Hyperinflation
Categories: Econ
So you know that thing that erodes your paycheck? Rhymes with shminflation. Well, hyperinflation is just inflation on steroids.
Hyperinflation is when prices continue to rise quickly, making prices and the economy unstable. Imagine toilet paper that costs you $5, then the next day it cost you $8. By next week, that same amount of toilet paper is up to $40.
As prices rise uncontrollably, people try to spend their money quickly. You’d be glad you bought that pack of TP when it was $5, rather than a week later when it was $40. Eventually, it wouldn’t be worth it to buy toilet paper at all. When the physical amount of dollar bills you have is much more in volume than the toilet paper itself, well...don’t make us explain to you where that’s going.
Why does hyperinflation happen? There’s not one clear-cut way, but oftentimes we’ve seen hyperinflation happen when the money supply rises a lot without that same growth reflected in the economy. That’s bad news for that currency in the international space, since it erodes the currency’s worth.
Hyperinflation has been seen in history to happen when there are depressions and wars. Inflation rising quickly during unsure times like these makes people lose confidence in the currency and the economy. For sellers to feel more secure about selling stuff (to make it worth accepting money that might be worth nothing soon), they raise prices. Once the lack of confidence sets in, hyperinflation turns into a continuous loop, compounding the issue.
Now you know why it’s actually a good thing that money doesn’t grow on trees.
And if you turbo charge inflation, you get, yes...hyperinflation. In most times, the U.S. Dollar has been considered a relatively stable bet.
Like...think Latin American debt in a historical frame. That is, the countries were swimming in debt payable in their own currency, and much to the chagrin of the western countries who loaned them billions of dollars, those countries decided to run the Xerox machine all through the night and weekend, printing more and more money, so hyperinflation would be created and the 18 kajillion dollars owed by Venezuela would feel instead like only a few million bucks to that country. And the west learned a big lesson.
Oh, and there was that other one little lesson the west learned about punitive war reparation rules. Check out 1930s Weimar, Germany’s hyperinflation currency issues. It took a wheelbarrow full of German marks to buy a loaf of bread.