The hyperinflation gallery
lcamtuf.coredump.cx
lcamtuf.coredump.cx
1. In the Weimar Republic, Germany's productive capacity was devastated by WWI.
2. In Zimbabwe, which was "the bread basket of Africa", farm productivity famously plummeted due to the land redistribution policies of Robert Mugabe.
3. Looking at the current crisis in Sri Lanka, the forced switch to organic farming similarly destroyed farm productivity.
4. Though I wouldn't call it "hyperinflation", the COVID pandemic clearly caused shortages throughout the economy.
My point is that hyperinflation is rarely just caused by governments living beyond their means - the trigger is nearly always a supply shock, and then it's what governments do in the face of that supply shock that gives you hyperinflation.
If there is any sort of supply disruption in oil domestically, it's going to be the perfect storm. OPEC+ will be all too happy to have "maintenance issues" that same week and boom, $300 barrels of oil for the US, a functionally empty SPR, and we get to witness that mix of incompetence, desperation, and power that results in catastrophic ideas.
For maximum devastation, this happens close to the Presidential elections.
Or don’t.
And then regardless who is president this happens anyway because there is no economic policy in existence that will give you forever cheap gasoline and oil unless we have some miracle breakthrough technology like fungus growing oil or something.
OPEC+ won’t have “maintenance issues” because while they have a stranglehold on oil production, there is a pain point where malfeasance would result in US military action to get oil flowing again.
The most urban dweller who hasn't seen the inside of an automobile in 20 years will find his way of life changed dramatically with crude oil at $300 a barrel. Not to mention the billions of people around the world who would like to maybe have a chance at driving to a Costco one day who will instead suffer and die young. There is some good to come out of cheap energy.
I would say the truly necessary component to the hyperinflation phenomenon is the existence of privileged borrowers. When inflation is high, market interest rate is also high. To benefit from inflation one must be able to borrow at below inflation rate. With credit money borrowing is what creates new money. Often it's the government that chooses this over taxation for its own funding. Other times there may be other entrenched private interests who enjoy such privileges.
Its a psychological phenomenon. Lock people up for 2 years and they will want to go crazy when they get out.
Its the same reason why alcohol consumption is up and so is smoking for the first time in some years. Drug consumption is also up.
Appetite for debt is also up, anecdotally I have been thinking a lot recently on how being debt free causes me to leave lots of potential consumption, experiences and general quality of life on the table. All those things could be financed with debt. Never had such thoughts in the 2008-2019 decade
All sorts of violence is also having an uptick on a chart which is secularly going down.
I will go to my grave thinking that Putin would have never invaded Ukraine had he been able to host his monthly “kiss my ring” cerimonies/parties with his cronies. Instead he self isolated for 2+ years and he still mostly is.
Social isolation creates all sorts of pent up energy of all kinds
That does seem to have some acceptance among people who (seem to) know what's going on. During the worst of the pandemic, nobody could meet with Putin without undergoing significant quarantine time first. Some reports say it was a matter of weeks.
As a result only the most hardcore of the hardcore yes-men were granted an audience with the Little Czar. Competence, economic and military knowledge, and sound judgement were complete non-factors.
The Ukrainians, the Americans, the Chinese by all means, everybody everywhere had to suffer through the pandemic of really isolation. Serious isolation. Pretending screens were people, the only place you saw people's whole face was on Zoom.
New reality. We are all in it now.
Only two industries call customers users.
Only two kinds of lockdown.
tl:dr its easy to run a successful casino when you are funding it with drug money. Zimbabwe only ever had two options get robbed or get robbed, at least now the locals actually owned the land. The inflation was retaliation for standing up to the bullies!
Could you provide sources?
What is more likely:
1. stupid Africans just can't get things done
2. they tried to get some control of their production and their white friends abroad didn't like it one bit
It was so obvious.
To have value, theories must be met with reality.
This is why providing actual sources is useful.
Gtex555 made a very specific claim: "In truth the whites were stealing minerals and precious metals from the country on the cheap and laundering that money as farming proceeds giving the impression of this bread basket cause it was all funded by illicit funds. When they were kicked out they continued to steal these minerals through bribing the top officials but the only difference was there was no-longer an incentive to send the money back into Zimbabwe and hence the farming was no-longer supported by illicit funds and it collapsed."
It should not be particularly difficult to find at least some evidence for that claim. There are voluminous reports and investigations of government corruption all over the world.
And yet, your response is basically "I'm not really concerned with the details, I'm just going to believe what I choose to believe because that fits more closely with the narrative that I identify with".
Some of us still believe that evidence matters.
Please excuse my short form scepticism. And it has to be said: you made some good points.
1. Dictator redistributes land to his cronies and gangs of armed men (crucially not the people who worked on the farms who might actually have been able to run them efficiently). This has the same effect as when tried everywhere else regardless of the colours of people involved: production drops. When Zimbabwe goes from being a net exporter of food to a net importer, people lose confidence in a currency which was already extremely prone to inflation.
2. Actually the halving of agricultural production was a sign of how successful the "land reforms" were, and everything else that happened was all the white people's fault
A bunch of those farmers moved elsewhere and started successful commercial farms. The rest just had all their wealth destroyed and will never get it back. A lucky few went to court to try legal means to address this or sold in time.
Most farms (and entire businesses) that were stolen were given out as favors to connected ruling-party officials and the scraps were given to the poor with no training or support, guaranteeing their failure.
Clearly, it has something to do with fiat money.
(The Revolutionary Government also had massive inflation, and the Confederacy, too. What characteristic did they share? Fiat money.)
If shortages caused inflation, then one would expect to see corresponding deflation when those shortages eased. But that doesn't happen.
https://en.m.wikipedia.org/wiki/Hungarian_peng%C5%91
Economies are complicated dynamical systems, I think we can all agree that there are many possible variables in the inflation equation.
"It was valued at 12,500 korona, and defined as 3,800 to one kilogram of fine gold – which meant that the pengő was pegged to the gold standard, but without exchange obligation."
Which means it can be inflated at will. The US did the same thing, pegging the dollar to gold, then inflating the paper money. The result was fiscal collapse leading to the Great Depression. The fix was to make it illegal to exchange dollars for gold, making the "gold standard" a complete fiction.
The inflation of the US currency happened much later. Roosevelt banned private holdings of monetary gold and gold certificates, incentivized gold imports and gold production which lead to the inflation. That was nearly 5 years into the depression though.
It does not when the money is not convertible to gold. Such is a fictitious gold standard.
The bank runs in the Depression were caused by inflation devaluing the value of a dollar by about half since 1914, yet was still convertible to gold. People suddenly realized they could DOUBLE THEIR MONEY by converting their paper money to gold. So they ran to the banks to do this. Of course, there wasn't enough gold to support that, and the banks collapsed. The runs did not stop until FDR made it illegal to exchange dollars for gold.
> The inflation of the US currency happened much later
Check the historical inflation figures. The dollar lost half its value 1914-29.
Regardless of being officially pegged to gold this is where they went wild printing all new notes for which there was no physical backing.
Leaving their precious metal reserves more valuable to other countries than their own. They probably continued to hoard them anyway.
>Economies are complicated dynamical systems, I think we can all agree that there are many possible variables in the inflation equation.
No doubt about it, there's simultaneous equations for which solutions are not well-known, obvious, or forthcoming.
In this example, the only important variable was M, as expected.
Deflation does occur when shortages ease in those sectors (see oil & gas prices), but inflation due to shortages does increase the general price level (including wage prices) and there is a degree of 'price stickiness' in the economy (workers generally don't get pay cuts - layoffs are easier perhaps) so the higher price level remains. You might expect below average inflation in the short term, but inflation expectations probably linger to some degree.
Deflation occurred on the gold standard, as prices are not that sticky. Besides, a general price increase doesn't occur without an increase in the supply of money relative to the value in the economy. That doesn't happen unless the printing press is run.
> The 1800s were hardly an economic paradise though, the wild inflation/deflation cycles were destructive.
Every one of those was caused by government meddling with the currency.
Why is 9% inflation (what we have today) not destructive? It certainly is destructive to my finances.
We have approximately 0% inflation today (at least, the monthly—not the headline 12-month trailing, but the actual amount for the month—number for the last two months has been between 0% and 0.1%; 0% to a little over 1% annualized.)
The 12-month trailing is 8.3%, but it takes a while for the 12-month trailing to reflect current conditions, when there is a change, for reasons explained by the name.
Meanwhile, prices on a lot of things I buy doubled.
US Gas prices are $3.68 a gallon, down from over $5 a few months ago. That's hardly inflation.
https://gasprices.aaa.com/state-gas-price-averages/
Picking a random date about 6 months ago it was $4.25
https://web.archive.org/web/20220310032222/https://gasprices...
Lumber prices are down 65% since March, about the same as this time last year, and indeed back in 2018
https://markets.businessinsider.com/commodities/lumber-price...
This is not symptomatic of hyperinflation, it's symptomatic of supply being lower than demand, causing an increase in supply or a decrease in demand, which takes time
If gas prices drive inflation, why are we not seeing deflation from the gas price drop?
This stubborn hand-wavy argument that prices stay high due to greed smacks of economic illiteracy and White House propaganda.
If I raise the price of a gizmo I'm selling by 20% because my costs went up, why would I reduce the price when my costs go down but demand is still high? I like my increased profits, and so does my competition. The myth of perfect competition is a exactly that: established companies do not engage in races to the bottom, "cartel" behavior is emergent.
How does your perfect competition theory explain why tuition prices have been going up over 5+ decades, vastly exceeding inflation?
Because Apple keeps making the phone better.
> How does your perfect competition theory explain why tuition prices have been going up over 5+ decades, vastly exceeding inflation?
I didn't espouse a "perfect competition" theory. That's your strawman. Anyhow, tuition prices have gone up because the government provides rivers of cash to prospective students. The pool of students thus has gone up drastically, and because of limited supply of colleges, and vast demand by students with fistfuls of cash (and little sense), the tuition went up. A lot.
Changes in costs also take time to filter through the economy, and indeed in the last 2 months prices have come down (CPI in June was 296.311, in August it was 296.171)
No, when consumer prices (not inflation) goes up, there is inflation, and when they don’t, as they have not (overall) in the last two months, there isn't. That’s the definition of inflation.
> Meanwhile, prices on a lot of things I buy doubled.
So... assuming that's over a 12-month period, there are some things that you buy that have been affected vastly more by inflation than even the highest overall sector of the CPI (fuel oil, +68.8% over 12 months.)
Not sure what general importance you want assigned to this or why.
None of your argument supports that it isn't calculated honestly, just that you don't like the particular choices. And it doesn't help that you misrepresent them.
> For example, Owner’s Equivalent Rent is used, not actual rent that many families are struggling to pay.
Actual rent is used for renters. Owner’s equivalent rent (imputed rent) is used instead of asset purchase costs to assess the consumption cost of housing separate from the cost of acquiring a durable asset for homeowners.
> In addition, the Fed’s core inflation number is ex food and energy prices, which is also misleading.
The headline number is the full CPI, not core CPI. Core CPI is also reported, and may be used for some purposes by certain consumers of CPI data, but it's not the headline figure/main measure, so disagreement with its appropriateness as the main measure is fine, but a beating a strawman.
This is simply false. Firstly CPI includes both rent and owners equivalent rent, weighted in proportion to the people that rent and own houses respectively. Secondly, OER is calculated based on estimates of current rental prices. Plus of course including OER rather than treating rent as something homeowners don't have to worry about tends to increase CPI when rents rise fast...
> In addition, the Fed’s core inflation number is ex food and energy prices, which is also misleading.
"Core inflation" is a separate time series to the CPI, clearly reported as an alternative measure excluding volatile energy and food prices to compare with CPI.
The only "misleading" is people ranting about how a separate dataset created specifically for comparison purposes proves dishonesty on the part of those calculating CPI...
Inflation follows the money printing with a lag of around 13 months. The government just printed a trillion dollars to erase student loan debt. Get ready for another round of inflation. Also the "Inflation Reduction Act", another free-spending bill which will add another chunk to inflation.
No, it doesn’t. At least, the present administration hasn't been.
> When inflation is rising rapidly, they push annual inflation figures. When inflation is moderating, they push monthly figures.
The present administration has been fairly consistently focusing on the monthly 12-month trailing figure, which has also been the headline number for, well, ever.
> Inflation follows the money printing with a lag of around 13 months.
Looking at the history of monetary policy changes, QE rounds, and monthly inflation rates, there’s absolutely no support for that at all.
Look at the money supply changes layered over inflation.
If you want to convince us, you're going to have to do more than just say "look at the data" and repeat your previous point. Specifically what data are you looking at, and over what time frame, and how do you think it demonstrates your position?
Not quite true, they are correlated but not linked 1:1 see 2020 and WW2. Think of economics a bit like the dual nature of light, not one theory can explain it. The 'Austrian'-school types believe this though, so maybe be where you have heard it?
> Why is 9% inflation (what we have today) not destructive? It certainly is destructive to my finances.
No, I didn't say 9% was good. It obviously reduces the value of savings materially, 2-3% y/y doesn't.
Yes, it does, just not as much as 9% does.
Inflation is not hard to understand. It is always a monetary phenomenon. When the money supply increases faster than the value in the economy, you get inflation (because of Law of Supply & Demand, which no government has yet succeeded in repealing).
The rising cost of gas does not cause inflation, because when gas prices go up, you have less money to spend, and hence other prices come down.
How do you reconcile that with the fact that there was uncontrolled inflation before fiat money?
I don't mind 3% inflation, when I have low-risk investments that earn >3%.
I do mind 9% inflation, when my low-risk options earn <6%.
(To pull some random demonstrative numbers out of a hat)
And I think it's specifically the broadness of access to the sub- or supra- inflation investment opportunity that matters. If only some, limited-access opportunities exist, then it still hurts.
Which I guess is another way of saying economic-growth-vs-inflation is the important metric, with a dash of central bank policy.
In defense of fiat money... it is a powerful tool in the hands of a responsible macroeconomic manager. Emphasis on powerful & responsible.
It's still entirely possible for the value to vanish rather than the supply of money causing inflation. The disappearance of Russian gas from Western markets, for example. Energy is such a critical input that an energy price increase manifests as a general price increase.
A demand for zero inflation is a demand that $1 now and $1 in a decade should buy you the same amount of gas, which .. will not continue forever.
> A demand for zero inflation is a demand that $1 now and $1 in a decade should buy you the same amount of gas, which .. will not continue forever.
Gas prices do not cause extra money to be printed.
The money can come from a shift in the debt/savings profile, in the reallocation of business investment, or a shift in the demand for speculative assets. It's not really a coincidence that as the fuel price has gone up the gold price has gone down not up: https://goldprice.org/gold-price-history.html
There's a big spike around 2020 for inflation fears, but the gold price doesn't track the price level numbers in ways that hard money fans want it to.
Gold did perhaps not decay the same way, but if the harvest was bad one year, the price of grain could go up radically, so saving grain directly was safer. Also, grain was harder to steal.
As society became more complicated, one could pay a goldsmith to store the gold in a vault, though there was still a risk that the gold would be lost to fraud or robbery, eventhough the vault was still probably safer than to store gold in private homes (if you did not live in a castle).
Up until this point, the time preference of money would tend to be negative whenever people were saving. Better to eat normal today and be sure to have enough next year, than to eat double today and maybe starve next year.
Some goldsmiths would lend this gold to lenders, at an interest, and the honest ones would pay the depositors an interest in turn, to compensate for the increased risk. Still, it did happen that banks went bankrupt, and deposits would be lost.
Only in the last handful of generations have governments guaranteed the bank deposits, and only for a limited amount.
Meanwhile we had the industrial revolution, and the population and economy was booming more or less for 200-250 years. This, combined with the growing banking system, caused a positive time preference for money, and people started to expect that saving was not only safe, but should also produce profit, not just safety.
Lately, however, both the economy and population have stopped growing, more or less, and the time preference of money is roughly back to neutral, if not slightly negative.
In such an economy, it simply doesn't make sense to have a currency that allows people, without risk, to "teleport" wealth from now into the future. We already tried that in 1929, with deflation causing mass economic destruction. A lot of savings were still lost when banks went bankrupt.
With a moderate interest rate (ideally around 2%), the economy can handle a somewhat negative time preference for money as much the population gets older and less in need of instant consumption. When the interest rate for deposits is lower than cash savings, the difference can be seen as the insurance premium for relatively risk free storage of value. Those who want a profit (or at least lose less), have to accept some more risk, and invest in other, riskier asset classes in such times.
As long as the interest rate is low, the currency still functions as intended as a medium of exchange and measure of value, while still being tolerable as a short term store of value.
Clearly, though, as the inflation goes to 10% and beyond, all features of the currency are hurt.
But next time you're annoyed that your deposit falls in value about 2% in a year, just imagine how it would be if you were saving grain in a silo, and found that the rats had been eating half of it.
> it simply doesn't make sense to have a currency that allows people, without risk, to "teleport" wealth from now into the future.
Your explanation of banking is incorrect, too. Banks pay depositors to deposit money, because the bank makes money on those deposits by loaning the money out (banks often give away things like toasters and even guns to attract depositors). Some of that is in the form of a service ("free checking"). Larger amounts of money, the bank will pay you interest.
Depositing money in a bank is literally loaning it to the bank, and the depositor expects a return for that. Loaning money for interest goes back to the very beginning of money.
What inflation actually is is a tax on money, and that tax revenue is collected by the party that is inflating the money (i.e. the government). It is not good for the economy any more than any other tax is.
You could argue that taxing money is a reasonable way for the government to raise money, and that would make sense.
Adjusted for inflation, I doubt there is a single depositor in the western world that receives a postive interest rate this year.
> Depositing money in a bank is literally loaning it to the bank, and the depositor expects a return for that. Loaning money for interest goes back to the very beginning of money.
Again, adjusted for inflation, even banks receive a negative (real) interest rate these days. The only way for them to create real profits this way, is to make sure the depositors loose more real purchaing power through their deposits and they do through their lending.
> What inflation actually is is a tax on money, and that tax revenue is collected by the party that is inflating the money (i.e. the government).
This is partially true, but oversimplified. Only if ALL the inflation is due to money printing can this be considered a tax, in that it is a transfer of purchasing power from the populace to the government. And even then, negative money (debt) get a negative "tax".
For the part of inflation that is caused by changes in supply or demand, but unrelated to money printing, the government is not benefitting from the inflation, and may even end up losing. And this is the kind of situation where inflation is needed to even out real changes in the economy.
Also, nobody is forced to store their wealth in a currency. And I actually think it is a good thing that people have an incentive to do long term storage of wealth in real assets, whether those are real estate, stocks or even commodities such as gold and silver, if you're longing for the gold standard.
The true fallacy is when people expect more from a currency than is possible. Currency is not real wealth, only some kind of representation of a debt that some anonymous other must pay in the future. A gold bar, house or a company, THAT is real wealth.
The exorbitant banknotes we see in this collection are more like each government's response to inflation once it has gone completely out-of-control.
In some sense they are trying to arrest the free-fall at an artificially imposed numerical point, by basically normalizing the losses already incurred up until that time.
Just goes to show how much easier it can be to manipulate the value of fiat currency compared to coin of stored value.
Seems like when stocks & bonds are denominated in fiat currency, in order for the securities to maintain their relative value, whilst maintaining volatility within tolerable ranges, the only direction for the currency to ever trend is being downward in value by comparison.
When stock certificates represent overwhelmingly more stored value than their equivalent in legal tender, that's not when you're going to have the most prosperity overall. This is not the way free enterprise started out.
We recovered well from that most recent devaluation is something that no ordinary wage earner said ever.
Clearly the cause is too much money out and not enough money in to government coffers rather than fiat.
The reason nobody believes this is because of extremely effective propaganda emanating from every government that prints fiat money. The "Putin Price Hike" is the latest in a long string of lies about what causes inflation. (Inflation was at something like 7% before Putin's War started.) Of course, "the speculators, gougers, and profiteers" are always blamed, too.
I've presented many facts to support this. Economists know it, too. Study it and you'll see for yourself.
Another part of the flim-flam is the government is always trying to promote the idea that inflation is good for the economy. Read their explanations. It's all nonsense.
The Greek debt crisis was a great example of this, since they couldn't directly control the printing of the Euro, they were forced instead to siphon money directly out of citizen bank accounts to service the national debt.
You could imagine the same thing happening with a nation on a gold standard. In fact the US did something similar in requiring all citizens to deposit their gold holdings. Inflation of a fiat currency is just one of the many ways in which governments can 'tax' citizens to pay for government spending.
https://www.minneapolisfed.org/about-us/monetary-policy/infl...
Two interesting periods of inflation were during the California gold rush, and the Yukon gold rush. It turns out, when gold is the currency, flooding the market with newly mined gold causes inflation, just like fiat money printing.
Similarly, everything you've said about the Great Depression is completely wrong. It was caused by a stock market crash known as Black Tuesday, which was the result of rampant speculative trading on margin. After a series of relatively small dips, a number of investors faced margin calls and had to sell their shares. A few of them decided to liquidate all of their stock holdings, triggering a 12.8% drop in the Dow (Black Monday), which led to many more speculators panic-selling the next day (Black Tuesday).
We've had stock market crashes before and after. None resulted in a Great Depression. Something else was going on to cause the Depression.
The 100% inflation from 1914-1929 indeed was not prevented by the gold standard, but in 1929 people realized they could double their money by converting their dollars to gold. This caused the bank runs which did not stop until all gold exchanges were stopped.
The gold standard ended in 1933, the Depression did not begin to end until 1939 when foreign countries flooded the US with armaments orders.
What the US did in 1914 was called "pegging". It wasn't really a gold standard, the fiat money was just pegged to gold. Pegging has been tried over and over throughout history, a sham that tries to inflate money while pretending not to. It works for a while, and then always results in a massive and destructive correction. The US's correction was the Great Depression.
The Great Depression bank runs were not caused by people trying to swap their cash for gold. Because you couldn't...after 1913 banks generally did not maintain their reserves in gold, and they certainly did not maintain local reserves in gold. At best you could get a promissory note for a representative amount of gold. The fiction that you could actually swap out cash for gold is one of the more bizarre historical conspiracies.
The bank runs stopped because the FDIC was created in 1934 to guarantee depositors' savings accounts. Until then, depositors risked losing their savings when a bank collapsed, which is why bank runs were a thing.
Mainstream economists contend that government intervention (the Smoot-Hawley Tariff Act) turned an ordinary recession into the Great Depression.
Say you have an economy (ie: Turkey) where people only use the local currency as a bridge and converts their revenue to EUR/USD as soon as they receive it. The currency will get into an inflationary spiral as the stocks of savings turn into available supply of currency.
That doesn't mean the productivity crisis is directly creating hyperinflation. As an idea it doesn't even make sense, because productivity crisis are bounded, but hyperinflation isn't.
There is another supply to consider, which rarely suffers a shock: The supply of "economists" that want to be close to the government, and are all to happy to tell it what it wants to hear: "Print, print, don't worry, I have a spreadsheet that says that sometimes you print money and there's no inflation, so go for it. Am I getting invited to the next party?"
I put it to you that a nation wanting the same amount of stuff is not the same as wanting more stuff
I think you're trying to appeal to some emotional notion of fairness, but its really irrelavent here. The world is unfair, and the consequences to actions don't care whether or not it seems "fair".
You get hyperinflation when a country's balance of payments tilts so far to imports it falls over. Supply destruction is one common route to this. But - for example in Weimar - the burden of reparations also played a part. (Not officially exports, but a loss of capital nonetheless.)
However - through a mysterious neoliberal process the oil shocks of the 70s and 80s, during which the oil price tripled creating massive inflation in economies that relied on oil for almost everything, became a tale of greedy workers forcing up pay and prices.
We're seeing this very clearly in the UK where most workers have barely had a significant pay rise for more than a decade, but the chair of the BoE is encouraging "restraint" - while the energy companies price gouge their customers to make astonishing profits and banker bonus caps are being lifted.
Combined with the supply and export destruction wreaked by Brexit, the prospect of hyperinflation is a real concern now.
I'm not an expert, but this is my conclusion from reading the article.
You can actually find food/fuel scarcity in every case of hyperinflation where we have some kind of statistics (which in less than 2 centuries).
Scarcity of nice-to-have goods and services will not trigger hyper inflation.
If inflation is caused by printing more money at a faster rate than the economy grows, then when the economic growth rate is negative then money would need to be destroyed to avoid inflation.
It's not the supply destruction that caused the inflation, it's rate of monetary expansion being greater than the rate of economic growth.
(With velocity held constant of course, MV=PQ).
It might also give us an excuse for our society, which would have some real value too.
ONE DOLLAR IN LIQUOR POURABLE TO THE BEARER ON DEMAND
The problem with it long-term is that it's a deflationary currency. Liquor gets consumed; once you pay a drunk with a bottle of alcohol, he tends to drink it and take it out of circulation. This means the value of alcohol goes up as the crisis continues, which means people have an incentive to hoard rather than circulate it, which means that it eventually loses its utility as a currency.
Now, giving alcohol as a currency the value of alcohol as a good would mean having to buy, say, computer chips with hundreds or thousands of liters of alcohol. We might need some kind of token that stands for large quantities of alcohol, perhaps redeemable at certain places for the real deal.
Barely any time, really. Most spirits can be made in a matter of days. It's only the ones that require long barrel-aging periods (like whisky) that take awhile to produce. There's a reason the first product a new distillery sells is vodka, and the second is often gin (vodka + added botanicals). You can get these up and running and out the door in no time at all.
If not alcohol, what then?
The challenge will be in how to ensure that all that new alcohol doesn't end up in the already-well-stocked liquor cabinets of the rich.
Perhaps that it has intrinsic value, can be consumed, and more can be made would cancel out inflation/deflation at some equilibrium point?
Ultrasound money, Proof of Burn, etc.
Maybe we could adopt a basket of different spirits as a metric so that one bad harvest of a specific crop doesn't affect the currency so much.
You gotta be able to exchange it for a fixed amount of the booze.
I wonder if a particular distillation would be considered more valuable.
How about a non-boring metal?
Yet Another Modest Proposal - The Roentgen Standard https://larryniven.net/stories/roentgen.shtml
https://www.orau.org/health-physics-museum/collection/radioa...
Actual toilet paper I mean, not the green stuff that people use to barter these days.
> An unusual criminal case shows how far thirsty fans are going as sought-after whiskeys become increasingly scarce
> Rob Adams allegedly promised bourbon fans something most could not get: easy access to the good stuff.
> The nation has been on a decade-long bourbon binge, making the rarest bottles increasingly unobtainable. Aficionados drive cross-country, shell out thousands and have even traded boats for brown water.
... memory of the time I looked it up and did the calculation, not memory of the event, of course.
Note that the rounding is to the nearest nickel, neither up nor down. So it favours neither buyer nor seller; it all nets out about the same for all in the end.
We stopped minting pennies 10 years ago. They're still legal tender but rare to see since there's no need with 5-cent cash rounding conventions now. There were brief popular grumblings and misplaced arithmetic anxiety leading up to the death of the penny. I expect the same when we bury the nickel and I bet few will miss it either when its time comes. And then the dime.
Of course one can construct amusing temporary edge cases or arbitrage opportunities when buying specific quantities of specifically priced items in the presence of any new rounding rules. The market will respond.
The recommended guideline[0] is to round to the nearest 5¢.
This article from 2013 is my closest citation to "undefined behaviour"[1]
> These guidelines are only a suggestion though and there is currently no law that specifies how retailers must round.
I don't know since ~2013 if anything has been decided to make those guidelines "law". I couldn't find anything quickly in the SEO cesspool that is modern web search.
[0] https://www.canada.ca/en/revenue-agency/programs/about-canad... [1] https://cba.ca/phasing-out-the-penny-in-canada
But honestly, if it did happen,i doubt i would care.
The penny was phased out at the same time people stopped carrying cash, so it wasn't missed.
B) most items aren't an even dollar anyways
C) I've only once lived anywhere that sales tax was an integer percent
More specifically, you round to nearest quarter, just like we do now for pennies. In your case, the coffee would be a dollar, and if that was too rough on the coffee shop, they could raise prices by $0.10 and you'd pay a dollar and a quarter.
B) Correct, 99 cents would be more likely, which would make the problem worse.
I don't see "prices could go up" as a selling point either (I doubt they'd want to round down unless it let them out of sales tax). How would raising prices to make change differently benefit either of us when you can already pretend to live in your ideal world by just telling places to keep the small change?
It's really amazing how the dime is the smallest coin, when you think about it. What a basic design error.
From the beginning of US coinage to 1891, silver "half dimes" were issued for the 5c denomination. (There were also briefly silver 3c coins) The 5-gram base-metal nickel was introduced in the 1866 due to silver coins being hoarded amid post-wartime uncertainty, but eventually was preferred to the tiny silver coin.
A scam artist was asked to take over the capital city's rotten central bank, which contained the mint.
He made the point that these little coins cost more to make than they were worth, and what was the point? In this case they had a coin that was a tenth of a penny I think.
Turns out the point was when you didn't have a lot of money, these coins mattered. They could buy you a not so rotten apple core on the right street.
I think the point was; life is a lot different when you are poor, and that's when cents matter.
Now that I'm using US currency again the whole penny thing just seems pointless.
Currency limits hardcoded in law as integers really need automatic inflation adjustment similarly specified.
There's no real escape from this other than free trade and hard assets. Cash regularly becomes less valuable, but food remains food, housing remains housing, and the future cash flows of providers of these good continue to float regardless of cash's value.
The data is available, for example Alaska Urban inflation is about 1pp higher than New York, presumably because of increased weighting of gas prices, if you are vegetarian and spend more on cereals than on meat then your personal food inflation will be higher
There were bills much larger than $100 at one time, but those were mainly used for things like, e.g. settling accounts between banks in the days before electronic transfers. The largest ever made was a $100,000 gold certificate.
When I was security at Target the most exciting thing I did was work with the Secret Service (who are also responsible for catching counterfeiters) who would come from their downtown office and pick up the counterfeit bills we’d sometimes receive. Oddly enough for awhile we were getting counterfeit $5 bills. We wouldn’t catch those until we put it into the money counting/scanning machine at night in the safe room, though.
But the most surprising realization? All but one of the documented episodes of hyperinflation occurred in the last 100 years.
Not to mention, how do you have hyperinflation with gold bars and barter?
Not “Pretty good” enough to detect hyperinflation by the definition at issue (50%+ monthly inflation.) Before regular, systematic, and frequent collection of data for price indexes, we have good enough data to make wide-range estimates of inflation over intervals of years to decades, in the best cases, but hyperinflation (whether or not it produces collapse of currency) doesn't continue long enough to show up in that, and also hyperinflation tends to correlate with conditions which reduce the availability and survivability of data. (The author of the article here notes a data problem with Yugoslavia in the late 20th century, for instance.)
From the OP:
"[In 2012,] the researchers unearthed a total of 56 episodes of hyperinflation, many of them previously unreported in English-language works."
If we don't even report on the ones in recent high-literacy times, I can't imagine what the odds of this going untranslated/unnoticed are more than two hundred years ago.
There is at least a bit of spin in those words that aren't quantified by your impression of them. What is meant by 'many' in this regard? 12 of them (out of 56) were unreported?
Unreported in English-language works, really? Qualify that statement, show me where you or the authors actually combed through all the works of the English language to arrive at such a statement. Show me one example among the 56 for which I cannot find a prior report on in English language works.
Some things are written in such a way as to provide editorial impact. But they're not an accurate representation of the historical record by any means.
Not really. Hyperinflation is a failure mode expected to be almost unique to fiat currency, which is relevantly recent as a norm. Other types of currencies have different problems. Plus, having data that would even detect hyperinflation is a recent thing in most of the world.
Actually, what jumps out from thaf data (especially when you look into when the inflationary spiral that spiked into hyperinflation happened in individual cases) is that hyperinflation seems overwhelmingly to have one specific cause: major, especially global, conflict, and especially losing such a conflict; the main clusters are associated with (and shortly follow) the end of WWI, the end of WWII, and the end of the Cold War (the collapse of the Russian Ruble around 1992 is by itself about 1/5 of the list, becauae each country that was using it is listed as a separate incident.)
If you're on a gold standard and your war chest starts to run out, you must either find a wealthy lender (hard), press the plunder of your citizenry (limited & bad for morale) or start thinking about a peace deal.
With fiat you can just fire up the printing presses, the later consequences be damned (should you even be aware of them). The first one to have their economy collapse loses, but in the meantime the slaughter can go on.
Yes, one of the failure modes of commodity/representational currencies is that in emergencies—natural.or artificial, war or peace—your state and economy collapse before they would run the risk of hyperinflation with fiat money.
That's one of the reasons those systems have been abandoned generally. (Oddly, goldbugs see this as a selling point of commodity currency.)
There is definitely some bias in the availability of data, but it was comparatively harder to end up in a hyperinflationary spiral in the era of commodity or representative currencies, and these were commonplace until the twentieth century.
There were instances of money suddenly losing all value due to the failure of the issuing state (e.g., confederate dollar banknotes), but that's probably a different story.
Also, I think more key factor is the ease of printing/minting new bigger values and the amount of economic trade that happened. If you didn't buy or trade too much back in time stepping back to barter temporarily was rather easy. Mass manufacturing is rather late thing. And during industrial revolution hyperinflation is unlikely to happen.
In shops tills, the per-item value is larger than the total because there is not enough room to display the total.
As an extra layer of joy to the uninitiated, in speech we often abbreviate the millions to hundreds. Hence 200,000,000 becomes 200.
It does seem to me the Austrian theories had decent predictive power when it comes to the boom / bust cycles and inflation baked into the current monetary systems.
An example of deduction failing unexpectedly can be found here: https://en.wikipedia.org/wiki/Unexpected_hanging_paradox
EDIT: Spitznagel works with Taleb and his fund, Universa Investments, had a 4000% return at the beginning of the covid-19 pandemic.
[0] The Dao of Capital
Perhaps most relevantly he wrote a book on the idea of competing private currencies (Denationalisation of Money -- it seemed meant for people with more knowledge of economics or finance than me).
If Austrian school economists want to gain mindshare, they should develop models, backtest them, and report the results. Same for MMT.
By the way MMT is a political phenomenon. There are very few professional economists who think it is workable.
Austrian economics is explicitly anti-central-banking, and most economists are funded by a central bank or a government with a central bank. "It is difficult to get a man to understand something when his salary depends upon his not understanding it".
"Among economic scholars, Friedman has no peer. His seminal contributions to economics are legion, including his development of the permanent-income theory of consumer spending, his paradigm-shifting research in monetary economics, and his stimulating and original essays on economic history and methodology."
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
U of Chicago is still a top 5 Economics University.
https://www.federalreserve.gov/boarddocs/speeches/2002/20021...
[1] https://www.cambridge.org/core/journals/journal-of-latin-ame...
[0] https://www.citeco.fr/10000-years-history-economics/contempo...
[1] https://es.wikipedia.org/wiki/Inflación_en_Argentina (in Spanish)
When Hungary introduced the Forint in 1946, the exchange rate was 1 Forint = 400.000.000.000.000.000.000.000.000.000 Pengő.
That's at least what German Wikipedia says, no matter how incredible it may sound.
"It won't happen here!"
It's not us doing money printing.. it's uh.. COVID, uh.. the war, uh.. Climate change, uh.. corporate greed.
I know it's my own fault for thinking of Poe's Law as a target rather than a pitfall. Sadly, for me satire/sarcasm isn't good unless the target of it sometimes can't tell that it is satire. It's evidence that I've treated them fairly.
edit: note that cm2187 understood that, and formulated a direct, thoughtful reply.
edit: also note (although you can't see it) that after I explained the "/s" wasn't an attack but an affirmation of the reply that told the truth about hyperinflation, that it wasn't a goldbugging Libertarian smirk, the upvotes started disappearing. Poe achieved.
It's only on the internet where I can assume that people will show up who really think that I believe that stubbornly low <2% inflation is hyperinflation, and attempt to excoriate or support me.
https://en.wikipedia.org/wiki/Early_American_currency#Contin...
Edit: tried to clarify wording. In 1781, a banknote of a specific denomination was worth only 1/40th of what the same banknote was worth in 1776.
What changed with the covid money printing is that it was distributed directly in people's pockets. Also its scale and pace dwarfed the previous 10 years of QE.
I have no good explanation for Powell to have kept printing money like there was no tomorrow after Feb 2021, after the first >7% inflation prints. I suspect he must have made a deal with Biden to let the inflation go (helped Biden's policies) in exchange for renewing his mandate. The ECB is run by a lawyer who probably had to look up on wikipedia the definition of inflation.
As a net debtor, I might see see a 50% fall in the real value of my mortgage in 5-7 years at current inflation rates, if the politicians are feckless enough about it (“Milton Friedman isn’t in charge any more,” Biden tells me.) I seriously doubt I will see it in a month (the threshold cited in TFA).
[1] https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx...
The reason fixed mortgage rates have been below inflation recently is because the financial industry (bond buyers and mortgage underwriters, at least) have largely bought the Fed's "transitory" narrative. A 3% mortgage remains profitable if inflation runs at 8% for a year and then returns to 2%; it becomes very unprofitable if inflation stays at 8%. The reason mortgage rates have climbed so much in the last couple months is because the "transitory" narrative has basically collapsed, and the bond markets are now starting to price an extended period of high inflation into the rates they charge.
I don’t know how more clearly I can state why this is a glaring subsidy for the rich. I’m sure in a free market these would just appear by themselves /s
There is some historical validity to the point that fixed-rate mortgages existed because of taxpayer subsidies. The creation of the FHA during the New Deal, and Fannie-Mae shortly after that, basically jumpstarted the practice. But there's a difference between jumpstarting the a market and continued subsidy of it. The existence of jumbo loans is an indication that even without taxpayer subsidies, fixed-rate mortgages still exist, presumably because the expectation of price stability means that private institutions don't think that the risk of interest rate variability is that great (jumbo mortgage borrowers usually pay about 0.5% more, so that's the implied risk premium). This can change during times of high price variability - my parents mortgage was 13.5% back in 1978, because expected inflation was about that. But that also indicates that interest rate risk is primarily absorbed by the private markets, and taxpayer subsidies play a relatively small part in it.
Fixed rate mortgages are the norm in multiple EU countries (i have one in France and it's pretty much the only option).
How do taxpayers subsidize fixed-rate mortgages in the US?
Government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac guarantee conforming mortgages that they securitize against default. They might ultimately be backed by the US Treasury and thus US taxpayers (if not in theory, then in practice).
However, when inflation is high, the burden on the borrower of paying off their fixed-rate mortgage goes down (as their income increases faster over time). Therefore, the borrowers are less likely to default during high inflation. Thus, having the GSEs guarantee these mortgages is not a subsidy that protects middle class borrowers from inflation. High inflation essentially eliminates the need for the guarantee by itself.
But these same dynamics, just more extreme, have plagued all less lucky people each and every time.
There are European families who have been through multiple hyperinflationary events in the last century, and couldn't convince their kids that it could happen again. Then, it did.
And it's always smoke and mirrors on the population (begging for more money printing) as to the cause of what's happening. There are some smart ones who plan ahead.
That's not historically correct. Wages generally track inflation well, and are often (and are right now) a leading indicator.
What gets people upset about inflation is that it hurts lenders, not workers.
Inflation slows down growth rates in some cases, becoming stagflation. The slowdown in growth is what really triggered a reaction against stagflation in the 70s.
You can always negotiate a raise. But yes: on balance most workers in the US economy were getting raises as the pandemic ended. I did, just to counter your anecdata. When everyone gets a raise and economic activity doesn't change (or drops, c.f. "chip shortage", or "Shanghai shutdown"), you have more money chasing fewer things, so those things get more expensive (more anecdata: I bought a Model Y about 15 months ago, and could sell it today at a 15% profit because everyone who got raises also wants a Tesla).
Things getting more expensive is the definition of "inflation".
Real wages are down. Specifically: prices are up 8.26%, and the raise was more like 5.5% ish. People can afford less rent. People can afford less food. People can afford less fuel. People can afford fewer goods. People can afford fewer services. People can afford less of everything. This is what “poorer” looks like.
(And remember, that isn’t 2.6% less discretionary income, that’s a total-income figure.)
I remember when the Fed started doin QE in 2009. I thought, "my god, pushing this much money into the economy will lead to high inflation!"... except, it didn't. Then they did QE2 and again, I thought, "for sure, THIS time inflation will spike up!" Except it didn't. Then QE3 in 2012...
Call me slow, but it wasn't until that point that I started to seriously re-examine my mental model about how macroeconomics works. But at least I could admit to being wrong.
You can, if the underlying conditions would, with a neutral policy, produce a significant-enough deflation. We’ve pretty much demonstrated that.
OTOH, if you have something like the COVID emergency and associated controls, that results in a rapid snap-back of the underlying conditions rather than the more common gradual adjustment, when you are geared to offset massive deflation, you get inflation until you adjust the monetary policy dials again.
Even when the government spends more money than it collects from taxes, it's still not necessarily inflationary so long as if it's a productive use of money (e.g. public transportation increases employment opportunities). The main difference from Covid relief was that lot of money was simply created with no good purpose at all, so it fell into the category of "more dollars chasing the same goods."
If you think a pandemic (and policies to combat its effects) and a war including some of the main exporters of foodstuffs and energy don't impact the world markets and increase prices worldwide (inflation), it's just willful ignorance pursuing a (stupid) agenda at this point.
For example if the government taxed enough money out of the system, prices would not increase (but stuff would be less affordable because you have less money to buy it with).
There's no getting around the increased scarcity, but the increased prices are in some sense a choice.
Say Canada does what you say will fix everything, and adds extra taxes so that there's less money to spend, so in theory demand will go lower because there would be less money, and in theory supply will increase, and thus suppliers would have to lower prices to meet consumers. Econ 101, right? Wrong, you should have continued past that chapter.
First, we're talking about inelastic goods. Food, energy. There's very limited elasticity there - you can choose to conserve energy and eat cheaper food, but in the end, you need electricity, warmth and food or you'll die, so there's only so much you can be elastic in your demand. Less money to spend due to higher taxes means choosing between eating rice for a week or uncomfortable cold going to freezing depending on place and season. (Until magically the market fixes itself, right? Wrong.)
Second, we're talking about global markets. If Canadians have less money to spend on wheat and corn and substitutes, or vegetable oils, or oil and gas, well, someone else will buy them on the global market. Even the local producers, unless they're forced to otherwise, or they're feeling really nice. There is more demand than there is supply for those specific, rather inelastic, items that the whole world needs and consumes, and which are heavily impacted by the Russian invasion of Ukraine. Which has also had ramifications such as Indonesia, one of the biggest exporters of palm oil, stopping exports due to rising vegetable oil prices globally (due to the war), to protect the local market by having locals buy local palm oil as a replacement for the expensive imported other oils.
If you thought I was saying it would fix anything except the number on the price tag, you must have misinterpreted my comment.
> and in theory supply will increase
I don't believe an increase in taxes would cause supply to increase.
> there's only so much you can be elastic in your demand.
Demand doesn't only mean how many loaves of bread people want, or how badly they want them. It's also how many dollars they can and will pay. Picture goods being sold at an auction, as they essentially are. With fewer dollars in everyone's pockets, the winning bid will be lower, even if the bidders are just as hungry.
Sorry, i meant increase proportionally to demand (because demand would go down, so there would be more supply than demand).
> With fewer dollars in everyone's pockets, the winning bid will be lower, even if the bidders are just as hungry
Not if the winning bid comes from another country, or the supplier can afford to wait (because remember, we're talking about inelastic goods - the supplier knows people need to eat and heat themselves).
So why did a loaf of bread cost 5 cents in 1900 and 5 dollars now, even though we make more bread than ever (and with less labour too)?
Couldn't the producers have "afforded to wait" until the desperate masses paid $5 per loaf, even if that were a whole week's salary?
Or perhaps the nominal amount of money in a customer's pocket is relevant to the clearing price, even for bread and oil?
Money in your bank account isn't created through printing. It is created through accounting and the entire point of this accounting is to make sure that every liability (deposit) in your bank account is backed by an asset (the debt contract).
The entire point of this is to keep a mathematical identity. The net worth of the bank does not change when it issues deposits, deposits/savings and debt add up to zero. The only thing that changes is that the bank becomes more leveraged and less solvent which is why there are capital requirements which mandate a minimum quality of the assets that are being used to create deposits and there used to be a minimum reserve ratio to put an upper bound on the amount of leverage a bank can take on.
If you want to complain about the money supply growing or deficit spending or debt growing out of control you are free to do that but if you talk about money printing you are basically ignoring all of that and just think that there is this obvious element that everyone is overlooking. If the government bans cash it stops printing money but does it get rid of debt? Does it get rid of inflation? Not really.
When people save money, the currency goes up in value, to prevent deflation, the central bank loosens reserve requirements, lowers short term interest rates or if it can't do anymore it will do open market operations aka quantitative easing which is more or less just trying to replicate what a lower interest rate would have done.
Since there is a net increase of savings in real terms, either the interest rate must go down, perhaps even go negative to discourage people from saving too much, or more debt must be created to soak up those savings. This means if the private sector keeps accumulating more and more savings, the public sector must go more and more in debt if it wants to maintain a positive interest rate. If you don't like that, then you must somehow stop people from accumulating too much money and get them to spend it. Saved money isn't being lent on, not even in the case of a certificate of deposit, where it would kind of make some sense, it is just sitting there and waiting to be spent. Any time the bank "lends your money" it actually doesn't and instead creates new money in proportion to the debt.
South Korea has 50,000 KRW bills (= about $36 these days), but its currency has been pretty stable in the past 40+ years.
Why sell the products you produce on your farm to locals when you can ship them overseas and get dollars to exchange for medicine? Medicine that is illegal to produce in your country if your country hopes to operate in the good graces of the WTO[2].
All of this history is condensed by the author into mere "haphazard fiscal policies and civil struggles." This gallery of currencies is a stunning visceral departure point for understanding macroeconomic policy, my only wish is that it went deeper.
1. https://www.nytimes.com/2022/05/20/world/americas/haiti-hist...
2. https://www.wto.org/english/tratop_e/trips_e/pharma_ato186_e...
Which others apart from Haiti had to pay for their freedom?
> ... fallout from the collapse of the USSR
What you describe definitely causes inflation, but the “hyper” part, in every case I am aware of, involved foreign debts.
https://www.thenakedscientists.com/articles/questions/why-ar...
I was under the impression that in olden times currency was backed by gold (or something similar). How would hyperinflation occur in such a situation?
Per Wikipedia: "The final redenomination produced the "fourth dollar" (ZWL), which was worth 10^25 ZWD (first dollars)."
The ZWL itself was subsequently largely abandoned, too. I believe you'd have more luck transacting in foreign currencies.
This is still cool, though.
Hyperinflation is evidence that money needs to be a high technology. Public ledgers in and of themselves don't prevent hyperinflation or other problems with money, but they do give us potentially much more and better tools to make money work.
Especially if high tech digital money can be holistically integrated with information about real world resources.
Hmm... that seems more like a distinction without a difference.
Though dominated by Russians (mostly... Stalin was a Georgian), the USSR was made up of over 100 different nationalities with widely varying languages and cultures.
Totally different things.
They were countries conquered and occupied by USSR troops, with USSR military bases in them to guarantee obedience. There were local rulers, sure, but major decisions were consulted with Moscow. Many decisions just were out of question, because it was obvious that Moscow would not approve and it may end in a military intervention (as in happened in Hungary and Czech Republic). So no, I would not describe them as "sovereign countries". The proper term is something like "puppet state".
I know its not trendy, but its probably easier to think of the eastern bloc countries as colonies of the USSR, just as india, egypt, and the african nations were to the UK.
Sure, on paper they were sovereign, and they certianly had a government made up of people from that country. But they were a colony.
It's not clear that the term colony implies direct governance. For example, the Brits applied almost no direct governance to their colonies in the Americas from 1650-1750.
One could also just say that the Russians occupied Eastern Europe for the half-century following World War 2.
It was more like the Saxon colonisation of the UK, which replaced the native Celtic population, rather than the Norman conquest, (or the colonisation of India) which just replaced the oligarchy.
What came quite a lot later in America , was the attempt to assert more direct Imperial rule over the colonies.
But fear not, many more episodes are being produced as we speak, the story is alive and well.
I won't bother with the bullshit of anybody who compares Das Kapital and Mein Kampf like this, grow a fucking brain. And conscience.