I mean, it steals from people and it causes financial misappropriation, but can it keep doing that forever? There’s no theoretical limit to how inflated the currency can get, so must it inevitably go bust at some point?
Here is what Mises wrote on the subject:
Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes.
Once the belief is shattered, people then scramble to get rid of their fiat currency, trading it for just about anything, in what Mises called the “crack-up boom”.
Well everyone has known inflation would continue for a few decades now. Is it legal tender laws that keep people from transitioning away? I believe it’s against the law to have contracts denoted in gold, and the government squashes any attempts at private currencies.
So what other options do people have but to use US dollars?
In a way, I guess we’re in the “crack-up boom” right now, since nobody wants to save cash, they immediately spend it - savings rates are at record lows. (Or they’ll “save” it in stocks or real estate) But there’s no movement toward employees getting paid in anything but US dollars, or any businesses accepting anything but US dollars for goods.
yep, it’s just the timing of the endgame is tricky. check out http://blog.mises.org/archives/007575.asp for the zimbabwean case, a work in progress. zimbabwe is a pariah state, and most of the developed world’s central banks are growing money supply at similar rates, so the debasement spiral is likely to be prolonged, many years, and across all currencies. i still believe the public doesn’t yet see inflation as a clear and present danger, and this is borne out by the fact that gold has underperformed many other commodities, from lead to uranium to wheat. the tipping point comes when gold becomes a relative outperformer to the industrial commodities. historically, currency debasement ending in hyperinflation has always lead to war,social upheaval, or totalitarianism. can’t see why the future is going to be any different.
These things take time, be patient. It cannot last forever, but that doesn’t imply that it will end immediately.
Well, that’s my question. Why can’t it last forever, especially since it is enforced by law?
A continuous policy of inflation inevitably results in hyperinflation as demand for the currency falls to zero. However, that the current system of fiat money is bound to collapse in no way ensures that it will not be replaced by another system of fiat money.
Why does a policy of inflation inevitably lead to hyperinflation? Isn’t the level of inflation whatever the increase in the money supply is? i.e. printing 3% more money per year will result in roughly 3% increase in prices. So where does inevitable hyperinflation come in?
Printing a constant amount of money every year does not provide any gain to the inflationist. People simply adjust their supply of loans to take into account the extra inflation. In order to create a boom you need to always accelerate the rate of inflation, and that is not sustainable.
The amount of currency has roughly doubled since 2000, if I’m not mistaken.
Prices of everything hasn’t seen a doubling in this time period but is limited to certain sectors of the economy where the new currency was concentrated, most notably the housing industry where prices have tripled or more in many cases.
Now we are seeing a massive worldwide influx of new currency to keep these markets afloat.
I guess I don’t really have a point here since I’m failing to tie this all in to your hyperinflation question but I would think that eventually this will lead to a market stabilization where all prices reflect the amount of new currency that has been produced to counteract the ‘credit crunch’ caused by the inflationary policies in the first place. Assuming of course that they eventually stop with the ‘liquidity injections’ to fix the problem caused by ‘liquidity injections’.
Besides the housing sector that you mentioned, most commodities have more than doubled, including all grain and all meats at wholesale level. The retail margin has witnessed massive compression, and so have wages in real terms. Imports have kept manufactured products’ price down, for the time being. That’s the real reason behind the “exporting of manufacturing jobs.” Most products and services that can not be exported have doubled or more in price. Just look at education and healthcare.
point one: as per the other posters, increasing money supply affects different prices in unpredictable, and non-mechanistic ways, with uncertain lag-times. this is the austrian insight.
point two: you’ve got to take a look through the political prism. the us is awash in debt. american debtors outnumber creditors (many of whom are foreigners).
option #1: freeze money supply and enjoy “the greater depression of 2008-…?” - banks collapse, don’t get bailed out, taxes rise dramatically whilst public spending is cut to the bone. result: vast numbers of americans are reduced to poverty, but the currency’s integrity is maintained, and the economy can set off again on a more sustainable footing.
option two: bail out the debtors with “printed money”, stiff the foreign creditors through currency debasement, and blame the resulting steep price-rises on militant unions, greedy businessmen, global warming etc. introduce price controls to punish “speculators”.
which option is going to be taken in a democracy of debtors?
the road marked “depression” starts off full of potholes, narrow and dimly lit, but improves as time goes on; the road marks “hyperinflation” starts off wide, well-paved and inviting, but narrows and worsens dramatically down the track, until it, too, is a goat-trail. then it’s so narrow you can’t turn the car around.
gold’s under-performance vis-a-vis the industrial commodites since 2000, suggests the public’s inflation expectations are still moderate, so the hyperinflation is years off. bush has already started off the socialization of the sub-prime housing debt, democrats cheer on from the sidelines. expect to see much more of this. a serious stock market meltdown would also be met by both a resolute fiscal and monetary counteroffensive. bulls still vastly outweigh bears…blah,blah,blah
wish i could be more optimistic.
Inflation produces a boom followed by a bust. When the bust occurs, the solution is either to allow it, or to reinflate. So inflation leads to more inflation. This works until it produces a situation where the currency unit is no longer considered trustworthy on the market, so that printing more will have no further effect.