Thursday, April 02, 2009

Hyperinflation

Hyperinflation is a situation when inflation is so out of control that money essentially becomes worthless. Nations such as Zimbabwe have "one hundred trillion" dollar notes as part of their currency due to hyperinflation.

Mises Institute economist Thorston Polleit expects we will see hyperinflation, though he doesn't make specific predictions about when. He uses post WWI Germany as an example of hyperinflation and describes the forces at work then and demonstrates that those same forces are at work right now in the United States.

He writes, "...the German hyperinflation was the result of a policy that considered the financing of government debt by an accelerating increase in the money stock as the politically least unfavorable method. It seems that the state of opinion hasn't actually changed much. Today, there is great public support when it comes to expanding the base-money stock for financing ailing banks, insurance companies and, most important, rising government debt."

Though hyperinflation is likely in our future, others like Adam at Gold Versus Paper believe "Inflation is highly unlikely to be significant in the next 12-18 months in the U.S." We are in a deflationary period now, and once the economy does finally start to pickup again inflation will begin to get out of control.

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