Topic: Why did hyperinflations happen? (Read 4422 times)

In my country of origin, there are laws -- and I should know, as I plan to break them -- which require domestic businesses to use the local government-managed fiat currency as their operational capital, and to offer any products and services to customers in the same currency (presumably certain financial-services products are exempted).

It isn't literally zero faith until it's all over. As long as there are some people still taking some amount for actual stuff it continues.

From my understanding, people in government steal everyone else's money (they call this taxing, borrowing, and inflation), and when they have stolen too much, they go to war to steal some more, to distract others from their theft, and to use the war as an excuse to print. When this doesn't work, they just keep going until people realize what's going on.

Well if people have lost faith in the currency, then they all rush out at once to dump the dollar and buy products while they still can. The sharp rise in demand causes a sharp rise in prices. If the dollar is no longer money, then for all intents and purposes and perfect or not, all the products become money, until a new money is established.

Usually the government prints dollars chasing these prices, and it's never enough, so they print more. This also conveniently as mentioned keeps credibility while paying off government debt. But if people in government wanted to handle their debt right, they would have done it already. So there would be no expectation that they would stop printing until they thought they had blamed enough, stolen enough, made others suffer enough, fooled enough, or more likely got bored enough to try another fiat scam.

Stockholm syndrome.  I wish I were joking.

I am not very versed in economic theory but. If no one has faith in a currency how does printing more of it help? If I don't trust usd when I can get bread for $3 why on earth would I tryst it when $30 or $300 gets be the same bread. It like you not trusting me but me expecting you to trust me because I keep throughing myself in your face.
How does that work? It almost makes 0 sense... from a logical standpoint.
all economics sounds like some kind of religion. It sucks when our economy is faith based.

I'm not saying that faith can hold things together no matter what. I'm just saying that to a large extent the loss of faith requires the printing.

Do you know they were reduced? It seems to me it could just be less people willing to take a risk on derivatives when they know the base will soon be worthless.

http://news.bbc.co.uk/2/hi/business/3603923.stm

As this explains, at least during the Bush administration, Iraq was funded by "supplemental appropriations".  AKA, not from the budget.  When the budget is already a deficit, these funds were necessarily debt.

I really don't think it's much a problem of loss of faith. In Brazil, from 1980 to 1994, the monetary base expanded 2.303.797.693.883%. Yes, more than two trillion percent. There is no faith that could have kept the value of such money...
@chodpaba, the M1, in the same period, expanded a lot less - 1.656.853.722.660% (1,6 billion)-, meaning that the multipliers we were talking about decreased considerably. They actually prevented the damage from being worse, in a certain way.

I don't know about majority (simple fact lookup I guess), but point taken.

So governments can print for a long time without hyperinflation, it's the loss of faith that causes hyperinflation. No government ever needs to print 1000x the old monetary base unless hyperinflation has already taken hold, the truly MASSIVE printing is caused by hyperinflation. But sure, normal, reckless printing could trigger the loss of faith that triggers hyperinflation that then triggers trillion dollar bills.

Oh, good times in Brazil when hyperinflaction existed so my family used only USD...

:/

@Chodpaba, most of the time these multipliers are constant, and even when they change, the amount of inflation they can cause is limited, if they go too high, the system collapses, and those who pushed those multipliers too far go bankrupt. What doesn't have hard limits is the amount of new money the central bank can create.

It doesn't matter if each new dollar created by the Fed will become $10 or $100 or $1000 new dollars when passed through all multipliers. What matters is the relative growth of the monetary offer, if it is 1%, 10% or 100%. And this relative change to the monetary offer is the same relative change the Fed does to the monetary base when all multipliers remain constant.

It's like analyzing the complexity of functions in computer science. Constant multipliers don't really matter, what you have to look is the format of the curve, if it's N, N^2, 2^N etc. And in the realm of money, it is the central bank who shapes the curve.

No, the situation does not require that the government keeps releasing hell on its victims. It can stop printing. It will "only" have to find another way to fund its activities, as well as re-index its debt if it's indexed on the hiperinflationary currency.
And regarding the toilet paper example, if there's no money printing, prices will adjust, and you would be able to buy it.

As Mises said, in the long run, any quantity of money is enough.


Welcome!

IMO, it is less than clear whether confidence decline or monetary base expansion or some other factor is, strictly speaking, the cause of hyperinflation.  The microeconomic reasons are clear enough (supply/demand imbalance, presumably owing to everyone trying at once to sell their cash before it all becomes worthless), but in macro terms, I guess there is some debate about this.

In a hyper-inflationary economy, i.e., rapidly rising velocity of money coupled with rapid monetary inflation, the situation pretty much requires a printing press (in this way money is quite opposite to buggy whips), because if there is to be any hope for a return to a state-currency-based economy, there must exist a sufficient monetary base to service the real wealth of the country (put another way, if the entire monetary base isn't enough to buy a roll of toilet paper, it is obvious that the monetary base will need to greatly expand to serve any sort of useful function as an instrument of exchange and savings, barring some sort of deflationary event).

All of that being stated, not sure if any examples exist without massive printing of money.  Maybe Argentina sort of exemplifies a confidence based hyperinflation?  (Even so, I'm pretty sure they printed a bunch of money, and this compounded existing confidence problems).

btw, hello, welcome to my first post   

I don't know about "no reason", but they can certainly come up with one.  Look at the US.  Ever since 2001, we've funded the majority of our wars with printed money and/or debt.

Erm, I can't.

I may have overstated the point. Printing certainly could be the cause of a hyperinflation and maybe most are caused that way I don't know. A government that sat stable for a long time doesn't just suddenly printing instead of taxing for no reason, right?

I am interested and will probably read about this more tomorrow, I'll let you know if I find anything decently convincing that agrees with me.

I don't know any example of hyperinflation which hasn't being caused by massive increase of the monetary base... I lived in hyperinflation when a kid, and the cause was pure money printing... can you cite an example when people just lost faith in government's currency, without this one printing it like crazy before?

Massive withdraw of money from the fractional reserve system would most likely cause deflation of the monetary offer, with banks going bankrupted and all the M1 created by them vanishing...

All monetary aggregates are multipliers of the M0. If the M0 remains constant, these aggregates can only cause inflation/deflation if the multiplier changes, for example, if the compulsory decreases, that will increase the M1. But that's the only way and it's a limited effect. These aggregates multipliers are most of the time constants. And when they are constant, the only way the monetary offer can increase is if the monetary base increases. That's the true source of inflation.

But eventually most of them do stop. It just takes them a while - and lots of misery and suffering from the people they control - to accept reality. Stop printing means they either have to cut expanses or increase taxes, probably a strong mix of both.

I think the only example of government that did not stop was Zimbabwe, at least the only one I am aware about. They printed so much the people themselves abandoned the currency, and the government couldn't enforce its use any more.