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Defining Hyper-Inflation

11 Mar

[courtesy Google Images]

[courtesy Google Images]

Last December, John Williams of Shadowstats.com wrote an article that predicted the onset of “hyper-inflation” in A.D. 2014.

Yesterday, I wrote another article about Mr. Williams’ prediction at John Williams Predicts Hyper-Inflation in A.D. 2014.   One of my readers wrote back to ask me to define “hyper-inflation”.

It was a very good question.  I replied and in doing so, I discovered a plausible definition for hyper-inflation that I’ve never before heard.

Here’s my reply:

I can’t define “hyper-inflation”.  So far as I know there is no absolute definition that’s universally accepted–other than “a lot”.  I know that some economists say “hyper-inflation” means any rate of inflation over 50% per year. Others pick lower rates of inflation as marking the onset of hyper-inflation.  I’d be inclined to view any rate of inflation that exceeds 25% as “hyper”.

I suspect that “hyper-inflation” really means is:

1) any rising rate of inflation that the government and/or Federal Reserve is unable to control; or,

2) A significant loss of confidence in the fiat currency by the general public.

But, on reflection, I realized that the two meanings I’d proposed were actually synonymous—much like two sides of the same coin

Therefore, I proposed that, in combination, a single definition of “hyper-inflation” might be:

“A rising rate of inflation caused by a loss of public confidence in the fiat currency that the government and/or Federal Reserve is unable to control.”

Thus, my proposed definition of hyper-inflation isn’t based on a particular number or “rate of inflation” so much as any rising rate of inflation (caused by the public rather than the government) that the government and/or central bank is unable to resist or control.

We’ve had persistent inflation for most of my lifetime that probably averages out to around 2% per year.  This “inflation” has been caused and controlled by government rather than the people and/or the free markets. Thus, we might define “inflation” (but not “hyper-inflation”) as a reduction in the purchasing power of the fiat dollar that’s been intentionally caused by but also controlled and limited by the federal government.

Therefore, it might be overly simplistic to define “hyper-inflation” as anything over a specific rate of inflation (like 25% or 50%).  Instead, we might more accurately define “hyper-inflation” as any rate of inflation that was 1) caused by the people’s loss of confidence in the fiat dollar; and 2) beyond the control of the federal government and/or federal reserve.

Thus, my proposed definition for hyper-inflation is not about a particular rate of inflation, but is instead based on a public cause and, more particularly, government’s inability to control.

Whatcha think?  Does that make any sense?

P.S.  It occurs to me that deflation might similarly be defined as an increase in the fiat dollar’s purchasing power that is caused by the people rather than government) and is beyond the government’s capacity to control.

 
16 Comments

Posted by on March 11, 2014 in Fiat Currency, Inflation/Deflation

 

Tags: , ,

16 responses to “Defining Hyper-Inflation

  1. Toland

    March 11, 2014 at 6:58 PM

    Looks like a useful definition, with a tweak for the US dollar which is a special case.

    The loss of confidence needed to hyperinflate the US dollar is global in scope, rather than by the American public specifically, because most US dollars are held overseas.

     
    • Adask

      March 11, 2014 at 7:41 PM

      Good point.

       
  2. moon

    March 11, 2014 at 7:11 PM

    Al, do your definitions actually cover all instances, or causes, of inflation? It’s the out of control (gov’t/fed) part I’m thinking about. For instance: the USD revaluation I’ve read about would have the same effect as inflation or deflation, but might not be called inflation or deflation. If the USD should be revalued to 80% of it’s present buying power, it would have the same effect as a 20% inflation of USD, wouldn’t it? (or would it be a 1 to 1 ratio? not sure, but it doesn’t alter my point) However, it wouldn’t meet your definition because of the gov’t/fed control part of your definition.

    Spitballing here. Feel free to spitball back.

     
    • J.M.

      March 11, 2014 at 7:43 PM

      @ > Spitballing here. Feel free to spitball back.

      A spitball is a (now illegal) baseball pitch, in which the ball has been altered by the application of saliva, petroleum jelly, or some other foreign substance.

      I don’t think Alfred throws spitballs. But, once again, it’s probably something else I’m not understanding. Also, what is the latest info about that “arrest warrant” you said you “heard” about?

       
    • Adask

      March 11, 2014 at 7:48 PM

      Somebody better supply us with a spittoon since all I was doing with the original article was “spit-balling”. The idea crossed my mind. It seemed too good to let pass by, so I posted it without much additional thought. Still, maybe we’d better ease up on all the spittin’.

      You’re right about the devaluation. So long as government was able to cause the devaluation and control the rate of devaluation, it would still constitute “inflation” but it would not constitute “hyper-inflation” within the definition I’ve suggested.

      I attempted in the article to distinguish between “inflation” (which is caused and controlled by government) and “hyper-inflation” (which i define as caused the by people and beyond government’s capacity to control). No matter what the real rate of inflation may be, if government’s in control, it’s inflation. No matter what the rate of inflation may be, if government’s not in control, it’s hyper-inflation. By this proposed definition, if the rate of inflation was only 2% but government (and/or the Fed) was not in control, that would constitute “hyper-inflation”. Similarly, if the rate of inflation was 50% but government was still in control, that would not be “hyper-inflation” but would instead be “inflation”.

      Under the proposed definition, the numerical rate is of little importance. The primary determinate is whether the government/Fed is or is not able to control the existing rate.

      As for whatever name the devaluation is called, I’m reminded of Shakespeare’s observation that “rose by any name” would still “smell as sweet”. Call it what they will, if the currency loses purchasing power, that’s devaluation and inflation.

       
      • moon

        March 11, 2014 at 9:09 PM

        Pardon me, didn’t notice your “No spitting on the floor” sign as I was stumbling over it.

        No wonder Barry’s bosses want war to force USD as world currency. Toland’s idea of global loss of confidence could be triggered by a shift to another currency…then, the definition of hyper-inflation would have no more real relevance than the definition of the 2% inflation has had over our lifetimes. We’d be too busy snatching and fetching.

         
      • J.M.

        March 12, 2014 at 6:29 PM

        @ Somebody better supply us with a spittoon…………….”

        I think moon has done this & quite a while ago, a mental spittoon

         
  3. John Patterson

    March 11, 2014 at 8:41 PM

    Folks, inflation is a government term used to confuse us. Inflation – i.e. prices rise, results when the currency is devalued or loses purchasing power. The Fed has a planned 2-3% inflation rate; in reality it is more like 6-8%, If you take your current income and devalue it 2-3% per year how long does it take to make it where you can’t maintain your life style. The best way I know to understand hyper inflation is when currency is devalued so rapidly you can’t afford to feed your family. Argentina is a good example. So was Germany during the Weimar days. Notice I have referred to currency, not money which is silver and gold, or certificates backed by gold or silver and redeemable in gold or silver. During the revolutionary war lots of paper currency was printed to finance the war causing devaluation of the paper to silver coinage resulting to the expression “not worth a Continental”. If silver and gold were not being manipulated by our Treasury silver would be selling over $1,000 per 1 oz silver dollar. Smart folks are buying silver eagles (dollars) because they know that the paper currency is becoming less valuable all the time.

     
  4. citizenquasar

    March 12, 2014 at 10:48 AM

    Your definition looks good enough to me.

    It will surely be called “hyper” inflation when prices rise so rapidly that each succeeding paycheck buys considerably less for an extended period of time; several months for a “slight” decrease in buying power and several weeks for a “severe” decrease in buying power.

    As “slight” and “severe” are relative terms themselves, Perhaps a noticeable and continued reduction in the standard of living and an increase in the cost of living is a more accurate characteristic.

    Put another way: You’ll know it when you see it and there will be NO question in your mind that it is happening…unless your perception of reality is filtered through government licensed television “news” media that fill your mind with words like “quantitative easing,” etc.

     
    • J.M.

      March 12, 2014 at 2:01 PM

      citizenquasar

      @ > Put another way: You’ll know it when you see it and there will be NO question in your mind that it is happening…unless your perception of reality is filtered through government licensed television “news” media that fill your mind with words like “quantitative easing,” etc.

      Extremely Well said. Crystal clear. No way to say it better..

       
  5. EarlatOregon

    March 12, 2014 at 5:49 PM

    In 1999, the Head of the Euro Bank who was the Head of the Deutche Bank
    said we intend to make the “Euro Dollar”
    the “Reserve Currency of the World”.

    The Europeans who have Bought up the US Media,
    using the 46 Trillion in TARP funds,
    Congress gave them in 2008 – 2009,
    will be using their American Media Outlets (Propaganda Power)
    {TV, Radio, Newspapers, Internet}
    to Convince Americans and the rest of the World using American Media,
    that the US Dollar is of little Value,
    and that the Euro Dollar is the New – “Reserve Currency of the World”.

    that Swiss Banks,and other European banks,
    Bought the Best American Companies,
    Germany bought the New York Stock Exchange,
    so they could Hide and obscure the Transactions.

     
  6. EarlatOregon

    March 12, 2014 at 5:50 PM

    Just read the book “Extraordinary Popular Delusions and the Madness of Crowds”,
    written by British journalist Charles Mackay (1841).

    You may find it to be unsettling.

    The details of each of the many events covered are different,
    but there is an underlying theme that should be a warning to modern man.

    The author points out that the madness that periodically breaks out among the masses
    would, hopefully, be less in the future.
    If only he knew that these follies would continue up to the present day.

    Each of the events he described had the same pattern:

    Firstly, some individual or small circle of individuals would make a claim.
    The purpose could be profit, vengeance, or superstition.

    Secondly, some larger segment of society
    (such as the Media, Government, Corporations )
    would proclaim a societal emergency or, even, a great opportunity.

    Thirdly, the masses would adopt, unquestioningly and illogically, the truth of the original claim, often twisting the claim in a manner the originators would not have imagined or possibly approved.

    Fourthly, more reasonable men or organizations
    would be shunned or punished as heretics
    for failing to accept the popular delusion.

    Lastly, the folly would become so reprehensible or unsustainable
    that it would fade away,
    only (regrettably) to be replaced by another.

     
    • J.M.

      March 12, 2014 at 6:41 PM

      Earlagain,

      @ Firstly, some individual or small circle of individuals………………”

      Does this also apply to, “some” people” or ALL people, too ?

      @ Fourthly, more reasonable men or organizations……..”

      Men? Does this also apply to Individuals, too? What about unorganized organizations?

      Individuals & men who do not know the difference in the “modern day meaning” of either think I’m trying to be cute, or sarcastic.

       
  7. EarlatOregon

    March 12, 2014 at 5:50 PM

    The Europeans who have Bought up the US Media,
    using the 46 Trillion in TARP funds,
    Congress gave them in 2008 and on,
    will be using their American Media Outlets (Propaganda Power)
    {TV, Radio, Newspapers, Internet}
    to Convince Americans and the rest of the World,
    that the US Dollar is of little Value,
    and that the Euro Dollar is the New – “Reserve Currency of the World”,
    altho the US Dollar and the Euro Dollar,
    are just Fancy paper and Ink,
    they actually have the Same Real Value,
    but just like the Dutch-Tulip mania,
    with enough Media attention,anything can become Value,
    for a Time,
    even Bit Coins.

     

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