With hyperinflation, the bank’s version of not taking it sitting down happens when they call up the President, the Chariman of the Fed, the Treasury Secretary, their Senators, etc. Those people get an earful about the importance of stabilizing the currency.
Of course, you also want to make sure you have a fixed interest rate. If there’s an adjustable rate clause in the mortgage, the bank will probably jack up the interest to 100,000% (or whatever it takes) and the bank will stick it to you that way.
(Maybe it’s a tangent, but that’s why fixed-rate, long-term interest rates represent their own kind of risk. The principal may be relatively safe in dollar terms, but inflation can wipe out the purchasing power of those dollars. Banks know that and - at least in theory - figure that into how they do business.)
Mostly they do this by adopting a new currency. It could be a foreign currency like US$, or it could be a new version of the old currency.
For an example of a new currency, Mexico introduced the nuevo peso to replace the old pesos at a 1:1000 ratio (if memory serves). A decade later, they dropped the nuevo from the name on the currency and so now they officially say peso. I don’t think the average Joe (or Jose in this case) ever stopped calling them pesos.
My grandfather lived through the German hyperinflation. A period joke: A man took a wheelbarrow of money to the store, but left it unguarded. When he returned, the money was still there, but the wheelbarrow was gone.
Well, the first step is to figure out what the problem was that caused the hyperinflation in the first place, and fix that. This sometimes requires a hit from a rather substantial clue-by-four.
Once you’ve done that, then the extra zeroes on your currency cease to be a problem, too. The value of your money doesn’t really matter, just so long as it’s relatively stable. You can just go on using bills with large numbers on them, or, if the numbers are too large to make that practical, you redefine the unit.
So what I’m seeing is, while it’s not outright dangerous to live with/during hyperinflation, it’s a major PITA–I gotta do all this trading, primarily, and run to the general store the second I get paid. As I’m by far more of a borrower, I might even welcome a year or two of this inconvenience if it means I can pay off my credit card, student loans, and house with two months’ work (though I’m not naive enough to think that in this day and age the banks won’t find a way to ensure I’d still have to pay the pre-HI equivalent).
More questions:
I work for the local government, actually (librarian). So HI hits and suddenly my biweekly $1000 check becomes a biweekly $100,000 check. How is it the local gov’t can even possibly issue these kinds of paychecks? Do they levy exorbitant emergency property taxes?
How is it that the rate of inflation is measured, much less communicated throughout the whole country? I guess in this day and age there’s the internet (it’s still on, right?), but in Wiemar Germany how did the coffeehouse even know to charge 10,000 marks for a cup of joe at 2 pm and 100,000 marks at 7pm? And does the the inflation’s hyperactivity extend to all parts of the country? How are there not gonna be regional variations?
Inflation “communicates” itself through the economy as price signals; it doesn’t require a government agency to track it and co-ordinate price increases. Suppliers (whether goods, services or labour) raise their prices in response to rising prices.
It may be easier to understand if you realise that the daily inflation rate is actually quite minor, even in extreme cases of hyperinflation.
For example, if the annual inflation rate is 100,000%, this corresponds to a much more manageable (barely noticeable) 2% per day. So the coffee shop may decide to increase their prices tomorrow, if they find they are paying a bit more for milk that morning. But they don’t necessarily have to increase their prices within day.
Other expenses, such as rent, may be more sticky; the rent will go up (a lot) when the lease is due for renewal, but in the meantime it is fixed by contract.
Stock markets don’t exactly like inflation, but they sure do better than bond markets. If you have to have money in your domestic currency, it’s best off invested in stock. If you think of stock values as a multiple of earnings, then you expect values to somewhat keep pace with inflation.
There would be some stocks that would be relative winners and others that would be relative losers:
On the down side, corporations are hit by the chaos like everyone else. Long term contracts, pension obligations, savings, etc. can all be impacted. All of them are hurt by the fact that financing and savings are basically destroyed.
On the up side, inventories hold value better than cash, sales and expenses both tend to track inflation, and the real value of debts actually goes down.
They don’t “fall for it”, they lend on the assumption (almost always correct) that high levels of inflation (let alone the extremely rare circumstance of hyperinflation) will not occur before the loan is paid off. That is why banks (and very wealthy people, who have lots of money and lots of creditors) hate and fear even fairly moderate levels of inflation, and exert their power on governments to institute designed to keep inflation levels low. This is despite the fact that for most ordinary people, moderate to high levels of inflation are mostly harmless or even beneficial. (I admit that hyperinflation is a bit different. It is nasty for everyone because of the extreme levels of uncertainty and chaos it brings, but, as I said, also very rare. It is not likely to happen. It is boogeyman meant to get you scared into believing that inflation must be kept to a minimum at all costs.)
That is why we now have government imposed austerity and the resulting high levels of unemployment, because the banks do not want to see all the credit they hold, the debts people owe them, reduced in value by inflation.
Perhaps. But you have to remember hyperinflation is a major economic crisis. Some companies are going to collapse and if you invested in one of them, your money is gone.
The safest place to keep money during a hyperinflation crisis is in tangible assets like gold or jewels or in foreign currency. There were people who traveled to Germany in 1923 because you could pretty much buy anything if you were paying in pounds or francs or dollars.
Which, of course, only goes to show that hyperinflation does not trigger the end of civilization, since in that case rare metals and gems which have value only for socially agreed reasons would also cease to be worth anything.
Hyperinflation doesn’t just happen to a country by accident. It is a deliberate policy of the government, it happens when the government is unable to collect taxes and so just prints up money and pays with that. The problem then is that new money is constantly added to the economy, but there are the same amount of goods and services as before. And so when there is twice as much money as before, the money is worth half as much. And when people expect inflation, they spend money as fast as possible, to avoid losing the value of the money, which creates more inflation.
And so the solution is simple, the government needs to collect taxes rather than printing money. Except the reason they printed the money in the first place is because they couldn’t collect enough taxes to cover the expenses of government, and couldn’t borrow it, and so had to create it out of thin air. If they could raise enough money in taxes to stop inflating the currency then there wouldn’t be an inflation in the first place.
So there is no prospect of hyperinflation, because the United States government is powerful enough to collect some taxes and pay most of its debts. We might get HIGH inflation–70s style double digit inflation, after a decade of that the value of a dollar is half or a quarter what it once was. But that’s not hyperinflation. That’s just regular inflation. And even regular inflation is easy to control, just stop injecting more money into the economy.
The problem is that it’s easier to create more fiat money than it is to collect taxes or borrow money. The problem with creating more fiat money is that banks and businesses and wealthy powerful people hate it, because it means borrowers borrow expensive money and pay it back with cheap money. If you’re in the business of lending money, you don’t want that. And that’s why during deflationary periods, where money is taken out of the economy, you have the spectacle of lenders getting paid back in more expensive dollars, and the stock melodrama figure of the mustachioed banker foreclosing on Nell’s family farm because the mortgage was taken out in cheap dollars but has to be paid back in expensive dollars.
So since the government wants to keep the bankers happy, they try to keep inflation as low as possible. If we start seeing higher inflation, look to the Fed to suddenly hoover out of the economy, even if it means yet another dip into recession.
Wiki quotes the exceptionally high monthly and daily rates leading to doubling of prices measured in hours
“The Post-World War II hyperinflation of Hungary held the record for the most extreme monthly inflation rate ever — 41,900,000,000,000,000% (4.19 × 1016% or 41.9 quadrillion percent) for July 1946, amounting to prices doubling every 15.3 hours. By comparison, recent figures (as of 14 November 2008) estimate Zimbabwe’s annual inflation rate at 89.7 sextillion (1021) percent.,[14] which corresponds to a monthly rate of 5473%, and a doubling time of about five days. In figures, that is 89,700,000,000,000,000,000,000%”
The Shadowstats link is even better: the author has been predicting hyperinflation since 2008 and claims that the government’s inflation stats are wildly off, though he refuses to release the methodology underlying his calculations.
I’ll also note that during times of elevated inflation (eg 20% per month - which is not yet hyperinflation) that an increasing share of commerce is often conducted in a foreign currency. During the post-war era, that meant the US dollar.
Internet and AM wackos and a few Austrian Economists have been predicting hyperinflation since 2008. It hasn’t seemed to occur to them to revisit their views, even though core inflation declined through the end of 2011. Admittedly it has increased since then but at 2.0 -2.4% per year is still a lot lower than it was during the late 1980s. http://wm40.inbox.com/thumbs/65_130b59_ec3783c_oP.png.thumb
My grandparents brought back an au pair/maid of all work - apparently from what is circulated around the family she offered to work for them for room, board and clothing and was amazed when they paid her money. Knowing Marie and my grandparents, this is quite believable.
[Actually, she was given a small piece of land between my grandparents summer house and our summer house with a cottage on it, she rented it out every summer that I can remember until she died to the same family. She was also buried in the family plot, and when she was too old to work she lived with my Uncle John and then when he and my aunt were unable to take care of her properly because my Uncle ended up with the family Parkinsons she moved in with my parents until she died. She worked and lived with our family for over 70 years.]
There can’t be any such thing as secret hyperinflation. Either your paycheck still buys a loaf of bread or it doesn’t. This has to be the dumbest conspiracy theory of all time.
Think about Greece. Recently it promised far too much money to civil servants and pensioners (retire at 55 with almost full pay). if made tax evasion a national sport - some stories said taxes were deliberately not collected from social groups who supported the ruling party. Projects and government corporations were badly over-spent; one (not) joke said it would be cheaper for teh government to close the national railway company and send all the apssengers by taxi.
In a real country, the government would solve this problem by printing money. Then, the pensioner or civil servant would get their 50,000 drachmas a year, but eventually ther would be so many drachmas in circulation it would barely pay for a few weeks’ groceries. After all, if you saw the people had lots of money, you’d raise your prices. Coffee, $5. Your suppliers would raise their prices - coffee beans and cream cost twice as much. It’s a vicious cycle, and hyperinflation is the result of a central bank that keeps flooding the country with money.
Greece, unfortunately, cannot print Euros - a central bank under watchful german eyes makes sure the money supply does not go crazy. So Greece, like California or US municipalities, has to have the income to match its outgo or else it defaults, and the civil servants get no paycheque or half a paycheque. That is a different economic hell with its own ramifications.
