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1. It appears almost every country, some countries twice, for a total of 32 defined instances of hyperinflation this century (33 if you go back another fifty years to the confederacy) all entered that condition, with the concurrent printing of money. What I noticed though, was not that they article says how much money was printed, but in almost every case, it mentions the denomination SIZE that was printed...
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Printing a thousand one dollar bills or one one-thousand dollar bill have the same effect on the money supply. In the U.S., hyperinflation doesn't even require the printing of federal reserve notes at all. Due to the use of computers in banking, simply moving digital money around can increase the effective money supply. In addition, changing the requirements for fractional reserve banking could also increase the money supply.
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2. As a cure for hyperinflation, Israel, after seeing an increase in inflation, from a "meager" 13% in 1971, to 445% in 1984 for over a FACTOR of 34 increase (whereas American inflation doubles approximately every 20 years) instituted government mandated price freezes. Within a few months, inflation halved, and within a year, it was back down to 19%.
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Israel is one of the few countries for whom this has worked. Making inflation illegal (freezing prices) usually does little to stop it, as does banning the use of foreign currencies. Zimbabwe tried both strategies but failed.
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3. Robert Mugabe, Zimbabwe, 1998... instituted a program that took farmland and equipment from white farmers, and re-allocated it to black farmers... the result was a bunch of defunct farms, loss of revenue to the government from food exports, and the government having to print money to pay debts. Sounds similar to reparations or wealth redistribution...
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In my opinion this had very little impact on Zimbabwe's situation (By 1998 inflation was at 48%). However, wealth redistribution does usually hurt the country economically. Welfare and other entitlements redistribute wealth from the productive (wealth generators, job creators, etc...) to the unproductive (nonworking), and having to sustain a permanent and growing underclass is a drag on economic growth.
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Could our country, or the EU, IMF, etc... see printing LARGER notes as a harbinger of doom, and rather than print larger notes, try to sneak it under the radar by printing massive quantities of smaller notes? Since hyperinflation tends to be driven by a loss of faith in a currency, where recipients try to exchange the currency for commodities as soon as they get it, before losing more value, would a governing body be able to suppress (even temporarily) the onset of hyperinflation, simply by not blundering into the previous trap of printing larger denominations?
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In my opinion, this is unlikely. Governments suffering hyperinflation print larger notes out of necessity, not a desire to "sneak" inflation into being. When citizens require a crate full of $10 bills to buy bread, issuing $10,000 bills is necessary for ease of transaction. As I mentioned earlier, sneaking inflation is more likely to come about through digital printing or easing fractional reserve lending requirements. Allowing banks to lend $100 for every $1 held in deposit, for example, would increase the money supply tenfold over current conditions without a single bill being printed.
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The article on Israel did not specify if they printed more, or larger currencies, or if it was just runaway inflation. It seems that government action WAS able to reign in runaway inflation. I understand the dollar is a bit different, as it is the world reserve currency, but what would prevent actions of the government from getting it back under control? That of course, assuming the powers that be, don't actually want hyperinflation to occur, to justify joining into a one-world currency...
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Israel reissued an entirely new currency, the new shekel, each of which was worth 1000 old shekel. Israel did reign in inflation, but Israel is a smaller country with high levels of modernization, urbanization, and infrastructure. In addition, everyone who held onto the old shekels had their life savings wiped out. Just because Israel didn't completely tank doesn't mean that their hyperinflation didn't cause widespread devastation.
...and a one-world currency? No governments will voluntarily cede control of their money supply (look at what happened to the euro). Instead bi-lateral trade agreements are more likely, whereby each country exchanges goods in local currencies. This eliminates the need for a world currency.
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Once hyperinflation starts, could it be stopped in America's case, by government price freezes, currency exchanges, etc... why or why not? I understand many of the countries listed, probably didn't carry the debt over a generation, that we generate in a year, so that may be a factor too.
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Inflation is very hard to reign in, especially in a country the size of the U.S. Think about what would happen:
1.) Everyone receiving welfare checks, pensions, social security, food stamps, etc... would effectively start receiving nothing. Do you think they would sit around and starve or take (probably violent) action?
2.) Nobody would leave their money in banks where it would rapidly lose value. Runs on banks would cause them to close, or at best would empty their vaults and eliminate their ability to lend money.
3.) People would easily be able to pay back all their credit with worthless money, forcing all lenders to take a huge loss or constantly adjust their interest rates upward.
4.) People would seek safety in tangible items with intrinsic worth, such as cars, houses, food, precious metals, household necessities, etc... rather than invest.
5.) Those with substantial savings would lose everything.
Also, many people do not realize that inflation, like all rates, is exponential in nature. A 3.5% inflation rate seems small (rule of 70 means that this is a 20-year doubling time), but each year's 3.5% is larger than last year's, because it is 3.5% of an overall greater total. All exponential functions have the same graph, one that starts out at a slow crawl for a long time and rapidly shoots upward toward the right side of the graph. Thus, any inflating money supply which is inflating at a flat rate is ultimately doomed to hyperinflation as some point, as even 1% of a large enough number is large itself. Of course, inflation tends to accelerate as people lose faith in their money and the government reacts poorly (printing more money, rebasing currency, etc...).
So in short, I think that in the U.S. it would be impossible to reign in hyperinflation. Once it gets to that point (20-30%+ inflation), it is too late. The government can mess with a lot of things on paper, but it simply cannot control the behavior of the people in any meaningful way. Currencies are like commodities in that they react to supply and demand. If nobody wants the currency, or if there is too much of it, a loss of faith will result in it becoming worthless.
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One last question, regarding currency exchanges. Would coins be subject to those as well? For example, if America exchanges $1000 old dollars, for $1 new dollar, even if coins were the clad coins they are today, would they retain value under the new system? I've read some people arguing in favor of hording regular nickels, in the event we hit hyperinflation as they are worth more than the face value currently, but I don't see a few grams of copper and nickel, both valued by the pound, being worth much in a hyperinflation scenario, if the government does a currency exchange and declares these coins not legal tender.
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Coins will always be safer than paper bills for a number of reasons. Usually governments do not reissue coinage due to the massive expense and the belief that citizens are only holding small amounts of coins. In the event of a currency collapse, the value of all money will be reduced to its intrinsic, rather than fiat, value. For paper currencies this is its value as paper (writing implement, cigarette paper, amount of BTUs produced when burned, etc...), which is generally very low (see German marks being used to wallpaper or heat houses). For coinage, this is the metal content of the coin. Among U.S. coinage, all nickels, pre-1982 cents, and all silver coins already have a metal value exceeding face value (in 1964 a quarter bought you a gallon of gas; today that same quarter will buy you a gallon of gas, although a 1965 quarter won't even buy a liter). In addition, current coinage also has a melt value, although it does not exceed its fiat value. If the dollar falls, all coins will become worth more, not due to demand, but because the dollar is becoming worthless by comparison.
Taking a pre-82 copper penny as an example, if the dollar inflates to worthlessness, the value of that penny will rise dramatically (in relation to the dollar, that is to say, not intrinsically but in dollar terms) because the copper inside of it will buy you many dollar bill-papers. Thus, even without a redenomination of currency, coinage will remain more valuable than paper money.
But what if there is a redenomination of currency? Those holding many coins may be unexpected beneficiaries of a large increase in buying power if the government decides reissuing all the coins in the nation would be too much trouble (coins have a much longer "lifespan" than paper bills, they may decide that a quarter will equal a quarter "new dollar" rather than having "new quarters" and "old quarters"; minting coins takes more money than minting bills because a 6 cent cost of production for a $100 bill is trivial, but the metal content and minting costs of a coin use up most of the value, or in the case of nickels, exceed the value). But even if coins are reissued, the old coinage will be able to buy new money using its melt value. This is why issuing millions of clad quarters hasn't devalued the pre-65 quarter, except as fiat.
Just my opinions...
06-05-2011, 11:01 PM
Hyperinflation discussion
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