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Generally this kind of inflation happens when a country has extensive debts that must be repaid in a foreign currency. When a country owes debts that must be r

Generally this kind of inflation happens when a country has extensive debts that must be repaid in a foreign currency. When a country owes debts that must be repaid in its own currency, printing more money reduces the debt and makes it easier to repay. But when the debt is in a foreign currency, printing more money makes it harder to repay, leading to a vicious cycle. That’s what’s going on here. Same as in Weimar Germany. Except we are making the problem much, much worse through sanctions which harm a lot of vulnerable people, including many children. https://www.google.com/amp/s/markets.businessinsider.com/amp/news/venezuela-debt-explodes-to-156-billion-report-2019-3-1028013380 https://www.google.com/amp/s/markets.businessinsider.com/amp...

legitster 6y ago
This is MMT nonsense. There's no magical hack that makes printing too much money harmless.
- fallingfrog 6y ago
  I never said there was, I just said that hyperinflation always (as far as I know) is related to external debts in an external currency. Printing money does cause inflation, proportional to the amount printed. But hyper inflation is caused by money printing to pay external debts.
  - legitster 6y ago
    That is 100% Stephanie Kelton's core assertion in MMT. But it's not not widely supported amongst economists. In Venezuela's case, they haven't even been paying their debt, so it's hard to make the case that it matters here.
insert_coin 6y ago
This is what happens when you destroy a productive economy through price fixing, extreme taxation, and extreme redistribution policies which then leave you with no other choice but predatory loans on international markets that of course you cannot repay because you’ve destroyed your economy.
skybrian 6y ago
Although debts in a foreign currency can certainly make things worse (like in the 1997 Asia crisis), when we see hyperinflation, it’s often due to a collapse in supply. If the country isn’t making what it needs to either consume locally or export in exchange for foreign goods, it’s operating in something like siege conditions and of course prices are going to go through the roof as people (and often the government) try to outbid each other for what little remains. Venezuela’s exports of everything but oil collapsed in 2008. By 2012, 96% of exports were oil. Then the oil industry collapsed due to severe underfunding. (Of course at this point, due to sanctions, trade is even harder, but the crisis started before that.)
- orwin 6y ago
  Its a collapse in production rather than in supply.
  - skybrian 6y ago
    I meant supply as in "supply and demand." A collapse in production results in less supply.
dmingod666 6y ago
Sure, it helps to borrow in your own currency but when you are the reserve currency. You are essentially using the goodwill/confidence bestowed by the world to solve your domestic problems. The goodwill is finite and there is no free lunch. When more money is printed, it is a hidden tax on everyone holding dollars. Not sure how long other nations will be happy diluting their own wealth because the US decides it needs to print more.. Its like a run on the bank. Great till everyone thinks everything is okay, but the moment confidence shakes in the bank, and bam you've got a collapse on your hands.. unlike a bank, if countries start dumping the dollar there is no higher authority that can step in and pause things for a bit so everyone settles down...
- fallingfrog 6y ago
  This is a reasonable take. We should be careful to not overplay our own hand in terms of how much money we create because while you can pay back your debts with printed money, it may make people reluctant to lend to you again (interest rates might go up).
- spiralx 6y ago
  The US has been trying to reduce the usage of the USD as a reserve currency (it's the largest such currency but not the only one) due to it not having any real benefit to the US while exposing its economy to the effects of financial crises around the world. --- Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”? https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d... > A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies... > The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult. --- The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t... > This safe-haven bid for US dollar assets means that the US dollar often behaves in ways that seem counter-intuitive relative to US economic fundamentals. As Figure 2 shows, the US dollar appreciates in response to economic policy uncertainty. A 1 per cent increase in the Global Economic Policy Uncertainty Index raises the real value of the US dollar by 0.2 per cent, controlling for relative interest rate, inflation and economic growth differentials with the rest of the world. > The appreciation exacerbates trade tensions between the United States and the rest of the world by weighing on US export competitiveness, setting in train a protectionist spiral.

legitster 6y ago

This is MMT nonsense. There's no magical hack that makes printing too much money harmless.

fallingfrog 6y ago
I never said there was, I just said that hyperinflation always (as far as I know) is related to external debts in an external currency. Printing money does cause inflation, proportional to the amount printed. But hyper inflation is caused by money printing to pay external debts.
- legitster 6y ago
  That is 100% Stephanie Kelton's core assertion in MMT. But it's not not widely supported amongst economists. In Venezuela's case, they haven't even been paying their debt, so it's hard to make the case that it matters here.

insert_coin 6y ago

This is what happens when you destroy a productive economy through price fixing, extreme taxation, and extreme redistribution policies which then leave you with no other choice but predatory loans on international markets that of course you cannot repay because you’ve destroyed your economy.

skybrian 6y ago

Although debts in a foreign currency can certainly make things worse (like in the 1997 Asia crisis), when we see hyperinflation, it’s often due to a collapse in supply. If the country isn’t making what it needs to either consume locally or export in exchange for foreign goods, it’s operating in something like siege conditions and of course prices are going to go through the roof as people (and often the government) try to outbid each other for what little remains. Venezuela’s exports of everything but oil collapsed in 2008. By 2012, 96% of exports were oil. Then the oil industry collapsed due to severe underfunding. (Of course at this point, due to sanctions, trade is even harder, but the crisis started before that.)

orwin 6y ago
Its a collapse in production rather than in supply.
- skybrian 6y ago
  I meant supply as in "supply and demand." A collapse in production results in less supply.

dmingod666 6y ago

Sure, it helps to borrow in your own currency but when you are the reserve currency. You are essentially using the goodwill/confidence bestowed by the world to solve your domestic problems. The goodwill is finite and there is no free lunch. When more money is printed, it is a hidden tax on everyone holding dollars. Not sure how long other nations will be happy diluting their own wealth because the US decides it needs to print more.. Its like a run on the bank. Great till everyone thinks everything is okay, but the moment confidence shakes in the bank, and bam you've got a collapse on your hands.. unlike a bank, if countries start dumping the dollar there is no higher authority that can step in and pause things for a bit so everyone settles down...

fallingfrog 6y ago
This is a reasonable take. We should be careful to not overplay our own hand in terms of how much money we create because while you can pay back your debts with printed money, it may make people reluctant to lend to you again (interest rates might go up).
spiralx 6y ago
The US has been trying to reduce the usage of the USD as a reserve currency (it's the largest such currency but not the only one) due to it not having any real benefit to the US while exposing its economy to the effects of financial crises around the world. --- Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”? https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d... > A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies... > The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult. --- The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t... > This safe-haven bid for US dollar assets means that the US dollar often behaves in ways that seem counter-intuitive relative to US economic fundamentals. As Figure 2 shows, the US dollar appreciates in response to economic policy uncertainty. A 1 per cent increase in the Global Economic Policy Uncertainty Index raises the real value of the US dollar by 0.2 per cent, controlling for relative interest rate, inflation and economic growth differentials with the rest of the world. > The appreciation exacerbates trade tensions between the United States and the rest of the world by weighing on US export competitiveness, setting in train a protectionist spiral.