In the following infographic we look at 5 occasions when currencies crashed in a big way. In each of these scenarios, war was the primary cause or played a major role in the Government deficit that led to hyperinflation.
The comments above and below are excerpts from the original article/infographic by commodity.com which has been edited ([ ]) and abridged (…) by munKNEE.com – “ The internet’s most unique site for financial articles! (Here’s why)” – to provide a fast & easy read. For all the latest – and best – financial articles sign up (in the top right corner) to receive our free bi-weekly Market Intelligence Report newsletter (see sample here) or visit our Facebook page.
Hyperinflation occurs when a country experiences very high rates of inflation, which erodes the real value of the local currency, and causes the population to minimize their holdings of local money.
It is argued that hyperinflation often occurs as a result of some kind of stress on a Government’s budget. This is because the root cause is a large Government deficit which is financed by money creation rather than other options like increased borrowing or higher rates of taxation.
Interestingly, if we examine all the documented instances of hyperinflation throughout history (extending as far back as the Romans), the same is often true – funding wars or funding the clean up from wars creates a huge deficit that often leads to massive currency devaluation.
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Since the beginning of 1990 hyperinflation has occurred in 28 countries around the world on a total of 35 different occasions with 17 of those countries experiencing hyperinflation during 1992. Currently, only Zimbabwe and Venezuela are plagued by hyperinflation.
There is a difference between inflation and hyperinflation…and there is no gradual path from one to the other. To wind up with true hyperinflation, some very bad things have to happen. The government has to completely lose control… the populace has to completely lose faith in the system… or both at the same time. [Are we there yet? Let’s take a look.]
After seeing the latest string of events unfold right before our eyes, many are openly pondering whether we may see hyperinflation hit the U.S. shores. Rather than ponder Trump’s latest executive orders or over the top pronouncements, let us first look at what hyperinflation is and how it works.
I think that the U.S. has a roughly 0% probability of experiencing hyperinflation within the next 2 years. I also think, however, that the U.S. has a 100% probability of eventually experiencing hyperinflation. Below I explain why I think that is the case.
Hyperinflation is a process clearly defined in history and we are fully entrenched in that process. As much as we enjoy the idea of a free lunch there is no such thing so we will all, eventually, have to pay the piper. Let me explain.
Without pricing power or a large fiscal deficit and large foreign currency demands, it simply isn’t credible to claim that hyperinflation in the U.S. or the U.K. is in the offing now or anytime in the immediate future.
People get confused about the nature of mass inflation, hyperinflation, and what causes both. [Let me clarify the nature and causes of each.]
While I believe that the U.S. is heading towards a Weimar style hyperinflationary depression there are several developments that point to the possibility of another deflationary depression, similar to the 1930’s. Let me explain.
It is difficult to say exactly when hyperinflation will hit a currency. However, I am convinced that the danger level is so high for most fiat money that it is worthwhile for everyone to increase their understanding of hyperinflation. This is the first part of a Hyperinflation FAQ for frequently asked questions or objections about hyperinflation.
I have been reading a lot lately about the coming hyperinflation in America… [and while] I respect many of the writers [who express that opinion] I think they are jumping the gun. At this point none of the economic or political factors required to set off hyperinflation are present – and a careful analysis of theory, fact, and history leads me to conclude that inflation/stagflation is our future. It is quite a leap of fancy to say we are certain to have hyperinflation. Words: 2780
The Great War ended on November 11th, 1918, when the signed armistice came into effect, but the peace agreement lead to additional destruction – the destruction of wealth and savings – in the form of an hyperinflation event in Germany from 1921 and 1924 that caused millions of people to have their savings erased.
Hyperinflation is perhaps the darkest side of a government fiat money regime. Among mainstream economists, hyperinflation typically denotes a period of exceptionally strong increases in overall prices of goods and services, thus denoting a period of exceptionally strong erosion in the exchange value of money.
There is a general pattern for the stages of hyperinflation – the stages of the “death of a fiat currency”. Here they are.
The Fed, together with other central banks from around the world, have created the perfect crescendo of worldwide credit bubbles and asset bubbles leading to the excesses and decadence which are the normal finale to a secular trend. They have totally destroyed all major world currencies and left the world with debts that cannot and will not be repaid with normal money. As such, there are only two alternative outcomes, debt default or hyperinflation. Both will have disastrous consequences for the world economy.
James Turk believes hyperinflation is ahead. Bob Prechter believes massive deflation is coming. An interesting discussion between the two takes place in this audio. Ultimately, both lead to Depression. Only the route taken differs, but that is important.
We are in a number of crises: the sovereign crisis, a banking crisis, an economic crisis and a social crisis. The first three crises together are guaranteed to bring down the world economy because they are not just in one country, they are worldwide….A social crisis will develop leading to even more social unrest. All of these factors are why this will ultimately lead to a hyperinflationary depression – the most serious depression the world has ever experienced – and why investors have to focus on protecting their wealth.
Economists are telling central banks to accelerate monetary growth even faster…to avoid a bank balance sheet implosion with all the deflationary consequences that implies. [As such,] the prospects for 2012, and thereafter, are for Total Money Supply to continue its hyperbolic trend – and when such a trend becomes established it becomes almost impossible to stop because the whole debt-based economy and the banking system would collapse. [Let me explain further.]
Increases in spending and liabilities along with decreases in foreign lending equals a recipe for disaster, so where will the money come from? This is a job for the printing press. While we are certainly facing deflation in the near term and a very choppy market, the groundwork has been laid for hyperinflation, soaring interest rates and exploding gold and silver prices.
Pushing the big problems into the future appears to have been the working strategy for both the Fed and recent Administrations, yet the U.S. dollar and the budget deficit do matter, and the future is at hand. The day of ultimate financial reckoning has arrived, and it is playing out.
It’s incredible that the Mayans forecast 2012 would be the end of a major era. It looks, today, like we are standing on the eve of massive changes in the world that will have consequences for a long, long time to come. The scene is already set….the euro will collapse, and…other major currencies will collapse. The consequences of these (eventual) collapses will be horrible because we will have a hyperinflationary depression.
The U.S. government is in what is known as a “debt death spiral”. They must borrow money to repay prior debts. It is as if they are using their Visa Card to make an American Express payment. The rate of new debt additions dwarf any rate of growth the economy can possibly achieve. The end is certain, only its timing is unknown, and, once interest rates begin to rise, and they will, it’s game over.
The National Inflation Association (NIA) believes that if the Federal Reserve doesn’t reverse course immediately, we are on a direct path to all Americans becoming billionaires by the year 2020, if not much sooner. Being a billionaire in dollars won’t mean anything. The wealth of Americans later this decade will be calculated based on how much gold and silver they own. We are at the beginning stages of a massive worldwide rush out of the U.S. dollar and into gold and silver. Words: 1021