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> Nobody in the field worries about hyperinflation for developed economies. They might not, but could you ELI5 why they shouldn't be? Because as the interest p

> Nobody in the field worries about hyperinflation for developed economies. They might not, but could you ELI5 why they shouldn't be? Because as the interest payment on national debt grows, what happens eventually if not hyperinflation? You can't keep borrowing money to pay interest on existing debt, so you'll have to start printing money, right? How do you avoid eventual hyperinflation when you keep borrowing more and more money to increase your debt even more?

protoman3000 6y ago
Can you please ELI5 why a government would have to borrow money that it is able to print itself?
- krupan 6y ago
  If you could get cash now by promising to pay it back with something you can manufacture for (nearly) free, wouldn't you make that deal too?
  - krupan 6y ago
    The catch of course is that there really isn't a guarantee that the U.S. will be able to keep printing dollars without the value going down
- throw0101a 6y ago
  Strictly speaking, in the modern era, it is not "a government" that decides to print money, but rather the central bank, which are considered independent on government and do (should) not follow the orders of politicians. The central bankers are hired for a fixed-term (though renewable) and are given a mandate: > The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates. When prices are stable, long-term interest rates remain at moderate levels, so the goals of price stability and moderate long-term interest rates go together. As a result, the goals of maximum employment and stable prices are often referred to as the Fed’s “dual mandate.” * https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm https://www.federalreserve.gov/faqs/what-economic-goals-does... If 'printing money' helps to accomplish that mandate they will do so, but they will (theoretically/ideally) not print money just because it would be convenient for political purposes. It should also be noted that in most/may modern economies, private banks actually create the money the supply through issuing loans: * PDF: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... Good video by Ben Felix on the topic: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo
  - AnimalMuppet 6y ago
    Right, and this is specifically to avoid things like hyperinflation. Do you trust Congress to manage the money supply? I don't. I think they'd use it to buy votes rather than to do what's good for the country, and the result would be disaster.
krupan 6y ago
ELI5: When there is a lot of demand for something, the value of that thing goes up. When you increase the supply of that thing, the value goes back down. In other words, the value of a thing changes based on both supply and demand. Inflation is where the value of dollars goes down. As long as you don't print more dollars than people are demanding, you won't get hyperinflation. The U.S. dollar, for one reason or another, is in high demand all over the world. Other national currencies are not, so when they printed too much of their currency they got hyperinflation. If the U.S. printed too many dollars too quickly, or demand for dollars dropped quickly, the dollar could see hyperinflation too.
- mehrdadn 6y ago
  You didn't account for the effect of increasing debt on the necessity to print money?
  - krupan 6y ago
    Debt is the demand. People (governments) are loaning the U.S. money in exchange for the U.S. paying them back in dollars. That's how bad they want dollars.
    - mehrdadn 6y ago
      But obviously the question isn't "would they still want dollars?", right? But rather "at what price (i.e. interest) will they want dollars?"... and my point is that price will need to keep increasing as the US borrows more and prints more money to pay interest on its existing debt, right? I don't understand how you just neglect this feedback loop... it screams exponential growth to me.
      - krupan 6y ago
        You are absolutely correct. If demand for dollars drops someday the U.S. is in for a world of hurt. It would have to find some way to decrease the supply of dollars to match. Right now I believe that would have to be through increased taxation.
throw0101a 6y ago
> You can't keep borrowing money to pay interest on existing debt Actually, you probably can. The long-term trend of interest rates, at least in the West, has to decline over the course of 700 years: * https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes... There have been many gyrations, but the trend is pretty clear. It's easier to pay past (more expensive) debt with new current (cheaper) debt. The UK is still rolling forward debt from the South Sea Bubble (1700s), Napoleonic Wars (early 1800s), Crimean War (late 1800s), and World War 1 (1910s): * https://www.theguardian.com/business/blog/2014/oct/31/paying-the-price-of-war-britain-makes-good-on-historic-debts https://www.theguardian.com/business/blog/2014/oct/31/paying... * https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed https://www.theguardian.com/business/2014/oct/31/uk-first-wo... As a person, your accounts come 'due' in your lifetime, so when you die your estate holdings will be sold off, and remaining debts will be paid off. If there's not enough to pay it off, then the creditors are S.O.L.; if there's extra left over your heirs can get something. A country/nation on the other hand just 'keeps going' (short of revolutions or being conquered), and so there's no cut-off date when accounts have to be settled.
andrekandre 6y ago
> How do you avoid eventual hyperinflation when you keep borrowing more and more money to increase your debt even more? if i understand correctly, from reading bits here and there, its basically as long as you have something to offset the printing with (taxing out of circulation, ensuring the excess money is spent, taking out of circulation with bond offerings etc) then the "negative" value of the taxing/spending/bonds prevents the in-circulation (positive) cash to cause inflation. its basically the debts vs liabilities balancing each other out on a national scale: as long as you balance the assets with some kind of liability, you are 'ok' afaiu basically, modern monetary theory* * https://en.wikipedia.org/wiki/Modern_Monetary_Theory https://en.wikipedia.org/wiki/Modern_Monetary_Theory
QuesnayJr 6y ago
Japan's debt-to-GDP ratio is 266%. Japan's inflation rate is below 1%. After the Napoleonic wars, Britain had a debt-to-GDP ratio over 200%, and didn't have serious inflation. There is no mechanical relationship between high debt and inflation. Countries generally only have hyperinflation when things have gone terribly wrong.

protoman3000 6y ago

Can you please ELI5 why a government would have to borrow money that it is able to print itself?

krupan 6y ago
If you could get cash now by promising to pay it back with something you can manufacture for (nearly) free, wouldn't you make that deal too?
- krupan 6y ago
  The catch of course is that there really isn't a guarantee that the U.S. will be able to keep printing dollars without the value going down
throw0101a 6y ago
Strictly speaking, in the modern era, it is not "a government" that decides to print money, but rather the central bank, which are considered independent on government and do (should) not follow the orders of politicians. The central bankers are hired for a fixed-term (though renewable) and are given a mandate: > The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates. When prices are stable, long-term interest rates remain at moderate levels, so the goals of price stability and moderate long-term interest rates go together. As a result, the goals of maximum employment and stable prices are often referred to as the Fed’s “dual mandate.” * https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm https://www.federalreserve.gov/faqs/what-economic-goals-does... If 'printing money' helps to accomplish that mandate they will do so, but they will (theoretically/ideally) not print money just because it would be convenient for political purposes. It should also be noted that in most/may modern economies, private banks actually create the money the supply through issuing loans: * PDF: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... Good video by Ben Felix on the topic: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo
- AnimalMuppet 6y ago
  Right, and this is specifically to avoid things like hyperinflation. Do you trust Congress to manage the money supply? I don't. I think they'd use it to buy votes rather than to do what's good for the country, and the result would be disaster.

krupan 6y ago

ELI5: When there is a lot of demand for something, the value of that thing goes up. When you increase the supply of that thing, the value goes back down. In other words, the value of a thing changes based on both supply and demand. Inflation is where the value of dollars goes down. As long as you don't print more dollars than people are demanding, you won't get hyperinflation. The U.S. dollar, for one reason or another, is in high demand all over the world. Other national currencies are not, so when they printed too much of their currency they got hyperinflation. If the U.S. printed too many dollars too quickly, or demand for dollars dropped quickly, the dollar could see hyperinflation too.

mehrdadn 6y ago
You didn't account for the effect of increasing debt on the necessity to print money?
- krupan 6y ago
  Debt is the demand. People (governments) are loaning the U.S. money in exchange for the U.S. paying them back in dollars. That's how bad they want dollars.
  - mehrdadn 6y ago
    But obviously the question isn't "would they still want dollars?", right? But rather "at what price (i.e. interest) will they want dollars?"... and my point is that price will need to keep increasing as the US borrows more and prints more money to pay interest on its existing debt, right? I don't understand how you just neglect this feedback loop... it screams exponential growth to me.
    - krupan 6y ago
      You are absolutely correct. If demand for dollars drops someday the U.S. is in for a world of hurt. It would have to find some way to decrease the supply of dollars to match. Right now I believe that would have to be through increased taxation.

throw0101a 6y ago

> You can't keep borrowing money to pay interest on existing debt Actually, you probably can. The long-term trend of interest rates, at least in the West, has to decline over the course of 700 years: * https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes... There have been many gyrations, but the trend is pretty clear. It's easier to pay past (more expensive) debt with new current (cheaper) debt. The UK is still rolling forward debt from the South Sea Bubble (1700s), Napoleonic Wars (early 1800s), Crimean War (late 1800s), and World War 1 (1910s): * https://www.theguardian.com/business/blog/2014/oct/31/paying-the-price-of-war-britain-makes-good-on-historic-debts https://www.theguardian.com/business/blog/2014/oct/31/paying... * https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed https://www.theguardian.com/business/2014/oct/31/uk-first-wo... As a person, your accounts come 'due' in your lifetime, so when you die your estate holdings will be sold off, and remaining debts will be paid off. If there's not enough to pay it off, then the creditors are S.O.L.; if there's extra left over your heirs can get something. A country/nation on the other hand just 'keeps going' (short of revolutions or being conquered), and so there's no cut-off date when accounts have to be settled.

andrekandre 6y ago

> How do you avoid eventual hyperinflation when you keep borrowing more and more money to increase your debt even more? if i understand correctly, from reading bits here and there, its basically as long as you have something to offset the printing with (taxing out of circulation, ensuring the excess money is spent, taking out of circulation with bond offerings etc) then the "negative" value of the taxing/spending/bonds prevents the in-circulation (positive) cash to cause inflation. its basically the debts vs liabilities balancing each other out on a national scale: as long as you balance the assets with some kind of liability, you are 'ok' afaiu basically, modern monetary theory* * https://en.wikipedia.org/wiki/Modern_Monetary_Theory https://en.wikipedia.org/wiki/Modern_Monetary_Theory

QuesnayJr 6y ago

Japan's debt-to-GDP ratio is 266%. Japan's inflation rate is below 1%. After the Napoleonic wars, Britain had a debt-to-GDP ratio over 200%, and didn't have serious inflation. There is no mechanical relationship between high debt and inflation. Countries generally only have hyperinflation when things have gone terribly wrong.