Hyperinflation

Recently, because of the ocurrence of US downgrade in debt rating, I had the chance to read some different interesting studies about hyperinflation, in this post I share with you the main points everyone should know about this phenomenon.

First of all, hyperinflation is not merely high inflation. Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency.

Moreover, what we usually think is the most important point in hyperinflation, that's is, printing money is not as important as common sense might make us think. Study shows that  printing just exacerbates and ends the cycle rather than actually initiate it. So it's just another step in the whole process, not the very first.

I present a list of common disorders that historically  has lead to extreme high inflation periods:

•- A ceding of monetary sovereignty (usually in the form of foreign denominated debt, a currency peg, etc).

•- Extraordinarily unusual social circumstances (war, regime change, etc.).

•- Very low levels of faith in government during regime change (high public mistrust).

•- Ineffective government response or rampant corruption.

•- Combustible political environment.

•- A collapse in the domestic economy.

•- A breakdown in the tax system.

Of between all, the most notable environments involving hyperinflation are war, regime change,

government corruption and a ceding of monetary sovereignty, many times we can find more than one at the same time, (Ex: Weimar Republic, and nowadays Zimbabwe)

Moreover, we can say that while government debts and deficit spending can exacerbate a hyperinflation, they have not generally been the cause of hyperinflation, but rather the result of severe and unusual exogenous events. The excessive and incompetent monetary response is generally the result of severe exogenous forces at work such as war, regime change, corruption, or a ceding of monetary sovereignty.