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Don't see how this is possible, strictly mathematically. The money supply (M2) did increase 30% in a year, but for hyperinflation it would have to continue at

Don't see how this is possible, strictly mathematically. The money supply (M2) did increase 30% in a year, but for hyperinflation it would have to continue at a rapid pace. I could see a situation where the Fed starts to taper/raise interest rates which triggers some turmoil, and then re-engages QE in a much more aggressive manner or goes negative rates. That could lead to extreme levels of inflation. The truth is when you ease monetary policy, you somewhat trap yourself at that level, as people will take on additional debt due to lower carrying costs. This makes tightening more challenging, as the higher debt levels become more expensive to service. Likely the only way we go hyperinflation is to monetize fiscal spending, thus fiscal spends more, thus we need to monetize more etc. It is true that the Fed is currently buying 60% of newly issued treasuries, e.g. monetizing fiscal spending by money printing right now. So we're kind of on the verge of MMT here as it is. Unfortunately the Fed has been pretty cowardly and optimizing for short term outcomes/political appeasement rather than doing the right thing for the long run. If tightening monetary policy leads to disruption in the markets, we may just need to eat the short term pain. The consequences of continuing to monetize deficit spending and stoking rampant speculation are too great IMO. We may see very high short term inflation if supply issues continue to worsen and widespread shortages develop. In that scenario prices would rise to compensate, and demand destruction would likely lead to a resolution. Of course, that's how layoffs start, and the whole thing becomes stagflationary.

nostrademons 5y ago
The hallmark of hyperinflation is that the velocity of money increases rapidly, seemingly without control of the central bank. Basically it's a feedback loop where everybody thinks the currency is going to be worthless tomorrow, so they rush to spend it today, which makes money change hands more quickly than normal. Or on the supply side, they believe the currency is going to be worth less when they can spend it, so they pre-emptively raise prices to compensate for that.
- adam_arthur 5y ago
  Zimbabwe, Venezuela, Germany... all modern examples of hyperinflation where the root cause was primarily through excessive money printing to fund debts/deficit spending. There are other causes as well of course, but excessive printing seems the common thread between all of them. I agree that an inflationary mindset is psychological and contributes, but without an increased money supply, people are constrained in how much they can spend. E.g. how could a loaf of bread ever sell for 1000 USD without printed money? Nobody could afford those prices. I doubt increased velocity of money alone is enough to sustain hyperinflation. Assuming velocity within the bounds of realism. Wages would have to rise significantly, creating a wage price spiral.
  - nostrademons 5y ago
    Root cause yes, but that's not what sustains the inflation. Inflation is sparked by an increase in the money supply. Hyperinflation is what happens when rising prices then trigger an increase in the velocity of money. The government has control of money supply but not velocity, which is why hyperinflation is essentially impossible to stop without abandoning the currency once it gets started. The concrete manifestation of an increase in money velocity is things like people running out to the store to spend money as soon as they get paid; wages getting set month-to-month or even day-to-day rather than annually; prices not being posted, and instead being set as you walk in the store; and zeros being added to dollar bills. The wage/price spiral is not a separate thing; it's the concrete manifestation of the abstract model of money velocity increasing.
JanisL 5y ago
While inflation is a monetary phenomenon I think hyperinflation is mostly a psychological phenomenon characterized by a lack of confidence in a currency. Fiscal policy changes could certainly change confidence or so could a number of other things.
- adam_arthur 5y ago
  There's definitely a strong psychological component to inflation. And an inflationary mindset is probably needed for hyperinflation to materialize. But I think increasing money supply is a necessary component for hyperinflation as well. At least, in all modern examples of hyperinflation I've reviewed, there has always been a component of monetizing the debt/deficit. Are there examples of hyperinflation where the money supply was largely fixed? I would be very curious/interested in that.
  - JanisL 5y ago
    I feel like when currencies are abandoned there's a de-facto hyperinflation involved in the old currency if looked at from the exchange rates involved. Perhaps there's been examples of currency replacement in the past that have been driven by non-economic factors?

nostrademons 5y ago

The hallmark of hyperinflation is that the velocity of money increases rapidly, seemingly without control of the central bank. Basically it's a feedback loop where everybody thinks the currency is going to be worthless tomorrow, so they rush to spend it today, which makes money change hands more quickly than normal. Or on the supply side, they believe the currency is going to be worth less when they can spend it, so they pre-emptively raise prices to compensate for that.

adam_arthur 5y ago
Zimbabwe, Venezuela, Germany... all modern examples of hyperinflation where the root cause was primarily through excessive money printing to fund debts/deficit spending. There are other causes as well of course, but excessive printing seems the common thread between all of them. I agree that an inflationary mindset is psychological and contributes, but without an increased money supply, people are constrained in how much they can spend. E.g. how could a loaf of bread ever sell for 1000 USD without printed money? Nobody could afford those prices. I doubt increased velocity of money alone is enough to sustain hyperinflation. Assuming velocity within the bounds of realism. Wages would have to rise significantly, creating a wage price spiral.
- nostrademons 5y ago
  Root cause yes, but that's not what sustains the inflation. Inflation is sparked by an increase in the money supply. Hyperinflation is what happens when rising prices then trigger an increase in the velocity of money. The government has control of money supply but not velocity, which is why hyperinflation is essentially impossible to stop without abandoning the currency once it gets started. The concrete manifestation of an increase in money velocity is things like people running out to the store to spend money as soon as they get paid; wages getting set month-to-month or even day-to-day rather than annually; prices not being posted, and instead being set as you walk in the store; and zeros being added to dollar bills. The wage/price spiral is not a separate thing; it's the concrete manifestation of the abstract model of money velocity increasing.

JanisL 5y ago

While inflation is a monetary phenomenon I think hyperinflation is mostly a psychological phenomenon characterized by a lack of confidence in a currency. Fiscal policy changes could certainly change confidence or so could a number of other things.

adam_arthur 5y ago
There's definitely a strong psychological component to inflation. And an inflationary mindset is probably needed for hyperinflation to materialize. But I think increasing money supply is a necessary component for hyperinflation as well. At least, in all modern examples of hyperinflation I've reviewed, there has always been a component of monetizing the debt/deficit. Are there examples of hyperinflation where the money supply was largely fixed? I would be very curious/interested in that.
- JanisL 5y ago
  I feel like when currencies are abandoned there's a de-facto hyperinflation involved in the old currency if looked at from the exchange rates involved. Perhaps there's been examples of currency replacement in the past that have been driven by non-economic factors?