Hyperinflation is an economic term to explain when all products and services become rapidly more expensive in a short period of time for people living within a certain country. Most countries have a small amount of inflation, approximately 2% on average is small enough for the average citizen for every country to not even notice the price rises. Hyperinflation is when inflation hits 50% plus, within approximately a 30 day period.
Hyperinflation is caused by what people often call ”money printing” or ”expanding the money supply” in an excessive way. This is a decision made by a government, to print money or expand the money supply, because they want to spend today, instead of waiting for it to be earned over time.
Inflation Is The Government Taking It’s Citzens Savings
When the government of a country needs money immediately, they often print money or expand the money supply. At the moment the money supply is expanded, nothing has changed to the value of the money, only when the government spends it, does the value of the total money supply decrease in value.
This is why governments spend the money immediately after expanding the money supply. If the citizens of a country figure out what is going on to the value of their fiat currency, they will start spending the money immediately too. This causes inflation to increase as the government ends up printing money more rapidly, in order to beat their citizens to spend it.
Imagine today you buy a bag of rice for $1, then next month it’s become $1.50, yet you are still being paid the same amount per hour by your employer. This forces people to spend their savings on paying for the extra $0.50 for in this case a bag of rice.
This doesn’t mean that the bag of rice is more expensive, it means that the government has spent 50% of the money already, and now the cost has been handed to the person buying the bag of rice. This is how the government effectively spends the money out of their citizen’s savings account before they realize it.
Here are a few other articles on economic topics you might like to have a look at:
- What’s DEFLATION in Simple Words?
- What is Capitalism?
- What is Feudalism?
- Guide to renting in Australia
- What is the meaning of Socialism?
- Definition of Geopolitics?
- Which country is the most corrupt?
- Is Australia a feudal economic system?
Definition of Hyper
Hyper is used to describe someone who is excited, jumping around, someone with far too much energy. When used in front of inflation, it’s saying that inflation has way too much energy, is overexcited, etc.
Countries Who Suffered From Hyperinflation
These two countries suffered from either internal mismanagement or external pressure on their currencies. Which eventuated in hyperinflation and the destruction of their currencies.
Zimbabwe is the poster child for hyperinflation, whenever people mention government mismanagement of fiat currency, they always mention Zimbabwe. There is a story of a guy with a wheelbarrow of worthless cash who said the wheelbarrow was worth more money than the cash inside it.
This was caused by domestic incompetence within a small countries economy. The larger the economy, the more money can be printed, the smaller the economy, the least amount of currency that can be printed.
As an example, USA is the world’s largest economy and has the reserve currency. This means that USA can expand the money supply almost indefinitely. There is such a large amount of countries that use the USD that the USA can expand to it’s heart’s content and the currency will hardly feel an increase in inflation.
Germany had suffered from hyperinflation around the 1930s and this was caused by external factors relating to debts needing to be paid abroad. The majority of Germany’s wealth was being sent abroad to other countries who spent the money before the citizens within Germany could. Once the Germans realized what was happening, they started spending money as fast as they earned it.
There was a story about how men would be at work and their wives would meet them at the workplace to collect his day’s pay. She would take the money and spend it straight away on food at the local shopping center. Hyperinflation increased due to this rapid spending, so employers started paying their employees several times a day, to try to keep up with the rapidly expanding money supply.
Hyperinflation Means A Country Is About To Collapse
When a country cannot trust its currency, trade within this country starts to break down. This leads to supply shocks, shortages, etc. People need safe storage of wealth, even if they are only working for one day, the money earned from that one day can be spent next week or next money or even next year. If inflation is too high, these citizens will start to spend it on anything that will hold its value, just so that they can trade with it another time in the future.