7 ms·

The article explain the real reason for almost all the cases of hyperinflation in history (maybe all of them): "half of Hungary’s industrial capacity was destr

The article explain the real reason for almost all the cases of hyperinflation in history (maybe all of them): "half of Hungary’s industrial capacity was destroyed and 90% was damaged. Transportation was difficult because most of the rail lines and locomotives had been destroyed. What remained had either been taken by the Nazis back to Germany or seized as reparations by the Russians." How can you avoid inflation if your productive capacity is destroyed? You can't. How can you avoid "to print" more money if that destruction of real capacity is making your money less and less valuable? You can't. The exact same case happened in Germany (because the war and the war debt 'reparations') and Zimbabwe (because the agriculture capacity was destroyed by a redistribution of the land) (1). Obviously, it's the real economy what is important. (1).- http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773

bubbleRefuge 9y ago
nice. upvote. hopefully Bernie runs again and Stefanie Kelton gets a platform to bring MMT ideas to the masses.
- piyh 9y ago
  Nothing against Bernie, but the dude is 76. I'd prefer someone who will statistically be alive for more than 10 years.
  - tim333 9y ago
    Statistically he should be alive another 14 years or so https://www.johnhancockinsurance.com/life/life-expectancy-tool.aspx https://www.johnhancockinsurance.com/life/life-expectancy-to...
whatshisface 9y ago
There's a big difference between supply problems leading to inflation (which has an equilibrium,) and government problems leading to inflation (which has no fundamental limit.) In one case it's best to imagine it as the price of scarce goods rising, in the other it's best to picture it as the value of notes falling. Then, it's clear that one has a bound that the other doesn't.
- wz1000 9y ago
  As long as the government has the power to tax, it can shrink the supply of currency as much as it wants. There is no such "easy fix" for supply problems.
  - dnautics 9y ago
    But why would it ever shrink the supply of money? Much easier to take from the working class and give to cronies, then blame it on greed and capitalism.
    - RobertoG 9y ago
      Normally, the cronies are rich people. Even if inflation could be advantageous, sometimes, for some people, hyperinflation don't benefit anyone, but it benefit rich people the less. If you have liquid or even financial assets, you don't want inflation. If somebody owns you money you don't want inflation. If you want to hire cheap you don't want government spending in the economy and making workers more expensive. So, you have an interest in scare people about become the next Zimbabwe and all that. We can be sure that the cronies are already in charge when a little inflation is sold as worse than unemployment for instance.
    - mywittyname 9y ago
      Discriminatory tax policies are very effective at enriching the wealthy. If you think about it, being rich or wealthy is really just having a disproportionate share of the economic output of a region. You increase this share by taking in more money from other people than you spend. Most of the time, this happens through returns on investments, but getting the government to tax someone else more than they do yourself achieves the same result (more relative assets). This is part of the reason lobbying has such a great ROI for companies.
    - wz1000 9y ago
      So that its currency has value? The government does not benefit from hyper inflation.
jnordwick 9y ago
When the problem is too much money chasing too few goods, regardless of the cause you can drain the oversupply of money. If supply constricts, then you constrict the money supply. One way you can always do that is buy borrowing, taxing, or selling and extinguishing the money received. The fed does a version of this to target the overnight rate.
- RobertoG 9y ago
  I understand how taxing reduce money in the economy but I don't understand your reference to the overnight rate. My understanding is that the overnight rate gives the fed the power of making more expensive for banks to give credits, but only if there is a deficit of money, in the inter-bank market, respect the demand of credits by firms and families. Are you talking about that?
  - jnordwick 9y ago
    The fed funds rate is basically banks borrowing from each other to meet nightly reserve requirements. The fed open market iterations steps in and buys/sells that overnight debt creating/destroying money in the process. After QE it now does a lot more of this on the long end too. The fed only really influences that rate, and it does go off script. The link between the overnight rate and longer maturities has always been tenuous. Banks borrow I the short end, consumers on the longer end. Before QE, the Fed often had a difficult time pushing the long end around, but with QE it just did it direct.
nerfhammer 9y ago
> How can you avoid inflation if your productive capacity is destroyed? You can't. Uh, what? economic contraction causes deflation, not inflation. if no one has a job and weighs spending every cent very carefully, businesses have to cut prices in order to sell anything. Which means they have to cut what they pay everyone else, and so on. Or say if everyone loan out lots of money and now realizes that those loans are never going to be paid back, they realize that they have a lot less money than they thought they did, and that means they can't repay others, and so on. "productive capacity" being lost doesn't mean your "money" is "less and less valuable". No, it means money is extremely valuable, because you don't expect to be able to get any more of it. Everyone has a lot less money than they expected to have. It's a shortage of money, which therefore becomes more valuable. That's deflation. For example, during the Great Depression the US experienced 30% deflation. Hyperinflation where the nominal value of currency decreases by thousandsfold is always caused by inflationary finance where a treasury resorts to fund operations by simply printing money. Though that could happen because they were militarily forced to and could not collect taxes or sell bonds. Everyone has too much nominal currency relative to real valued goods and is afraid the nominal currency won't be accepted for the same amount of real value tomorrow.
- RobertoG 9y ago
  So, in your world view, if tomorrow a catastrophe destroyed half of the productive capacity of the USA, the US Dollar would double its value?
- Arwill 9y ago
  When production is gone, there are no goods produced. When there is a shortage of goods, you are willing to pay more for what there is, so does everyone else, and that leads to the spiral of money becoming worthless. What's the money worth when you can't buy anything with it?
yuhong 9y ago
Yea, the current US economy is debt-based with government bonds, which is the main way they are able to import more goods without hyperinflation.

bubbleRefuge 9y ago

nice. upvote. hopefully Bernie runs again and Stefanie Kelton gets a platform to bring MMT ideas to the masses.

piyh 9y ago
Nothing against Bernie, but the dude is 76. I'd prefer someone who will statistically be alive for more than 10 years.
- tim333 9y ago
  Statistically he should be alive another 14 years or so https://www.johnhancockinsurance.com/life/life-expectancy-tool.aspx https://www.johnhancockinsurance.com/life/life-expectancy-to...

whatshisface 9y ago

There's a big difference between supply problems leading to inflation (which has an equilibrium,) and government problems leading to inflation (which has no fundamental limit.) In one case it's best to imagine it as the price of scarce goods rising, in the other it's best to picture it as the value of notes falling. Then, it's clear that one has a bound that the other doesn't.

wz1000 9y ago
As long as the government has the power to tax, it can shrink the supply of currency as much as it wants. There is no such "easy fix" for supply problems.
- dnautics 9y ago
  But why would it ever shrink the supply of money? Much easier to take from the working class and give to cronies, then blame it on greed and capitalism.
  - RobertoG 9y ago
    Normally, the cronies are rich people. Even if inflation could be advantageous, sometimes, for some people, hyperinflation don't benefit anyone, but it benefit rich people the less. If you have liquid or even financial assets, you don't want inflation. If somebody owns you money you don't want inflation. If you want to hire cheap you don't want government spending in the economy and making workers more expensive. So, you have an interest in scare people about become the next Zimbabwe and all that. We can be sure that the cronies are already in charge when a little inflation is sold as worse than unemployment for instance.
  - mywittyname 9y ago
    Discriminatory tax policies are very effective at enriching the wealthy. If you think about it, being rich or wealthy is really just having a disproportionate share of the economic output of a region. You increase this share by taking in more money from other people than you spend. Most of the time, this happens through returns on investments, but getting the government to tax someone else more than they do yourself achieves the same result (more relative assets). This is part of the reason lobbying has such a great ROI for companies.
  - wz1000 9y ago
    So that its currency has value? The government does not benefit from hyper inflation.

jnordwick 9y ago

When the problem is too much money chasing too few goods, regardless of the cause you can drain the oversupply of money. If supply constricts, then you constrict the money supply. One way you can always do that is buy borrowing, taxing, or selling and extinguishing the money received. The fed does a version of this to target the overnight rate.

RobertoG 9y ago
I understand how taxing reduce money in the economy but I don't understand your reference to the overnight rate. My understanding is that the overnight rate gives the fed the power of making more expensive for banks to give credits, but only if there is a deficit of money, in the inter-bank market, respect the demand of credits by firms and families. Are you talking about that?
- jnordwick 9y ago
  The fed funds rate is basically banks borrowing from each other to meet nightly reserve requirements. The fed open market iterations steps in and buys/sells that overnight debt creating/destroying money in the process. After QE it now does a lot more of this on the long end too. The fed only really influences that rate, and it does go off script. The link between the overnight rate and longer maturities has always been tenuous. Banks borrow I the short end, consumers on the longer end. Before QE, the Fed often had a difficult time pushing the long end around, but with QE it just did it direct.

nerfhammer 9y ago

> How can you avoid inflation if your productive capacity is destroyed? You can't. Uh, what? economic contraction causes deflation, not inflation. if no one has a job and weighs spending every cent very carefully, businesses have to cut prices in order to sell anything. Which means they have to cut what they pay everyone else, and so on. Or say if everyone loan out lots of money and now realizes that those loans are never going to be paid back, they realize that they have a lot less money than they thought they did, and that means they can't repay others, and so on. "productive capacity" being lost doesn't mean your "money" is "less and less valuable". No, it means money is extremely valuable, because you don't expect to be able to get any more of it. Everyone has a lot less money than they expected to have. It's a shortage of money, which therefore becomes more valuable. That's deflation. For example, during the Great Depression the US experienced 30% deflation. Hyperinflation where the nominal value of currency decreases by thousandsfold is always caused by inflationary finance where a treasury resorts to fund operations by simply printing money. Though that could happen because they were militarily forced to and could not collect taxes or sell bonds. Everyone has too much nominal currency relative to real valued goods and is afraid the nominal currency won't be accepted for the same amount of real value tomorrow.

RobertoG 9y ago
So, in your world view, if tomorrow a catastrophe destroyed half of the productive capacity of the USA, the US Dollar would double its value?
Arwill 9y ago
When production is gone, there are no goods produced. When there is a shortage of goods, you are willing to pay more for what there is, so does everyone else, and that leads to the spiral of money becoming worthless. What's the money worth when you can't buy anything with it?

yuhong 9y ago

Yea, the current US economy is debt-based with government bonds, which is the main way they are able to import more goods without hyperinflation.