4 ms·

Theoretically, inflation, even hyper-inflation, should not affect the economy or businesses in anyway. The real problem is the uncertainty of inflation. Practic

by smabie 7y ago

Theoretically, inflation, even hyper-inflation, should not affect the economy or businesses in anyway. The real problem is the uncertainty of inflation. Practically speaking, even certain hyperinflation has costs: the prices rise faster than people can react to them (reprice goods, update software, etc). But I think certain inflation up to maybe 50%/year isn't that big of a deal.

pjc50 7y ago
The economics literature actually calls this "menu repricing cost". But more serious a problem than goods prices are wage values - in order to keep up you need an increasing frequency of raises, which have to be argued over or even fought for with strikes. This was a key element in the UK's industrial strife of the 1970s, when inflation was over 10% and sometimes up to 20% a year - a long way from Venezuela, but still significant. https://upload.wikimedia.org/wikipedia/commons/c/c4/United_Kingdom_unemployment_1881-2017.png https://upload.wikimedia.org/wikipedia/commons/c/c4/United_K...
viraptor 7y ago
> should not affect the economy or businesses in anyway What do you mean by this? Hyper-inflation completely changes the economy and businesses. You can't save up money, which means no real investment. Whatever you don't spend within days becomes close to worthless, so large transactions become much harder. This is assuming you're also restricted from trading currency though.
- smabie 7y ago
  You can just buy inflation hedged assets: real-estate, food, gold, stocks, etc.
deleted 7y ago
[deleted]
forinti 7y ago
I am not an economist, but I have read many times that one of the consequences of prolonged inflation in Brazil was that businesses got hooked on (and very good at) investing their money as opposed to actually making things and selling them.
- chii 7y ago
  > businesses got hooked on (and very good at) investing their money but what do they invest in? Surely for an investment to pan out, something is produced which is then sold!?
  - forinti 7y ago
    Mostly government bonds.
andreareina 7y ago
Even if your salary increases in lockstep with inflation, at 50% you'll never be able to afford anything that costs 3x salary.
- smabie 7y ago
  You simply convert all of your money into inflation hedged products: food, stocks, real-estate, etc.
  - Raidion 7y ago
    You've said this a couple times, like it's an instant cure. However, basic economics of supply and demand mean you're not getting usual prices on inflation hedged goods. The guy that has inflation hedged goods is not going to want to trade them for non-inflation hedged goods, for the same reason you're trying to buy. Unless... you make it worth his while. You're going to be paying a huge risk premium that devalues your currency even more. Coupled with the innate scarcity and large capital commitments of real-estate and gold, you're not going to have a good time.
epx 7y ago
It has an administrative cost that would be better spend elsewhere.
- jfengel 7y ago
  Sure. But that's an overhead, rather than the complete economic collapse that the term "triple digit inflation" conjures in the minds of those who fear single-digit inflation. Hyperinflation like that is different in kind, not just in quantity. Hyperinflation always starts with some kind of economic shock, which the government responds to by borrowing, as is entirely reasonable. ("Printing money" is just a kind of borrowing, from the captive audience of its citizens who have to accept the local currency as payment and have to pay for government services in that currency.) But if they can't fix the original shock, everything just adjusts to that new price point. And if they keep applying the same solution, they get the same results. The hyperinflation thus isn't great, but it's not really the problem, and you wouldn't make the problem better by doing away with the hyperinflation. You'd have the same bad economy with different numbers on the money. It's better not to have to do that to the money, but better still to get to the root of the matter -- which is challenging under the best of circumstances, and the circumstances that produce hyperinflation are usually not the best.
  - epx 7y ago
    It is a BIG overhead. I have lived in such a situation, so as far as first-hand experience is worth... I am allergic to any defense or downplay of inflation because there is a lot of people here that see "advantages" in it. Mostly politicians that magically solved all cash flow problems of their governments by delaying payment for a couple months. They like to call this "economic development".
remote_phone 7y ago
This is an absurd statement. It has no basis in reality and inflation even in the 20% range is problematic. 50% inflation causes a lot of problems.
SketchySeaBeast 7y ago
Are you assuming that your employer would increase your wage at the same rate? I'm a bit confused how the inflation appears in the economy and somehow ends up in the pockets of workers instead of somewhere else. Considering that doesn't always happen now with normal inflation, I can't see it happening then.

by smabie 7y ago

pjc50 7y ago

The economics literature actually calls this "menu repricing cost". But more serious a problem than goods prices are wage values - in order to keep up you need an increasing frequency of raises, which have to be argued over or even fought for with strikes. This was a key element in the UK's industrial strife of the 1970s, when inflation was over 10% and sometimes up to 20% a year - a long way from Venezuela, but still significant. https://upload.wikimedia.org/wikipedia/commons/c/c4/United_Kingdom_unemployment_1881-2017.png https://upload.wikimedia.org/wikipedia/commons/c/c4/United_K...

viraptor 7y ago

> should not affect the economy or businesses in anyway What do you mean by this? Hyper-inflation completely changes the economy and businesses. You can't save up money, which means no real investment. Whatever you don't spend within days becomes close to worthless, so large transactions become much harder. This is assuming you're also restricted from trading currency though.

smabie 7y ago
You can just buy inflation hedged assets: real-estate, food, gold, stocks, etc.

deleted 7y ago

[deleted]

forinti 7y ago

I am not an economist, but I have read many times that one of the consequences of prolonged inflation in Brazil was that businesses got hooked on (and very good at) investing their money as opposed to actually making things and selling them.

chii 7y ago
> businesses got hooked on (and very good at) investing their money but what do they invest in? Surely for an investment to pan out, something is produced which is then sold!?
- forinti 7y ago
  Mostly government bonds.

andreareina 7y ago

Even if your salary increases in lockstep with inflation, at 50% you'll never be able to afford anything that costs 3x salary.

smabie 7y ago
You simply convert all of your money into inflation hedged products: food, stocks, real-estate, etc.
- Raidion 7y ago
  You've said this a couple times, like it's an instant cure. However, basic economics of supply and demand mean you're not getting usual prices on inflation hedged goods. The guy that has inflation hedged goods is not going to want to trade them for non-inflation hedged goods, for the same reason you're trying to buy. Unless... you make it worth his while. You're going to be paying a huge risk premium that devalues your currency even more. Coupled with the innate scarcity and large capital commitments of real-estate and gold, you're not going to have a good time.

epx 7y ago

It has an administrative cost that would be better spend elsewhere.

jfengel 7y ago
Sure. But that's an overhead, rather than the complete economic collapse that the term "triple digit inflation" conjures in the minds of those who fear single-digit inflation. Hyperinflation like that is different in kind, not just in quantity. Hyperinflation always starts with some kind of economic shock, which the government responds to by borrowing, as is entirely reasonable. ("Printing money" is just a kind of borrowing, from the captive audience of its citizens who have to accept the local currency as payment and have to pay for government services in that currency.) But if they can't fix the original shock, everything just adjusts to that new price point. And if they keep applying the same solution, they get the same results. The hyperinflation thus isn't great, but it's not really the problem, and you wouldn't make the problem better by doing away with the hyperinflation. You'd have the same bad economy with different numbers on the money. It's better not to have to do that to the money, but better still to get to the root of the matter -- which is challenging under the best of circumstances, and the circumstances that produce hyperinflation are usually not the best.
- epx 7y ago
  It is a BIG overhead. I have lived in such a situation, so as far as first-hand experience is worth... I am allergic to any defense or downplay of inflation because there is a lot of people here that see "advantages" in it. Mostly politicians that magically solved all cash flow problems of their governments by delaying payment for a couple months. They like to call this "economic development".

remote_phone 7y ago

This is an absurd statement. It has no basis in reality and inflation even in the 20% range is problematic. 50% inflation causes a lot of problems.

SketchySeaBeast 7y ago

Are you assuming that your employer would increase your wage at the same rate? I'm a bit confused how the inflation appears in the economy and somehow ends up in the pockets of workers instead of somewhere else. Considering that doesn't always happen now with normal inflation, I can't see it happening then.