Friday, January 4, 2008

Hyper-Inflation



Hyper-Inflation has taken place in a variety of economies over the course of history. Hyper-Inflation is when prices double in price in a rapid fashion, such as every other day. This picture is of a German woman in 1923, who is burning her money because its cheaper than buying firewood.

"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services."

Very similar to what we are seeing today with the Central Banks injections of liquidity into the markets. "Fixing inflation with more inflation": see Bernanke's Helicopters. Btw, if you haven't seen this, check out Ron Paul RIP into Fed chairman Ben Bernanke at a congressional hearing about the dollar crisis!

"Hyperinflation is generally associated with paper money because the means to increasing the money supply with paper money is the simplest: add more zeroes to the plates and print, or even stamp old notes with new numbers. There have been numerous episodes of hyperinflation, followed by a return to "hard money". Older economies would revert to hard currency and barter when the circulating medium became excessively devalued, generally following a "run" on the store of value."

"One example of this is during periods of warfare, civil war, or intense internal conflict of other kinds: governments need to do whatever is necessary to continue fighting, since the alternative is defeat. Expenses cannot be cut significantly since the main outlay is armaments. Further, a civil war may make it difficult to raise taxes or to collect existing taxes. While in peacetime the deficit is financed by selling bonds, during a war it is typically difficult and expensive to borrow, especially if the war is going poorly for the government in question. The banking authorities, whether central or not, "monetize" the deficit, printing money to pay for the government's efforts to survive."

More info: http://en.wikipedia.org/wiki/Hyper_inflation

Ron Paul supports returning to money backed by a hard asset (to prevent the creation of money from thin air), and to create competitive currencies, so people could choose to put their money in currencies that were stable.

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