Comment by swombat | Hacker News Reader

Comment by swombat | Hacker News Reader

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Of course there is no "real value". However, inflation is not solely the result of the government's wishes to inflate the currency (as examples of hyper-inflation obviously show).

Inflation is also simply in the minds of the people using the currency. If everyone expects high inflation, and keeps raising their prices to match their expectation of inflation, then inflation will happen - the raising of prices will ensure that. And if you try to fix that by force, as you pointed out, the inflation accelerates even more, because it's now happening in a black market with even more waste.

The way they fixed inflation in Brazil was, it appears, by changing people's expectation of what should happen to currency. They had to get everyone to believe that the brazilian currency can be stable. The mechanism they used to do that was the cheap trick of creating an alternative currency and calling it "real". It may be a cheap trick, but from the look of it, it worked.

No, inflation is not only in people's minds, it's a real measurable monetary phenomenon.

Sellers can raise prices but if there is not enough money to pay the price then no transactions occur, The sellers would then have to lower their price to sell the items.

In other words an increasing rate of inflation throughout the economy can only occur if there is enough money/credit available to pay the higher prices. You need more money available, an increasing money supply.

What's wrong with this NPR article is for everybody to think a "cheap trick" is what made it work. No, the tight fiscal policies (ie balanced budget) enacted by Brazil at the same time made it work.

The ideas in this article, coupled with Krugman's debt default idea is sending you down a river to a waterfall.

What debt default idea?

The price of goods can vary somewhat based on public sentiment, but the underlying cause is the printing of money. And it is correct of the public to mistrust a government that has proven untrustworthy in the past. The first steps to regain confidence are to end money production and cut expenses. A drunkard can't be trusted unless he is seen without a bottle first. So basically the government cleaned up its act first, there was no deception. If deception had indeed happened, money production would have still accelerated.

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