You often hear about Hyperinflation and it's history through Germany, Zimbabwe, Argentina. However, you never hear how the physical currency got into the hands of the masses that caused the huge rise of prices. You just hear that it does.
I can understand the issue if most goods were imported from overseas. But why would local things like bread cost so much? Didn't these countries produce goods and services themselves?
Was it because most produced goods where exported to countries with stronger currencies? Even so, how did so much of this money reach the workers? Where they were paid by commission or in outside currency?
Unless this was the cause or money was borrowed by the masses, banks just put it into their accounts, or government gave it directly to them, I have a hard time understanding how the "inflated" money actually reached the masses.
Can anyone clue me in?
The government pays company A for services / products through newly inflated money (created out of this air). Company A pays it's employees and company B for services / products etc. B does the same and more money goes to company C etc etc. Eventually lots of new money enters the general public.
Central banks like the Fed also provide lots of cheap credit to banks, this money which is also created out of thin air and then loaned out to businesses / individuals. They do the same thing as company A above and again more new money enters the public.
Inflation has occurred because now there is lots of new money and the currency has been debased. Prices rise in result of this because now each individual unit of currency is worth less.
But the US government does not own directly many companies, nor is it paying the wages of most workers in the of the US population.
And there are not lot of people borrowing money in mass, to outstrip the old debt, which should mean that the money supply is shrinking. And with over 100 trillion dollars of private debt, 11 trillion printed dollars does not even begin to replace the money that should be disappearing.
I understand how the cost of goods will increase because of currency devaluation but, without currency or credit, how are people going to pay for these things which leads to hyperinflation. Mabey the definition of hyperinflation is muddled. If anything, it seems that there are less good and services and but higher cost for thing in need.
I think a good way to think of hyperinflation is in terms of monetary demand. Under this view, hyperinflation can be described as the result of the demand for a particular monetary unit falling to zero. The corollary to this is that people desire anything else infinitely more than the monetary unit, leading to prices denominated in that monetary unit trending towards infinity for all goods.
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Actually, goods produced overseas PROTECT a country from inflation, by providing a secondary demand for the currency.
In the case of Weimar Germany, the hysterical Rothbardians do indeed avoid explaining WHY the hyperinflation happened...because it is impossible to duplicate in the US, which would rob them of their nice little emotional fallacy.
Weimar Germany had no choice but to massively inflate its currency, thanks to that socialist idiot Woodrow Wilson and the massive reparations/limits he placed on Germany after WWI. It could not possibly have maintained its payments to the winners, with any consistently valuable currency. The simple, obvious thing to do was just to print whatever money the foreigners demanded, and hand it over to them. But it wasn't trade for goods, so it just came boiling back into Germany, destroying the economy.
Because speculators on the currency market recognized this, they exacerbated the problem, by bidding against the currency. Any normal currency you could expect to eventually stabilize a little, because you'd figure the government will want to accomplish that...but they knew Weimar Germany was intentionally running its currency up, and they could safely "short" it, which is one of the key components to drive hyperinflation.
Currencies were not exchanged on currency markets at the time. In fact, currency markets didn't even exist; there were only fixed parities set by gold reserves and gold flows. A USD was worth 1/20th an ounce of gold, the GBP was worth 1/4th an ounce of gold, etc, etc. Currency markets are the result of monetary nationalism where speculation is supposed to create ER stability.
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