4 ms·

What about hyperinflation?

DennisP 6y ago
Inflation, sure, but hyperinflation mainly happens in countries that have to borrow foreign currencies. That was the case for Weimar Germany, for example. If you can sell bonds in your own currency you're much better off.
- steveeq1 6y ago
  I can't believe I'm the only person who sees this.
  - solresol 6y ago
    What would qualify as hyperinflation? If by hyperinflation you mean "several years of 10-20% inflation" -- something unprecedented in developed economies in recent history -- then sure, that's not unimaginable. It's also not a civilisation-changing problem. Many countries have lived through that kind of experience. I supposed I could be convinced that 1970s-style stagflation could return as a result of the pandemic. If on the other hand you mean "100% per week inflation", e.g. like Zimbabwe experienced, then that one is harder to defend. You'd need to have the loss of a functioning reserve bank as a starting point (because otherwise the reserve bank would just push interest rates up to the point that inflation was reduced). Generally having a powerless reserve bank can only happen when some other country controls whatever it is that backs the currency that everyone in your country uses for trade. (e.g. being on the gold standard; being part of the Eurozone and not being trusted, large amounts of borrowing and transactions in foreign currencies; an economy based on bitcoin transactions; if any of these apply you have at least the basis for an inability to stop hyperinflation). What's the trajectory that would get the USA there though?
- gregw134 6y ago
  Could you explain more, or provide a link?
  - DennisP 6y ago
    Let's say your currency is marks and you owe dollars to foreign investors. You have trouble paying so you print more marks. The marks devalue relative to your debt, making it even harder to pay off, requiring even more printing. Now say your currency is dollars and you owe debt in dollars. If you print more dollars, they devalue, but the value of your debt goes down right along with your currency. It's bad for the lenders and you might have to promise more interest to borrow more, but you don't spiral into oblivion just trying to pay off your existing debt.
xupybd 6y ago
It's possible but I see that as a short term (< 5 years) problem not a fundamental and permanent shift to life as we know it.

Inflation, sure, but hyperinflation mainly happens in countries that have to borrow foreign currencies. That was the case for Weimar Germany, for example. If you can sell bonds in your own currency you're much better off.

steveeq1 6y ago
I can't believe I'm the only person who sees this.
- solresol 6y ago
  What would qualify as hyperinflation? If by hyperinflation you mean "several years of 10-20% inflation" -- something unprecedented in developed economies in recent history -- then sure, that's not unimaginable. It's also not a civilisation-changing problem. Many countries have lived through that kind of experience. I supposed I could be convinced that 1970s-style stagflation could return as a result of the pandemic. If on the other hand you mean "100% per week inflation", e.g. like Zimbabwe experienced, then that one is harder to defend. You'd need to have the loss of a functioning reserve bank as a starting point (because otherwise the reserve bank would just push interest rates up to the point that inflation was reduced). Generally having a powerless reserve bank can only happen when some other country controls whatever it is that backs the currency that everyone in your country uses for trade. (e.g. being on the gold standard; being part of the Eurozone and not being trusted, large amounts of borrowing and transactions in foreign currencies; an economy based on bitcoin transactions; if any of these apply you have at least the basis for an inability to stop hyperinflation). What's the trajectory that would get the USA there though?
gregw134 6y ago
Could you explain more, or provide a link?
- DennisP 6y ago
  Let's say your currency is marks and you owe dollars to foreign investors. You have trouble paying so you print more marks. The marks devalue relative to your debt, making it even harder to pay off, requiring even more printing. Now say your currency is dollars and you owe debt in dollars. If you print more dollars, they devalue, but the value of your debt goes down right along with your currency. It's bad for the lenders and you might have to promise more interest to borrow more, but you don't spiral into oblivion just trying to pay off your existing debt.

xupybd 6y ago

It's possible but I see that as a short term (< 5 years) problem not a fundamental and permanent shift to life as we know it.