"half of Hungary’s industrial capacity was destroyed and 90% was damaged. Transportation was difficult because most of the rail lines and locomotives had been destroyed. What remained had either been taken by the Nazis back to Germany or seized as reparations by the Russians."
How can you avoid inflation if your productive capacity is destroyed? You can't.
How can you avoid "to print" more money if that destruction of real capacity is making your money less and less valuable? You can't.
The exact same case happened in Germany (because the war and the war debt 'reparations') and Zimbabwe (because the agriculture capacity was destroyed by a redistribution of the land) (1).
Obviously, it's the real economy what is important.
Zimbabwe and similar are used continuously, by some people, as an example of the problem of running government deficits. That it's dishonest or ignorant.
The same happened in Venezuela, only they weren't able to control it. Inflation preceded the scarcity, and then scarcity made inflation even worse. And now they have mass starvation, no medicines etc.
That's fairly typical. Government prints money, there's hyper-inflation, government tries to fix things by banning marking prices up, people stop selling and manufacturing stuff; scarcity and having to go the black-market to get food makes inflation even worse.
In Brazil it followed and was mainly triggered by the 1970s energy crisis.
Iraq has had 300% a year at one point and it came down.
Venezuela seems to me a similar case to Zimbabwe. Their only asset (oil, agriculture in the case of Zimbabwe) was taken from the hands of the people that was exploiting it (if that it's fair is another question) and the production plunged (1).
It didn't help that the price of oil dropped at the same time.
So, a supply problem also.
The consequences: they can't get foreign currency. As they don't produce almost anything else than oil they have to import everything. The value of their currency goes down, they have "to print" money to keep the government working. Hyperinflation. They try price control (that don't work very well).
If there is a "fairly typical" process for hyperinflation is that one.
Take a look at: https://tradingeconomics.com/venezuela/inflation-cpi
Of course 800% is worse than 100%.
But how do you explain 30%-100% inflation at a time when oil was at peak price?
It's simply impossible not to have inflation when you're printing money and flooding the economy with it -- no matter the supply side.
The oil situation probably became the tipping point when compounded with their monetary policies and price control efforts.
 https://ycharts.com/indicators/venezuela_oil_production (barrels per day, average across the year, goes through 2016)
Hyperinflation is usually very, very high inflation. Original definition was 50% monthly inflation (this would be 600% annual, higher actually since it would be compounding). 30% annual inflation isn't hyperinflation (though it's certainly not good, and after several years could be catastrophic on its own).
Please, for a better comparative, view it with the 5 years window for the graphs.
Only after the government realizes they can't indefinitely finance their spending by printing money, then they turn to seizing wealth production, or do stupid things like price control. Then things get really ugly.
It's difficult to tell if statements are true without hard evidence and data to back the claim.
Article in Spanish https://es.wikipedia.org/wiki/Hiperinflaci%C3%B3n_argentina_...
Edit: Nonexistent government is also a government problem - I didn't mean it in that way, I meant it in the sense of "problem related to government!"
As for "how can you keep things running when the supply-side collapses," you could replace inflation with taxes. You could achieve the same re-assignment of value explicitly instead of implicitly: people would end up just as robbed, but the currency wouldn't have to end up devalued. (This might end up helping the economy and making people less poor in the end, since it would mean that you still get to think about your inflationary/deflationary policy decisions. Essentially nobody would choose the regressiveness/progressiveness profile of hyperinflation if given the option, and would instead probably prefer to arrange the necessary pain in some other way.)
Somalia hasn't had a national government in 25 years, so there's no central authority to regulate the money supply or print currency.
Consequently, 98% of the bank notes in circulation are now poor-quality counterfeits, and buyers and sellers know they're fake.
The market has reached an equilibrium, with a single 1000-shilling denomination that trades at approximately the cost to print it.
Hyperinflation ends when the value of the currency equals the cost to print it, and when the population won't accept arbitrarily larger denominations.
You don't need a government to create a useful currency. Hyperinflation can begin and end with or without a government.
I suppose that what you mean is that hyperinflation will stop at some point, not that it "can't happen". If you destroy the 80% of the economy what follows is hyperinflation. Never mind if you are in the gold standard, a fiat system or whatever.
>"The real question is, what happens to governments that causes them to respond to supply problems with inflationary policy?"
What happens is, it seems to me, obvious. You have to keep the services running, so, you have to pay people, but the money is not valuable anymore, so, you have to give more.
What it seems that you are insinuating is that a country would be better off if the government would not try to keep the country running. I don't think this is the case. But I suppose that it is the real question.
Even if inflation could be advantageous, sometimes, for some people, hyperinflation don't benefit anyone, but it benefit rich people the less.
If you have liquid or even financial assets, you don't want inflation.
If somebody owns you money you don't want inflation.
If you want to hire cheap you don't want government spending in the economy and making workers more expensive. So, you have an interest in scare people about become the next Zimbabwe and all that.
We can be sure that the cronies are already in charge when a little inflation is sold as worse than unemployment for instance.
If you think about it, being rich or wealthy is really just having a disproportionate share of the economic output of a region. You increase this share by taking in more money from other people than you spend. Most of the time, this happens through returns on investments, but getting the government to tax someone else more than they do yourself achieves the same result (more relative assets).
This is part of the reason lobbying has such a great ROI for companies.
Governments don't try to devalue sovereign debt, they try to pay off their foreign debts. For that, they buy up all foreign currency in the market, sending the value of their currency plummeting.
The government has the most to lose from hyperinflation, because without currency anyone will accepts, the government is severely reduced in power. With a healthy currency, the government has nearly unlimited ability to finance itself.
My understanding is that the overnight rate gives the fed the power of making more expensive for banks to give credits, but only if there is a deficit of money, in the inter-bank market, respect the demand of credits by firms and families.
Are you talking about that?
The link between the overnight rate and longer maturities has always been tenuous. Banks borrow I the short end, consumers on the longer end. Before QE, the Fed often had a difficult time pushing the long end around, but with QE it just did it direct.
Uh, what? economic contraction causes deflation, not inflation.
if no one has a job and weighs spending every cent very carefully, businesses have to cut prices in order to sell anything. Which means they have to cut what they pay everyone else, and so on. Or say if everyone loan out lots of money and now realizes that those loans are never going to be paid back, they realize that they have a lot less money than they thought they did, and that means they can't repay others, and so on.
"productive capacity" being lost doesn't mean your "money" is "less and less valuable". No, it means money is extremely valuable, because you don't expect to be able to get any more of it. Everyone has a lot less money than they expected to have. It's a shortage of money, which therefore becomes more valuable. That's deflation.
For example, during the Great Depression the US experienced 30% deflation.
Hyperinflation where the nominal value of currency decreases by thousandsfold is always caused by inflationary finance where a treasury resorts to fund operations by simply printing money. Though that could happen because they were militarily forced to and could not collect taxes or sell bonds. Everyone has too much nominal currency relative to real valued goods and is afraid the nominal currency won't be accepted for the same amount of real value tomorrow.
Also, a lot of money in the streets, in the literal sense. As greater and greater denominations were printed, and earlier denominations became worthless, people would toss the old bills out. It's somewhat amusing that tourists actually buy this 'worthless' money for its novelty.
Realistically, by mid to late 2008, you would have had to purchase basic necessities (and certainly petrol) in South African rands or USD.
My family were also property owners, so their wealth was not diminished as rapidly as the rest of the economy (though it certainly was diminished).
Hyperinflation is not a route I recommend if greater equality is what you seek :)
As an heritage of colonialism, 1% of the white people owned the 70% of the land, and agriculture was the main product of the economy and the main source of employment.
Mugabe decided to take the land from the whites and give it to their soldiers and mates who had not idea what to do with it. The production fell spectacularly. The following supply shock created the hyperinflation. The "printing" of money was just a consequence.
Edit: just to be clear, I'm not saying that a minority owning most of the land was a good thing. Just trying to explain my understanding of what happened.
I worked for a telecoms company back in 2006 and a Zimbabwean cellular network wanted to buy our software. They had the money in an escrow account, but pulled out of the deal before it could complete. It wasn't as bad back then, but that was the year inflation hit 1,000% so it was clear what was happening.
If the farm workers all aren't getting paid anymore or a lot of loans are cancelled, that should cause deflation, not inflation.
Hyperinflation is always caused by inflationary treasury finance.
If your only export is farm-originated goods (as it's basically the case of Zimbabwe), that means that you have to import everything else.
That means that you need foreign currency for getting everything that it's not farm-originated goods.
If you stop producing farm-originated goods, the value of your money will drop respect the other currencies and you will need more and more or your currency to buy imports.
But even in a closed economy, less production and the same quantity of money, means, obviously, more expensive prices.
How could be otherwise? After all, you agree that the same production and more money means more expensive prices.
A friend at school brought a giant stack of $500 Zimbabwean bills to use at our school tuckshop. This stack of bills was probably about 2 feet high. This was in 2007, and at that point a meat pie or coke must must have cost tens of thousands of dollars at minimum at the tuckshop. It had probably been a while since I'd seen someone actually try to use such a small denomination bill... I asked to hold his stack, but as I was holding it, some of the bills started falling out of the middle. This was during our recess/mid-morning break, and there were a lot of kids standing around. Someone saw this money fall on the ground, and naturally came over and started throwing it in the air ("making it rain", like Lil' Wayne) and soon more joined in. The school headmaster just happened to be walking by (a large, grim-faced white man) and demanded to know who was responsible for all of this. My peers pointed me out, and I got corporal punishment the next day.
Power cuts were constant (daily at their peek) and we didn't have a generator, so I did my homework by candlelight. The city of Harare stopped delivering water to our residence in 2007, and AFAIK haven't resumed...
Another memory that sticks out is when my dad said "hey, let's go get some petrol for the car". This was at 7 or 8 pm, so I got in my pajamas, and we drove to the neighborhood gas station, where we waited over night to pour a few litres of petrol in the car. I didn't even think _that much_ of it: I'd grown up in an era of shortages and economic decline, and the situation only became worse in my teenage years.
This is all from experience since I lived through Yugoslavia's 1992-93 hyperinflation (fortunately, as a teenager).
Not in the US. After the housing bubble popped, ARMs became much less common. Plus, with rates at historical lows, it does not make sense to get any adjustable products.
Banks got hip to that pretty quickly and later mortgages were in Euros while the salaries are still in Zloty, which should be illegal imo.
If you save in traditional savings accounts, those become reserves against which banks can lend.
If you save in money market funds, those become available in the commercial paper market for businesses to fund daily operations.
If you save in sovereign debt, those become available for government programs.
If you save in equities or corporate debt, those become available to employees, new projects, other shareholders, etc.
The only scenario in which savings contributes to demand-driven recessions is if you literally withdraw cash and place it into your mattress.
That's quite something - so you'd have to stick three zeros on daily
Well, even though Hungary and Zimbabwe had larger currency depreciation, I think the fact that neither ended with the Holocaust makes Germany's "worse"
Inflation means your saving go to zero. Deflation means your mortgage and mortgage payments stay constant, while your salary and the price of your home falls by X% per year.
Summarized from memory: At the end of the 1st world war, Germany was given a huge fine. The Deutsche Mark, deliberatly or not, devalued a lot. The large recession and poverty gave the opportunity for facism and the Nazi party to gain popularity. After the 2nd world war the allied forces realized that giving Germany a huge fine had been a mistake, and thus they didn't repeat that after the 2nd world war.