A Simple Look At The Conditions For Hyperinflation

Hey Jessinflationists

I like to read and listen to many different thought leaders in the world of finance so that I can understand whats going on in my country, other countries, in macro and the wider effects of the economy. Having some clue as to what's going on helps me invest and prepare for possible outcomes.

As we see countries printing themselves out of a hole in 2020, I've heard loads of calls for hyperinflation. Apart from living in Venezuela or Zimbabwe, I don't think many of us know what hyperinflation is like nor what it means.

Dying of money

I've recently been reading a piece of a book called Dying of Money: Lessons of the Great German and American Inflations.

The book covers the story of the Reichsbanknote issued on August 22, 1923, for one hundred million marks. Nine years earlier, that many marks would have been about 5% of all the German marks in the world. It would be worth 23 million American dollars at the time.

On the day it was issued, it was worth about twenty dollars. Three months later, it was worth only a few thousandths of an American cent.

The process by which this occurs is known as hyperinflation.

But what exactly were the telltale signs leading up to this event?

So the period in which the Reichsbanknote hyperinflated started in 1914 and in a 9 year period imploded in 1923, not a very long time span and the seeds were sown without many noticing. So what were these signs?

Consumer price inflation

Before the runaway inflation began, 1914 - 1918, consumer price inflation was around 15% per year. It might not sound like a crazy number, but at that rate, every 4 years, prices double.

M2 money supply

M2 money supply grew at a rate of 60% per year, which is a massive increase per year, especially considering the currency in circulation today.

Government debt

Government debt also increased by 50% each year over the 5 year period.

I realise this is an oversimplification, but we can see that it really takes ALOT of abuse for a country to lose confidence in the currency and for it to hyperinflate into nothing. I am not saying we're in a safe spot; all I am saying is if this is the benchmark, then there is still breathing room for a lot of bad policy to continue in countries around the world.

I am also not saying that if your country doesn't hit these levels, that your currency couldn't fail. It could be triggered by something else, but I will say that the confidence or rather the ability of the public to accept debasement has a lot of room to be exploited.

Have your say

What do you good people of HIVE think?

So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."

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