{"id":4204,"date":"2023-06-14T16:36:32","date_gmt":"2023-06-14T16:36:32","guid":{"rendered":"http:\/\/ci02c1ca7780002707"},"modified":"2023-06-14T16:36:32","modified_gmt":"2023-06-14T16:36:32","slug":"what-is-hyperinflation","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/guides\/what-is-hyperinflation","title":{"rendered":"What is hyperinflation and how does it happen?"},"content":{"rendered":"
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\u201cGradually, then suddenly,\u201d goes the Hemingway trope<\/a> about going bankrupt that Bitcoiners have so enthusiastically adopted. When crypto exchanges, stablecoins and banks are collapsing left and right, it looks suspiciously like we are already in the \u201csuddenly\u201d portion. And it is suddenly that currencies of the past have moved from the pocketbooks to the history books. <\/p>\n

Hyperinflation is a general increase in prices by 50% or more in a single month. Alternatively<\/a>, sometimes economists and journalists use a lower rate of monthly inflation sustained over a year (but that still amounts to 100%, 500% or 1,000%). The imprecision leads to some confusion in what does or does not constitute a hyperinflation.<\/p>\n

Definitional quibbles aside, the main point is to illustrate the ultimate death of a fiat currency. Hyperinflation of whichever caliber is a situation where money holders rush for the exits, like depositors in a bank run rush for their funds. Literally anything<\/em> is better to hold on to than the melting ice cube that is a hyperinflating currency. <\/p>\n

A hyperinflating currency is often accompanied by collapsing economies, lawlessness and widespread poverty; and is usually preceded by extremely large money printing in service of covering equally vast government deficits. Double- or triple-digit increases in general prices cannot happen without a massive expansion of the money supply; and that generally doesn\u2019t take place unless a country\u2019s fiscal authority has difficulty financing itself and leans on the monetary authority to run the printing presses.<\/p>\n

BACKGROUND: What Hyperinflation is and how it happens<\/h2>\n

In 1956, the economist Phillip Cagan<\/a> wanted to study extreme cases of monetary dysfunction. As we\u2019ve learned over the past few years, whenever prices go berserk there is a big kerfuffle about who\u2019s to blame \u2014 greedy capitalists, vague supply chain bottlenecks, unprecedented money printing by the Fed and fiscal deficits by the Treasury or that evil-looking dictator halfway around the world.<\/p>\n

Cagan wanted to abstract away from any changes in \u201creal\u201d incomes and prices, and therefore placed his threshold at 50% price rises in a single month<\/em>; any offsetting or competing changes in real factors, said Cagan, can then be safely disregarded. The threshold stuck, even though 50% a month makes for astronomically <\/em>high rates of inflation (equal to about 13,000%<\/a> annually). The good news is that such an extreme collapse and mismanagement of fiat money is rare \u2014 so rare, in fact, that the Hanke-Krus World Hyperinflation Table, often considered the official list of all documented hyperinflation, contains \u201conly\u201d 57 entries<\/a>. (Updated for the last few years, its authors now claim<\/a> 62.) <\/p>\n

The bad news is that inflation rates well below that very demanding threshold have destroyed many more societies and wreaked just as much havoc in their economic lives. Inflation \u201cbites\u201d at much, much lower rates than that required for going into \u201chyper.\u201d<\/p>\n

Nobody does inflation like us moderns. Even the most disastrous monetary collapses in centuries past<\/a> have been rather mild compared to the inflations and hyperinflations of the fiat age.<\/p>\n

What Hyperinflation Looks like<\/h2>\n

\u201cHyperinflation very rarely occurs all of a sudden, without any early warning signs,\u201d writes He Liping in his Hyperinflation: A World History<\/em><\/a>. Rather, they stem from earlier episodes of high inflation that escalate into the hyper variety. <\/p>\n

But it\u2019s not particularly predictive, since most episodes of high inflation<\/a> do not <\/em>descend into hyperinflation. So what causes general periods of high inflation in the tens or twenties of percent that most Western countries experienced in the aftermath of Covid-19 pandemic in 2021-22 is different from what causes some of those episodes to devolve into hyperinflation.<\/p>\n

The list of culprits for high <\/em>inflation regimes include<\/p>\n