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Page history last edited by PBworks 12 years, 4 months ago

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Hyperinflation 2008


definition of hyperinflation:  Deadly strain of inflation – rising a million or even a trillion percent per year.  The major redistributive impact of inflation comes through its effect on the real value op people’s wealth.


Why is inflation so bad? 


Economists are constantly warning us about inflation. They say that the Fed must raise interest rates to fight inflation, but politicians and business leaders cry about the slowing of the economy due to rising interest rates.  


In most of my lifetime, I have never personally known the evils of hyperinflation, so its easy to become attracted to growth, and less fearful of inflation.  But, a quick look at countries currently fighting inflation is a great reality-check, and might get you calling for the inflation-fighters to sharpen their swords, and to do all they can to keep a lid on the inflation bug.


Example:  Zimbabwe 2008:   I recently read in the WSJ that in January, the government was forced to stop counting inflation, with the last published report being 100,580% per year (and was still rising quickly)!   At that time, a simple loaf of bread would cost 30 billion Zimbabwean dollars.   The soda vending machines had to all be turned off because it would take hours to put in the billions of coins needed to get one can of coke, if you could find one.   Imported from South Africa, a can of coke was selling for 15 billion Zimbabwean dollars on the black market.  Civil servants, however, were tied by a law that limited their bank withdrawals to just 25 billion per day (less than 2 cans of coke).   In response to hyperinflation, people were forced to go shopping with huge baskets of money, and spend it as fast as they can, before its worthless.  In order to print the paper fast enough, the government was importing special paper from Germany by the container load, and it would quickly loose all value as soon as it went out into circulation.  


This case is clearly an extreme, brought about by mis-management of the economy, political repression, and an economic crisis.  But it does give an economic warning about the evil potential of hyper inflation, and a reminder of what can happen if the government keeps on printing more money, and does not do enough to control the money supply.




(from Giesecke & Devrient), but political pressure forced that trade to stop in July of '08.







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