Wednesday, May 29

My Hyperinflation Vacation

Day before, I raised a cheer son. This was when I read that USA was paying back it's debt after many years. While I recognise that a debt market is required for the proper functioning of a modern economy, too much debt can be bad. 

At end of the day, somebody has to lend to you. You have a choice, you do thus voluntarily or involuntarily. Voluntarily is fine, you can ask for higher returns commensurate with the potential higher risk. But when this avenue is cut off, then govt's will go down the involuntary route by forcing banks insurance companies and pension funds to hold govt debt. 

And the returns are paltry. Like India and Egypt and Argentina, so many countries have done so. And when govt's spend too much, like now, they have to print money when debt financing is not possible. Then inflation raises its head. Inflation is the silent economy killer son. 

This is another reason why govt's and govt spending must be kept on check because inflation hits the poorest and eldest who are on low or fixed incomes without any way out. 



My Hyperinflation s Vacation - Graeme Wood - The Atlantic


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The Money Report April 2013

A trip to the Iranian resort island of Kish illuminates the pressures, limits, and strange consequences of economic sanctions.

Graeme Wood Mar 20 2013, 9:50 PM ET

Kevin van Aelst

For years, I have been advising my cash-poor friends: the secret to an ultracheap international holiday is a Google News search for the words runaway inflation. The place listed in the dateline of any recent articles including that phrase should be your destination. En route to your home airport, visit the bank and withdraw U.S. dollars in crisp hundreds and fifties. At your beleaguered landing place, the local currency’s value will be melting away like a snowman in July. Your greenbacks will remain pleasantly solid. Everyone at your destination—hoteliers, restaurant staff, tour guides—will covet them and cut you deals. For you, luxuries will suddenly become affordable. Until your return flight (assuming you make it back safely, and are not robbed by an increasingly desperate local mob), you will experience the dismal science at its most cheery.

Economists’ name for truly berserk runaway inflation is hyperinflation. America’s most nightmarish bout of inflation—in recent memory, at least—came and went at the end of the Carter administration, when prices rose by about 14 percent in 1980, the peak year. Hyperinflation, by contrast, is beyond nightmarish: a rise in prices of at least 50 percent amonth, according to the generally accepted definition. Thankfully, it is rare. Steve Hanke, an economist at Johns Hopkins University, has documented 56 instances since 1795, ranging from a comparatively benign monthlong burst in Taiwan in 1947 (prices rose by a little more than half in that month, then the increase slowed), to a truly surreal year in Hungary in 1945–46, when at one point prices doubled every 15 hours. In Slobodan Milošević’s Yugoslavia in 1994, hyperinflation stopped only when the presses at the national mint, in Topčider, overheated to their breaking point.

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