5 ms·

I don't understand hyperinflation. Doesn't it become obvious that you should stop printing money when the cost of printing the money is higher than the value pr

by daenz 6y ago

I don't understand hyperinflation. Doesn't it become obvious that you should stop printing money when the cost of printing the money is higher than the value printed on the notes?

samuel 6y ago
But then the government has to default, hasn't it?
nradov 6y ago
You are assuming a basic level of competence which doesn't exist in the Venezuelan government.
ZoomerCretin 6y ago
If you’re a dictator looking to hold on to power, and you have no ability to borrow money (can’t pay in bolivar because it quickly becomes worthless, can’t pay in foreign currency because your inflation rate effectively makes the loan’s interest rate high), why not print? It may not help your citizens, but you can keep your army fed enough to stay on your side.
- opnitro 6y ago
  Additionally in the Venezuelan case, their ability to borrow money is also hampered by sanctions.
  - dmingod666 6y ago
    Ofcourse, the countries placing sanctions are never to blame.. Take North Korea for example.. I like to imagine this is how it plays out in the people heads: "like, it's so sad that the people there suffer.. our hearts go out to them.. should we lift sanctions..? Hell no, let them burn to the ground, let them realize who they're messing with.."
- croes 6y ago
  Has nothing to do with being dictator. If you can't borrow money you have to print it.
  - maneesh 6y ago
    Not many classes of people other than a dictator are able to print fiat currency unilaterally though
    - croes 6y ago
      Every nation with it's own currency and a central bank can print money. Other banks can even create money from thin air through lending. How much depends on the equity quote.
raverbashing 6y ago
> Doesn't it become obvious that you should stop printing money when the cost of printing the money is higher than the value printed on the notes? No, because who's doing the printing doesn't care. They're printing it (the government) to pay their own debts
- rrmm 6y ago
  In 2008, the company who made banknote paper for Zimbabwe refused to deliver any more to try to slow down the worsening crisis.
lumost 6y ago
Usually these situations arise out of rock & hard place trade offs. The Weimar Republic printed money to pay foreign war debts that they otherwise couldn’t raise taxes for. If Germany failed to pay France its entirely reasonable France could go to war. If The Venezuelan government can’t pay foreign or domestic obligations then they need to print money or default. They may not have the ability to default.
- clairity 6y ago
  the real question is, why does the counter-party accept the inflating currency, knowing that the value of it is falling like a rock? why not demand real goods and assets over worthless paper? (i have some (likely half-baked) ideas, but throwing the question out there for discussion)
  - rybosworld 6y ago
    I think it's helpful to think of it like this: They owe $100 but don't have $100. They find someone willing to exchange $100 for 100 Bolivars. But instead of using Bolivars the government has on hand (reserves), they print them. This devalues the Bolivars, meaning the next time they try to buy dollars, they'll have to put up more Bolivars than before. The counterparty in this case, is anyone who thinks they can buy something with Bolivars equal to $100 worth of goods. Chances are that they can. But they have to act quickly before another devaluation. This is overly simplified but covers the gist of it.
    - lumost 6y ago
      Depending on the nature of the debt there is also the possibility that it’s denominated in local currency e.g. pension obligations. In such a case the counter party may not have a legal recourse other than accept the inflating currency.
    - clairity 6y ago
      putting aside the currency exchange mechanics, my question is more that if a sovereign debtor wants to give me a trillion bolivars of debt payment, but has a 1000 pounds of ready coffee beans, i'd demand the coffee beans rather than the bolivars because that won't devalue in the global economy nearly as quickly. certainly this can only work if the country has enough various goods worth more in other currencies than they have debt in their currency. it's almost like an arbitrage, but it's not entirely riskless (which by definition, arbitrages are).
fsckboy 6y ago
> stop printing money when the cost of printing the money is higher than the value printed on the notes yes, but it doesn't cost 1M bolivars to print a 1M bolivar note. you just stop printing the 10 bolivar notes.
- chii 6y ago
  adding an extra zero to the face of the note costs nothing, and thus, it's never possible for the cost of the printed note to be higher than the face value!

by daenz 6y ago

I don't understand hyperinflation. Doesn't it become obvious that you should stop printing money when the cost of printing the money is higher than the value printed on the notes?

samuel 6y ago

But then the government has to default, hasn't it?

nradov 6y ago

You are assuming a basic level of competence which doesn't exist in the Venezuelan government.

ZoomerCretin 6y ago

If you’re a dictator looking to hold on to power, and you have no ability to borrow money (can’t pay in bolivar because it quickly becomes worthless, can’t pay in foreign currency because your inflation rate effectively makes the loan’s interest rate high), why not print? It may not help your citizens, but you can keep your army fed enough to stay on your side.

opnitro 6y ago
Additionally in the Venezuelan case, their ability to borrow money is also hampered by sanctions.
- dmingod666 6y ago
  Ofcourse, the countries placing sanctions are never to blame.. Take North Korea for example.. I like to imagine this is how it plays out in the people heads: "like, it's so sad that the people there suffer.. our hearts go out to them.. should we lift sanctions..? Hell no, let them burn to the ground, let them realize who they're messing with.."
croes 6y ago
Has nothing to do with being dictator. If you can't borrow money you have to print it.
- maneesh 6y ago
  Not many classes of people other than a dictator are able to print fiat currency unilaterally though
  - croes 6y ago
    Every nation with it's own currency and a central bank can print money. Other banks can even create money from thin air through lending. How much depends on the equity quote.

raverbashing 6y ago

> Doesn't it become obvious that you should stop printing money when the cost of printing the money is higher than the value printed on the notes? No, because who's doing the printing doesn't care. They're printing it (the government) to pay their own debts

rrmm 6y ago
In 2008, the company who made banknote paper for Zimbabwe refused to deliver any more to try to slow down the worsening crisis.

lumost 6y ago

Usually these situations arise out of rock & hard place trade offs. The Weimar Republic printed money to pay foreign war debts that they otherwise couldn’t raise taxes for. If Germany failed to pay France its entirely reasonable France could go to war. If The Venezuelan government can’t pay foreign or domestic obligations then they need to print money or default. They may not have the ability to default.

clairity 6y ago
the real question is, why does the counter-party accept the inflating currency, knowing that the value of it is falling like a rock? why not demand real goods and assets over worthless paper? (i have some (likely half-baked) ideas, but throwing the question out there for discussion)
- rybosworld 6y ago
  I think it's helpful to think of it like this: They owe $100 but don't have $100. They find someone willing to exchange $100 for 100 Bolivars. But instead of using Bolivars the government has on hand (reserves), they print them. This devalues the Bolivars, meaning the next time they try to buy dollars, they'll have to put up more Bolivars than before. The counterparty in this case, is anyone who thinks they can buy something with Bolivars equal to $100 worth of goods. Chances are that they can. But they have to act quickly before another devaluation. This is overly simplified but covers the gist of it.
  - lumost 6y ago
    Depending on the nature of the debt there is also the possibility that it’s denominated in local currency e.g. pension obligations. In such a case the counter party may not have a legal recourse other than accept the inflating currency.
  - clairity 6y ago
    putting aside the currency exchange mechanics, my question is more that if a sovereign debtor wants to give me a trillion bolivars of debt payment, but has a 1000 pounds of ready coffee beans, i'd demand the coffee beans rather than the bolivars because that won't devalue in the global economy nearly as quickly. certainly this can only work if the country has enough various goods worth more in other currencies than they have debt in their currency. it's almost like an arbitrage, but it's not entirely riskless (which by definition, arbitrages are).

fsckboy 6y ago

> stop printing money when the cost of printing the money is higher than the value printed on the notes yes, but it doesn't cost 1M bolivars to print a 1M bolivar note. you just stop printing the 10 bolivar notes.

chii 6y ago
adding an extra zero to the face of the note costs nothing, and thus, it's never possible for the cost of the printed note to be higher than the face value!