Tag Archives: inflation

Let’s learn about hyperinflation. Who knows what the future holds for us?

Summary:  What makes an experiment is uncertainty about the outcome, no matter how great people’s confidence. That applies to the great monetary experiments now in progress by China, Europe, America, and Japan. Europe since 2008, the USA since 1998, and Japan since 1988 all have common histories: confident leadership, unexpected crises, and repeatedly wrong forecasts.

After all that it will astonish historians how we worship the power of central bankers. But that power neither makes them omnipotent, nor their theories accurate. Today’s post by Nathan Lewis discusses one of the possible outcomes.

“Unless you expect the unexpected you will never find truth, for it is difficult to discover.”
— Heraclitus, the pre-Socratic “Weeping Philosopher” of Ionia

Today’s guest post:

What is “Hyperinflation”?
By Nathan Lewis at New World Economics, 13 October 2013
Reposted with his generous permission

Bernanke Green Lantern


  1. A history of hyperinflation
  2. Hyperinflation: not what you might think
  3. What hyperinflation looks like
  4. USA in the 1970s; Mexico in the 1980s
  5. Other lesser-known episodes
  6. Why not us? Or rather, why not us yet?
  7. About the author
  8. For More Information
  9. A Last Resort, if all else fails …

(1) A history of hyperinflation

The word is tossed around, and many have an opinion about it, without having any real clear idea of what it means.

We all probably have some mental picture of the “billion dollar banknote” or “price of coffee rises as you drink it” kind of hyperinflation, as happened in Germany especially in 1923.

Children - 1923 Germany

Children learning to manage money, Germany 1923

But, this is somewhat rare. Not as rare as you might think, but it constitutes only a small portion of those events which I think are legitimately labeled “hyperinflation.” This table lists fifty-three of the most intense hyperinflations in recent history:  The Hanke-Krus Hyperinflation Table.

The least intense hyperinflation listed on this table is a 55.5% increase in “prices” in a month in Kazakhstan in 1993, which works out to a doubling of prices every 47.8 days. However, this table leaves out many hundreds of events which are legitimately called “hyperinflation” in my opinion, and in the opinion of those who lived through them, and historians.

You see what I mean when I say that it is “not as rare as you might think.” Here’s Wikipedia on various hyperinflations.

(2) Hyperinflation: not what you might think

Extreme hyperinflations like these tend to grab people’s attention. However, I would suggest that they are actually less relevant than some milder cases.

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Lessons from the failed forecasts of inflation since the crash

Summary: How we handle our fears shows much about ourselves, our ability to see and think. Such as fear of inflation, a major obsession of Right since the crash. Here we look at the warning, see what actually followed, and briefly review the basis of these fears.



  1. The inflationistas’ story.
  2. What inflation?
  3. Warning: velocity.
  4. A lesson from the past: Weimar.
  5. Measuring inflation.
  6. For More Information.
  7. Giving Conservatives the last word.

(1) The inflationistas’ story

Few things pay as easily and well as feeding people’s fears (not nearly as much work as raising food to feed people’s bellies). It’s a simple process: tell a story that validates people’s political beliefs and gives a simple account of complex phenomena (otherwise people will see the con).  Forecasts of hyperinflation do both quite well.

  • Slamming those that conservatives don’t like: Obama and the Federal Research
  • Slamming policies that your wealthy backers don’t like: anything that risks inflation (creditors love mild deflation, like that during the Gilded Age).
  • Telling a simple story about the mind-bendingly complex dynamics of money.

During the past five years many people have ridden this horse. Let’s look at one example. Red emphasis added.

(a) HYPERINFLATION SPECIAL REPORT“, Issue Number 41 by John Williams’ Shadow Government Statistics, 8 April 2008 — Excerpt:

  • Inflationary Recession Is in Place
  • Banking Solvency Crisis Has Opened First Phase of Monetary Inflation
  • Hyperinflationary Depression Remains Likely As Early As 2010

The U.S. economy is in an intensifying inflationary recession that eventually will evolve into a hyperinflationary great depression. Hyperinflation could be experienced as early as 2010, if not before, and likely no more than a decade down the road. … The U.S. has no way of avoiding a financial Armageddon.

(b) HYPERINFLATION SPECIAL REPORT“, Commentary Number 263 by John Williams’ Shadow Government Statistics, 2 December 2009 — Excerpt:

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Conservatives were correct: we have record-breaking inflation! What’s next?

Summary: Today we look at inflation, past and present. It tells much about who to trust for economic analysis, the current state of the US economy, and what we can expect in the future.

The world as it appeared in 2008

What some saw in 2008, before the deflationary bust



  1. Introduction
  2. The inflation picture
  3. Implications
  4. Why has inflation fallen since 2011?
  5. Others see the rise in real rates
  6. For More Information


(1) Introduction

During 2010 and 2011 the media overflowed with confident and dire warnings from conservatives of inflation — or even hyperinflation — coming quite soon. They were totally wrong, as economists such as Paul Krugman said at the time. Instead inflation has slowed, by some measures hitting record low rates. As the posts at the end show, readers of the FM website saw the correct side of this debate (this has been added as a win on the Past Predictions page).

Today we look at what actually happened, and what this might mean for our future.

(2) The inflation picture

The public looks at the CPI to measure inflation. Many economists (e.g., Alan Greenspan) prefer the Personal Consumption Expenditures (PCE) price index. The April numbers (annualized):

  • overall PCE: -3.0%
  • core PCE (excludes food & energy): +0.1% (the YoY change of 1.05% is the lowest on record, back to 1960)
  • trimmed mean PCE (another measure of the core rate): -0.1% (lowest since record begins in 1977)

Three of the most important economic factors appear on this graph:

  • Treasury interest rates (blue, here that of the 10 year bond),
  • inflation (green, here using the CPI), and
  • real interest rates (red, here measured by the difference between the two).
Blue: Treasury rates; Green: CPI; Red: real rates.

Blue: Treasury rates; Green: CPI; Red: real rates.

We see the effects of the Fed’s increasingly aggressive monetary policies, intended to boost CPI inflation and lower real interest rates. They have not done these because the recovery is wonderful, but because it is too slow. Note that one of these is unlike the other two.

  • QE1 from November 2008 to June 2010 — it broke deflation, boosting the CPI and forcing down real rates.
  • QE2 from November 2010 – June 2011 — another boost to CPI, further depressed real rates.
  • QE3 from October 2012 — still running, but with inflation falling and real rates rising.

Houston, we might have a problem.

(3) Implications

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The World of Wonders: Everybody Goes Nuts Together (part 2 about Monetary Magic)

Summary:  We live in an age of wonders, in which things unforeseen or even unimagined become daily fare for the news, or remain unremarked.  This is the 3rd chapter in this series, attempting to open your eyes to the amazing things taking place.  Today we have the second half of a guest post by Nathan Lewis looking at the monetary madness that slowly infects the major nations, as we confuse the ability to print money with magic. Here he looks at the history of using monetary magic as an easy solution to a nation’s financial problems.

This is part 2 of Nathan Lewis’ essay; part one was Monetary Magic applied to cure America’s economic ills.

Enter into the Hall of the Center Banker. Prepare to see wonders.

Enter the Hall of Center Bankers & see the wonders!


  1. Introduction
  2. Everybody Goes Nuts Together
  3. About the author
  4. Leave a Comment!
  5. For More Information
  6. A Last Resort, if all else fails …

(1)  Introduction

An amazing aspect of our age of wonders is how easily we have come to accept fantastic new developments as “the new normal” (the evocative phrase coined long ago by Alan Watt). The world’s major central banks — Bank of Japan, European Central Bank, Peoples Bank of China, and the Federal Reserve — have all, in different ways, taken measures beyond anything they imagined before 2000. People were shocked in 2002 when Bernanke explicitly said that:

… the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

Now they put Bernanke’s words into action — indeed, going beyond that by guaranteeing much of the world’s banking system — but we’re no longer shocked. Rather the majority of economists and financiers has a confidence in the effectiveness of monetary policy — hence the enthusiasm about the coming recovery in late 2013 — and complacency about Central Banks ability to avoid the disasters of the past users of monetary magic.

Today Nathan Lewis takes us on a tour of past monetary follies, showing how people get the economic theory that justifies what they want to do.  We are rationalizing animals.

(2)  Everybody Goes Nuts Together

Excerpt from the Q4 2012 Letter of Kiku Partners
by Nathan Lewis
Part 2.

A trillion dollar platinum coin! Har har. One of the remarkable and recurring characteristics of episodes of government printing-press finance throughout history is that a broad swath of the population, including sophisticated intellectuals, begins to spout complete nonsense in favor of further money-printing. There have always been silly people, especially regarding economic topics, but sometimes these silly people rise to the forefront and find a large and enthusiastic following.

Today in the U.S., these are the proponents of “Modern Monetary Theory,” expressed in simpler terms by the extraordinary popularity of the “trillion dollar platinum coin” meme, especially among liberal-leaning commentators {see posts about it here}. It took the Huffington Post by storm for a few weeks {see the articles here}. The notion is really just plain old money-printing, with a diverting story involving legal loopholes and a shiny geegaw to make it all seem a little more interesting than it really is. However, these indications of popular sentiment also translate into political realities: with these articles burning up the Internet, Congressmen and Federal Reserve board members find it easier to go along with the popular flow than to fight the tide as a Ron Paul-like fire-and-brimstone prophet of monetary doom. Perhaps it all got to be a bit much even for Ron Paul, who retired recently.

This is fundamentally a political process, so it is helpful to see what people tend to do in these situations. Try this one:

Yet each of these issues [of money], great or small, was but as a drop of cold water to a parched throat. Although there was already a rise in prices which showed that the amount needed for circulation had been exceeded, the cry for “more circulating medium” was continued. The pressure for new issues became stronger and stronger. The … populace and the [liberal party] were especially loud in their demands for them; and, a few months later, … with few speeches, in a silence very ominous, a new issue was made of six hundred millions more;—less than nine months after the former great issue, with its solemn pledges to keep down the amount in circulation. With the exception of a few thoughtful men, the whole nation again sang paeans.

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What are the limitations of the Fed’s power? It’s neither impotent nor omnipotent!

Summary:  Although one of the most power agencies of the US government, obsessively discussed in the financial news, it remains one of the least well understood. Here we examine the limitations on its power.  Readers can decide for themselves if these limitations are too tight, or too loose. Next in a series about Central Banks, the giants of State power.

From The Independent Word


  1. The power of Central Banks
  2. Inflation
  3. Hyperinflation, the quick killer
  4. Deflation, the quiet killer
  5. Legitimacy — the ultimate limit
  6. For More Information

(1)  The power of central banks

The development of central banking in the century before WWI was one of the last few innovations necessary to produce the nearly omnipotent  modern State.  Central banks provided the mechanism to not only easily finance large projects, such as wars and great societies, but also harness large banks to the State’s needs (for their mutual gain).

The ability to print money, set interest rates, and harness banks’ power to lend gives the illusion of omnipotence. But life means limits.  Central banks have both hard boundaries to their abilities — and a hidden weakness.

Central banks have well known limits to their powers of monetary stimulus, no matter how exercised.

For more about the Federal Reserve see What every American needs to know about the Federal Reserve System.

(2) Inflation

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
— Milton Friedman, The Counter-Revolution in Monetary Theory (1970).

Central banks can stop and start inflation by controlling the nation’s money supply.  Stopping inflation requires painful measures, but with the certainty of success.  Starting and managing useful inflation requires more skill.

Why create inflation?  Unanticipated inflation acts as the magic sauce of monetary policy. Quiet, mild, relentless. It lowers the real interest rates. If we also have wage growth slightly above inflation, then our crushing debts evaporate painlessly (as we erased aprox 1/3 of our WWII debt). Bernanke literally wrote the book on this, Inflation Targeting (1998).

There are two limits to central bank’s ability to manage inflation.  First, the nation’s currency.  The central bank can expand the money supply without limit — with effects varying depending on its internal circumstances. But it will depress the value of the currency.  A weak currency can boost exports, beneficial if not offset by the increased cost of exports (eg, China and Germany have done this successfully). At some point, however, a currency collapse comes — with horrific consequences.

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