the population as a whole.

Aren't most mortgages effectively inflation-adjusted nowadays? I know that my parent's monthly payments have been pretty low, thanks to the low levels of the Euribor rates.

Not in the US, where majority of mortgages is 30 years fixed.

You'd think so. When I looked at my mortgage paperwork a few years back in the US I looked for what I thought was standard "3 consecutive quarters of high interest rates" and couldn't find anything to imply my rates will ever change. I'm still not convinced I have a truly fixed rate mortgage, but it seems inflation has been so low for so long in the US, it's fallen out of standard mortgages here...

> Aren't most mortgages effectively inflation-adjusted nowadays?

Not in the US. After the housing bubble popped, ARMs became much less common. Plus, with rates at historical lows, it does not make sense to get any adjustable products.

Only if your wage is compensating for the inflation, which according to that article wasn't always the case (-80% for the workers once adjusted to inflation)

Yes, it depends on other factors too. But for instance in Poland during the time of the hyperinflation of the Zloty plenty of people paid off their mortgage that way.

Banks got hip to that pretty quickly and later mortgages were in Euros while the salaries are still in Zloty, which should be illegal imo.

Strongly agree: banks should handle the risk management, not push it onto consumers, forcing them into mismatching hard currency obligations with soft currency revenues. But this isn't surprising as banks are engines for gouging customers and shareholders by channeling margin into management bonuses.

I we had better Job security. A dignified retirement system. Perhaps a job guarantee or transition job for the unemployed, there would be little need to save. Savings causes recessions.

Savings are always important because it allows you to be opportunistic with your wealth. Using it when you lose your job is one opportunity. People also use savings to start a business, buy dips, help out family members.

> Savings causes recessions

If you save in traditional savings accounts, those become reserves against which banks can lend.

If you save in money market funds, those become available in the commercial paper market for businesses to fund daily operations.

If you save in sovereign debt, those become available for government programs.

If you save in equities or corporate debt, those become available to employees, new projects, other shareholders, etc.

The only scenario in which savings contributes to demand-driven recessions is if you literally withdraw cash and place it into your mattress.

Which is why governments bail out banks

No, they typically bail out banks because otherwise the government is on the hook for the shortfall anyway because of the federal insurance of the individual accountholders balances.

No that is ignorance. Their is no such thing as a loanable funds market. I have studied this in depth and ad nauseum. Banks do not lend out savings. This was true in the era of the gold standard but is no longer the case with modern fiat money. Essentially, banks create money(deposits) out of thin air based upon rules and regulations they must follow. They have reserve requirements, however, these do not impede their ability to make loans/deposits because reserves may be borrowed.

Reply on news.ycombinator.com