Last February in Zimbabwe's Hyperinflation we featured the world's recent case of hyperinflation as featured by Cato.org's Steve Hanke.
Lately, Steve H. Hanke and Alex K. F. Kwok came up with an updated paper on this. (Hat Tip: Mark Perry)
From Steve Hanke, ``The 20th century witnessed 28 hyperinflations. Most were associated with the monetary chaos that followed the two World Wars and the collapse of communism. Zimbabwe’s hyperinflation of 2007–08 represents the first episode in the 21st century and the world’s 30th hyperinflation."
The table above shows that it took just about one day (24.7 hrs) for prices of goods to double.
Nevertheless it still lagged the Hungarian account which took only 15 hours to achieve the same astounding feat. This also means that Zimbabwe’s hyperinflation ranks as the second worst in human history.
This table shows of the exponential acceleration rate of inflation which peaked in November last year- a month on month rate of 79,000,000,000%!!!
This very important point from Steve Hanke, ``Hyperinflations have never occurred when a commodity served as money or when paper money was convertible into a commodity. The curse of hyperinflation has only reared its ugly head when the supply of money had no natural constraints and was governed by a discretionary paper money standard."
This means that yes, the paper money system is predisposed to the risks of hyperinflation.
To give you an idea how a society endures from hyperinflation Alexander Jung, from Spiegel Online takes account of the Weimar German experience (incidentally ranked as the fourth worst after Yugoslavia)
An excerpt, (bold highlights mine)
``History may hail "the miracle of the rentenmark," but in reality it constituted an admission that the German Reich was bankrupt. And as always, it was the populace that picked up the tab.
``The stupid ones were those who had nest eggs: the thrifty, holders of government bonds, but primarily the country's pensioners. In other words, those who received money without having to work for it, who lived on their pensions or the interest on their savings. Large sections of the middle classes saw themselves stripped of their assets, losing almost everything they had set aside for years. Banks, savings banks, and insurance companies suffered huge losses and were left with nothing but their paper money. As a result, they had to start the majority of their businesses from scratch in 1924.
``By perverse contrast, the winners of the hyperinflation first and foremost the state, but also were those with massive debts;private individuals who had borrowed money to buy houses, construction land or farmland, and whose loans were slashed by the switch to the rentenmark.
``Some industrialists made huge gains from the period of hyperinflation. Hugo Stinnes, whom Time magazine crowned "Germany's new Kaiser," built up an immense corporate empire comprising heavy industry, newspapers, ships and hotels -- all based on a mountain of debt. As late as the summer of 1922, Stinnes was recommending that people continue capitalizing on "the weapon of inflation." Indeed manufacturers and craftsmen in general profited from the crisis since they possessed plants and buildings -- that is, tangible assets that outlived the currency switch.
``Most farmers also did extremely well. "They had money to burn, and spent it willy-nilly," writer Lion Feuchtwanger recalled. Some bought themselves entire stables of racehorses, others expensive cars. "Farmer Greindlberger drove from the grimy village street of Englschalking to Munich in an elegant limousine complete with a liveried chauffeur, while he himself was dressed in a brown velvet jacket and a green chamois-tufted hat," Feuchtwanger wrote of the rural rich.
``Never before had Germany witnessed such a fundamental redistribution of wealth, and many of the winners were those who had previously been wealthy....
``Disillusioned, many Germans chose to withdraw from the bitter reality of their lives, and simply left the country. In 1923, the authorities counted three times as many emigrées as the year before. Some sought refuge in sects, others committed suicide. Millions more became radicalized."
Read the rest here
So experts and officials recommending inflation as the fix for today's debt woes, could actually be leading us to the precipice.
Be very careful of what you wish for.
Lately, Steve H. Hanke and Alex K. F. Kwok came up with an updated paper on this. (Hat Tip: Mark Perry)
From Steve Hanke, ``The 20th century witnessed 28 hyperinflations. Most were associated with the monetary chaos that followed the two World Wars and the collapse of communism. Zimbabwe’s hyperinflation of 2007–08 represents the first episode in the 21st century and the world’s 30th hyperinflation."
The table above shows that it took just about one day (24.7 hrs) for prices of goods to double. Nevertheless it still lagged the Hungarian account which took only 15 hours to achieve the same astounding feat. This also means that Zimbabwe’s hyperinflation ranks as the second worst in human history.
This table shows of the exponential acceleration rate of inflation which peaked in November last year- a month on month rate of 79,000,000,000%!!!This very important point from Steve Hanke, ``Hyperinflations have never occurred when a commodity served as money or when paper money was convertible into a commodity. The curse of hyperinflation has only reared its ugly head when the supply of money had no natural constraints and was governed by a discretionary paper money standard."
This means that yes, the paper money system is predisposed to the risks of hyperinflation.
To give you an idea how a society endures from hyperinflation Alexander Jung, from Spiegel Online takes account of the Weimar German experience (incidentally ranked as the fourth worst after Yugoslavia)
An excerpt, (bold highlights mine)
``History may hail "the miracle of the rentenmark," but in reality it constituted an admission that the German Reich was bankrupt. And as always, it was the populace that picked up the tab.
``The stupid ones were those who had nest eggs: the thrifty, holders of government bonds, but primarily the country's pensioners. In other words, those who received money without having to work for it, who lived on their pensions or the interest on their savings. Large sections of the middle classes saw themselves stripped of their assets, losing almost everything they had set aside for years. Banks, savings banks, and insurance companies suffered huge losses and were left with nothing but their paper money. As a result, they had to start the majority of their businesses from scratch in 1924.
``By perverse contrast, the winners of the hyperinflation first and foremost the state, but also were those with massive debts;private individuals who had borrowed money to buy houses, construction land or farmland, and whose loans were slashed by the switch to the rentenmark.
``Some industrialists made huge gains from the period of hyperinflation. Hugo Stinnes, whom Time magazine crowned "Germany's new Kaiser," built up an immense corporate empire comprising heavy industry, newspapers, ships and hotels -- all based on a mountain of debt. As late as the summer of 1922, Stinnes was recommending that people continue capitalizing on "the weapon of inflation." Indeed manufacturers and craftsmen in general profited from the crisis since they possessed plants and buildings -- that is, tangible assets that outlived the currency switch.
``Most farmers also did extremely well. "They had money to burn, and spent it willy-nilly," writer Lion Feuchtwanger recalled. Some bought themselves entire stables of racehorses, others expensive cars. "Farmer Greindlberger drove from the grimy village street of Englschalking to Munich in an elegant limousine complete with a liveried chauffeur, while he himself was dressed in a brown velvet jacket and a green chamois-tufted hat," Feuchtwanger wrote of the rural rich.
``Never before had Germany witnessed such a fundamental redistribution of wealth, and many of the winners were those who had previously been wealthy....
``Disillusioned, many Germans chose to withdraw from the bitter reality of their lives, and simply left the country. In 1923, the authorities counted three times as many emigrées as the year before. Some sought refuge in sects, others committed suicide. Millions more became radicalized."
Read the rest here
So experts and officials recommending inflation as the fix for today's debt woes, could actually be leading us to the precipice.
Be very careful of what you wish for.
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