Hyperinflation, Illustrated

Phillip Cagan (1956,“The Monetary Dynamics of Hyperinflation”. Studies in the Quantity Theory of Money,” edited by Milton Friedman (1956), pp.25-1) defined hyperinflation as inflation in excess of 50% per month (or about 13,000% annualized).

Figure 1: Month-on-month CPI inflation, % (blue), and Cagan’s (1956) definition of hyperinflation. Source: BLS, and author’s calculations.

61 thoughts on “Hyperinflation, Illustrated

    1. T. Shaw

      I think Weimar Germany had one. Most European countries did. The US was late in 1913 setting up the Federal Reserve. Maybe it wasn’t ‘independent.’

      Allied insistence on onerous ($32,000,000,000 in gold) war reparations contributed to post-war chaos and depression. In 1923, France sent troops to occupy the industrial Ruhr Valley. You cannot get both steak and milk from the same cow. Berlin officials responded by allowing inflation, which wiped out the German middle class and paved the way for Hitler. [from a HS AP History textbook].

      If the question is ‘independent.’ I don’t know. They had thrown out the monarchy in 1918.

      Reply
      1. Menzie Chinn Post author

        T.Shaw: Good catch – Weimar Germany is indeed the canonical example. As for central bank independence as understood in the literature, I think it would be fair to say it refers to independence of central bank from the treasury/finance ministry, although definition and measurement varies across scholars.

        Reply
        1. Econned

          Menzie,
          is it…
          Canonical example of hyperinflation
          -OR-
          Canonical example of hyperinflation with an independent central bank
          ?

          Your writing (“good catch”) suggests the former. But doesn’t research suggest the latter?

          (Since there’s been a recent emphasis on ‘clarity’ around here lately.)

          P.S. – have you been able to watch the video from the Fed D&I conference showing research suggesting US PhD economists are the least socioeconomically diverse academics?

          Reply
          1. Menzie Chinn Post author

            Econned: By “good catch” — I meant good referring to Weimar Germany’s inflation as a canonical example of hyperinflation. That’s what I remember being taught. I also remember being taught the reason that occurred in part was because the central bank monetized deficits with extreme prejudice – and that in turn was made possible by central bank non-independence.

          2. Barkley Rosser

            Yeah, Econned, we are more likely to have highly educated parents than any other academics. Shame on us. No wonder rsm wants to murder all of us.

          3. Econned

            Barkley,
            Shame on you? Are you feeling guilty? Perhaps ashamed? Rather, it seems you haven’t a clue why I brought that question up to Menzie and you’re making a fool of yourself making such an ignorant comment. Additionally, if you have an issue with “rsm”, you should keep that between the two of you – I honestly couldn’t care less about the internet quarrels of some senile economist.
            As such, it’d be best that you stay in your lane before someone drops a house on you. That or stop commenting out of ignorance.

          4. Barkley Rosser

            Econned,

            Oh, it is always a waste of time to argue with you, given what a total distorting scumbag you are. But what was the point of your PS to Menzie about the finding of supposed “lack of diversity” among academic economists. As it was I was pointing out, although you are too stupid to get it, that this is an inaccurate summary of what the report found. What it found was indeed what I said, that economists have the highest rates of college educated parents of any discipline. It says absolutely nothing about the “socio-economic” characteristics of those parents. There is nothing about their incomes, which is the “economic” part of this.

            So, you are the one who seems to be ignorant here.

            Oh, and why are you bringing rsm into this? I said nothing about him? Looks like you are the one getting out of your lane, or at least dragging in things from another lane I did not mention. Maybe you are the one who should watch out.

            Oh, and you did not figure it out that I was being sarcastic with the “shame on me” remark? Just how abysmally stupid are you, Econned?

          5. Barkley Rosser

            Econned,

            Ooops, I did bring rsm up. More shame on me, not as sarcastic this time.

            However, I am wondering what you think your point was by bringing up this finding of the supposed lack of “socio-economic diversity” to Menzie. He is not only from an ethnic minority, unlike say me, but it is my understanding that he is the first person in his family to go to college, although I could be off on that. He is not part of this bunch that certainly includes me with highly educated parents. To the extent this supposed lack of socio-economic diversity is the source of some kind of serious problem, Menzie is not part of that, although I might be.

            But, allow me to assure you I do not in fact feel any shame or guilt about this, even if you somehow thought a sarcastic remark by me meant that I did. In fact, I am proud of the accomplishments of my parents.

            BTW, you look pretty silly getting all worked up about this matter of independence of central banks and avoiding hyperinflation. Yes, it is a totally well-known truism that there is a strong correlation between nations having more independence of their central banks and having lower inflation rates. This is a totally duh point, duh. But your claim that there have been no hyperinflations where there are independent central banks turns out not to be as clear as you thought it was, although I am not going to get into the wrangle over just how independent this or that central bank was when a hyperinflation happened. You can wallow in that one, Econned, since you brought it up and made such a fuss about it.

          6. Econned

            This ‘academic’ Barkley Rosser states, “It says absolutely nothing about the “socio-economic” characteristics”. This is interesting as one of the author’s slides states
            “Economics is the least socioeconomically diverse of across all major PHd fields” (with the authors placing an emphasis on least).
            So it is Barkley, to us his own words, the one “who seems to be ignorant here.” This, again using his own words, forces the question “just how abysmally stupid are you, [Barkley]?“

            This ‘academic’ Barkley Rosser then ponders “However, I am wondering what you think your point was by bringing up this finding of the supposed lack of “socio-economic diversity” to Menzie.” This was followed by a lot of absolute irrelevant shit-salad that the senile old man felt was relevant. It wasn’t. At all. The answer to this pondering is that Menzie created a post about “Economists stereotypes” and the comment section ventured directly into this research. So, again, stay in your lane and stop being the senile old man in public that you have no choice to be in private.

            Then this senile clown of an academic suggests I “look pretty silly getting all worked up about this matter of independence of central banks and avoiding hyperinflation”. It’s directly part of the subject at hand. Suggesting “this is a totally duh point” of course it is. I just asked if anyone was aware of exceptions. This is a discussion. Please join if you can contribute ANYTHING of value. Also, Barkley mentioned the “totally duh point” but we have this blog’s host suggests it is a “ Good catch” when someon mentioned – Weimar Germany. You ‘academics’ are one hilarious group. I digress, back to Barkley… I never made a “claim that there have been no hyperinflations where there are independent central banks”. I asked if there had been. How are you that bad of a reader??? You’re an ‘academic’. Maybe a new day will make your sundowner syndrome ease a bit and you’ll see it is you making “such a fuss about it”.

            Stay away from falling houses, Barkley.

          7. Menzie Chinn Post author

            EConned: Please do not cite my Weimar Germany statement as a commentary on anybody’s views on what makes sense, given the poor wording of my comment. I meant that it was a good catch to mention Weimar Germany as a canonical example of hyperinflation, not as a canonical example of an independent central bank and hyperinflation, and people can rightly be confused by thinking they are agreeing/disagreeing. So without going back to look at the thread, I would say don’t cite me as support for one position – cite this correction.

          8. Econned

            Menzie,
            Apologies. It seems, based on your reply, that I was being unclear as well. I do understand that you were saying Weimar Republic was “a good catch to mention Weimar Germany as a canonical example of hyperinflation (you made that perfectly clear in your earlier reply). However, my point was that referencing Weimar is (as Barkley mentions regarding central banks and independence and hyperinflation) a “totally duh point”. I.e.: it wasn’t the “good catch” that you suggest… but of course Barkley wouldn’t dare point out such to his ivory-tower pal. He only fabricates claims made by others and suggests the made-up claims are a “totally duh point”. Classic senile behavior.

          9. Menzie Chinn Post author

            EConned: Well, to be totally frank – I was being a bit sarcastic about “good catch”. Weimar Germany was the go-to example for hyperinflation when I was in graduate school. Not sure what it is these days, as Argentina and Brazil and Zimbabwe are more current (although must confess my undergrad students think the 2008 financial crisis is ancient history).

          10. Barkley Rosser

            Econned,

            This will be my last comment on this as it is known hat you imitate CoRev in endlessly moving goalposts while making outrageous statements. At least you have not declared that nobody should comment on what you say unless you give them permission as you used to. But in general, you seem to be degenerating.

            You defend your PS about diversity by saying that Menzie had a post on “Economist stereotypes.” Yes, so why did you not put this PS on that thread rather than this one on hyperinflation? As it is it seems you are the one who has not read the link. While it goes on about “socio-economic diversity” I am completely correct that it never mentions income. It only mentions the education level of parents, which does enter into social class and is correlated with income, but is not the full determinant of “socio-economic” status. I am right, and you are wrong. Deal with it.

            I completely stick with my comment on your independent central bank sub-thread. It is a “duh” everybody knows it fact of the correlation. But you posed this idiotic issue of “independent” versus “not independent” central bank, when his is a complicated continuous variable with many aspects to it. Totally stupid to pose it in this all-or-noting way you did.

            And, I happen to have published in a highly cited work, hundreds, that covers German economic history. I know a lot more about its hyperinflation than you do, Which is another reason why I think your posing of this was just totally stupid and not worth discussing.

            BTW, what is with this new act of trying to imitate Moses Herzog? Did a house fall on your head and make you lose your mind?

          11. Econned

            Barkley,

            You state “At least you have not declared that nobody should comment on what you say unless you give them permission as you used to.” I’ve never said such but it’s a lie/misrepresentation you continue to perpetuate. You’re a scum for doing so. And bring up something pointless to the conversation – that’s what poor debaters do. You’ve proved that.

            You ask “so why did you not put this PS on that thread rather than this one on hyperinflation?” I did. I haven’t a clue why you’re so lazy as to not discover that yourself. It’s likely because you’re senile.

            You state “While it goes on about “socio-economic diversity” I am completely correct that it never mentions income.” But you stated earlier It “ It says absolutely nothing about the “socio-economic” characteristics of those parents.” The research is titled “Socioeconomic Diversity of Economics PHDs” and uses parental education as a proxy for socieconomic background. It’s a valid approach and you would love it only if I hadn’t brought it up. You’re a senile piece of scum. Deal with it.

            You state “it is a “duh” everybody knows it fact of the correlation. But you posed this idiotic issue of “independent” versus “not independent” central bank, when his is a complicated continuous variable with many aspects to it. Totally stupid to pose it in this all-or-noting way you did.” Is the correlation 100%? If not, stfu. I simply asked a question you senile old hag and people replied and I countered with evidence. What “all-or-nothing”? Why can’t you contribute to the conversation? Because you’re useless in conversation other than boo-hooing about claims that you create in your strange mind.

            The fact that you state “And, I happen to have published in a highly cited work, hundreds, that covers German economic history. I know a lot more about its hyperinflation than you do, Which is another reason why I think your posing of this was just totally stupid and not worth discussing.” Says it all – you can’t carry your weight in actual conversation. “Totally stupid and not worth discussing”? Apologies for confusing this medium for discussion. Just because your blog is an empty waste of computing storage doesn’t mean that every blog comment must be.

            Watch for houses and get in your own before the sun-downer syndrome sets in much worse than it already has today.

          12. CoRev

            Econned, see you are trying to address Barkley Jrs serial lying. It is a common ploy for these weak brained types to claim their verbal opponent(s) are doing what they are actually doing; lying. BTW moving the goal posts and misrepresenting what was said are just forms of their lies.

          13. Menzie Chinn Post author

            CoRev: I hardly think you are in a position to charge someone with lying, when you have repeatedly provided misinformation, and (among other things) accused me of not providing the “original data” when in fact the data provided was clearly identical to the “original data”, and clearly identified as such. (Still waitin’ for the apology).

          14. CoRev

            Menzie: “(Still waitin’ for the apology).” As am I.

            I seriously doubt your ego allows you to consider and understand why.

          15. Barkley Rosser

            CoRev,

            Oh, this is hilarious. I accuse Econned of imitating you, and you show up to verify that you like his tactics of goal post moving, which you are indeed the most notorious practitioner of around here. Even Menzie finallyi figured it out and stopped feeding you on your extended escapades of it on your supposed expertise supposedly far exceeding his regarding a certain market, only to make yourself a regular item in his classes to show students how not to think or do things. My fave out of you, of course, is the spectacle of you providing us with constantly changing stories of the awards you supposedly got for working for the US space program, with Moses Herzog hilariously recently linking to probably your most exaggerated set of such claims that was quite a reminder, although he somehow thought he was showing me up to being exposed as a big liar, which did not exactly fly as he thought it did.

            But now you support Econned, who somehow thinks it is appropriate to bash our co-host, a Chinese-American from a working class family that did not go to college for the supposedly non-divers nature of the economics profession as shown by how more of us have parents who went to college than is the case in other disciplines. I can only think there is some sort of bitter personal resentment lying behind this bizarre stunt of his.

            So, while he has probably become the billionaire CEO of a high tech firm in Silicon Valley, He probably achieved this goal by coming out of a seriously low class and super uneducated background. So probably neither of his parents could even read, never having attended even kindergarten. His mother was a fervent sado-masochist, from whom he learned how to drop buildings on suspected wicked witches like me, but she killed his father because he had made her pregnant with him, the shame of bearing such a child. And then she ended up in jail, discriminated against for her sexual identity, leaving poor Econned to be raised by street gangs and eat out of garbage cans. It is amazing that he got an advanced degree at Cal Tech, even though he failed econ, thereby adding to his bitterness. So now he has achieved his dream of moving goal posts on Econbrowser as he seeks to play “gotcha” with various people, especially anybody who is a professional economist, and he even occasionally succeeds, more often than you do, CoRev, even as he resorts to all sorts of name calling and threats and goal post moving when he does not.

            And as for dropping houses, that would be for the Wicked Witch of the West. But I am in the east, so maybe I need to be melted down by some water thrown on me. I suspect he could hire Moses Herzog to do it, promising him a six month supply of inexpensive wine, and given Moses’s skill at truck driving and he knows where I am, he could pull it off. Heck, just to show what a bunch of no-good non-diverse people we economists are, he could do it during the seminar I shall host on March 23 for Nobel-Prize winner, Vernon Smith. That will really prove all his points, and I am really the most appropriate one to be melted down, given that I do come from highly educated and socially elite parents, shame on me!

          16. Econned

            Menzie,
            A liar may very well be in the best “position to charge someone with lying”. If they aren’t lying. In this case, however, the record stand in favor of CoRev. Barkley is clearly dishonest or disingenuous at best. Undoubtedly a true piece of scum and/or a sad case of dementia where handlers should relinquish his control of contact with outside observers. I can’t imagine being a side show attraction is good for remembering such an individual. So sad. Hope he gets the help that he needs.

          17. Barkley Rosser

            Econnned,

            Oh wow, you have nailed me! Yes, I lied lied lied when I said you are a billionaire CEO of a high tech Silicon Valley firmI And all that stuff about your parents not knowing how to read and your mother being a sado-masochist and the resl? I made it all up, pretty obviously as a mocking satire given your hypoctritical and off-the-wall hounding of Menzie Chinn over the supposed non-diversity of economists because of so many of them having college-educated parents. I think everybody reading this got it, aside from maybe you and CoRev., although, heck, who knows? Maybe some of what I made up is true. Beyond that, however, Econned, I do not think you can report a single lie from me. Mistakes? I have made some of those, but if you want to join both Moses Herzog and CoRev in claiming I have lied, well, too bad, you got nothing, buster.

            As for CoRev, the record of him misleading and lying here is long and notorious. I think you were not around, but this matter of him and the honors he claimed he got for his work on the space program was truly a spectacle. He simply kept changing his story, so many times I lost count. It was one medallion he hung on a wall for his children, then two, then a bunch more, and what they were and what they were for just kept changing. I completely lost track after awhile, and I think most here simply gave up on trying to follow it as it became more and more ridiculous and bizarre. Menzie, thoroughly disgusted with his carrying on about all this, finally asked him where he got his college education and what it consisted of. He never told us where, but did claim that his degree was in Womens’ Studies, presumably this being to somehow mock and shame Menzie for daring to ask. It mostly just made him just look like a pompous moron, kind of like you, Econned, although, who knows? Maybe he really did get a BA in Womens’ Studies from Mystery University.

          18. Econned

            Barkley,
            You sure are responding a lot for someone who stated “ This will be my last comment on this”

            See, you’re clueless. Not once did I ever make “hypoctritical and off-the-wall hounding of Menzie Chinn over the supposed non-diversity of economists because of so many of them having college-educated parents.” Not once. I brought up the research to suggest Menzie’s personal anecdote is not supported by data for IS economists at-large. Then I simply asked again if he watched the prevention from BOG’s D&I. You cannot show a shred of evidence that I hounded Menzie or was hypocritical. You are a fraud.

            You state “I do not think you can report a single lie from me. Mistakes? I have made some of those, but if you want to join both Moses Herzog and CoRev in claiming I have lied, well, too bad, you got nothing, buster.”
            -This is wrong as evidence in my 2nd paragraph in this very comment. I never made a “hypoctritical and off-the-wall hounding of Menzie Chinn over the supposed non-diversity of economists because of so many of them having college-educated parents.” You’re lying. You’re fabricating. But, to hedge, you’ll just claim you “made a mistake”. You’re an embarrassment to higher education.
            -Moreover, your continual claim that I have declared “nobody should comment on what you say unless you give them permission” is a lie – I’ve never suggested such. You’ve taken a comment and fabricated it into what you want. You’re a delusional old man.
            -You lied here suggesting I made comments that I never made: https://econbrowser.com/archives/2021/10/just-how-small-is-the-impact-of-measured-expected-inflation#comment-260347
            -you lied here regarding my views of QTM and Milton Friedman: https://econbrowser.com/archives/2021/06/a-monetarist-manifesto-for-the-covid-19-era#comment-254564
            -you have multiple lies here: http://econbrowser.com/archives/2021/10/one-year-ahead-cpi-inflation-expectations#comment-260129

            The internet evidence shows that if you don’t like a commenter, you ultimately don’t like any of their comments and inevitably suggest that they are somehow a liar. Your biases are glaring and your ability at online discussion is reminiscent of the stereotypical Trump supporter. You constantly move goalposts and fail at supporting your arguments. A senile old fraud.

          19. CoRev

            Barkley claims: ” He simply kept changing his story, so many times I lost count. It was one medallion he hung on a wall for his children, then two, then a bunch more, and what they were and what they were for just kept changing. I completely lost track after awhile, and I think most here simply gave up on trying to follow it as it became more and more ridiculous and bizarre. Menzie, thoroughly disgusted with his carrying on about all this, finally asked him where he got his college education and what it consisted of. He never told us where, but did claim that his degree was in Womens’ Studies, presumably this being to somehow mock and shame Menzie for daring to ask. It mostly just made him just look like a pompous moron, kind of like you, Econned, although, who knows? Maybe he really did get a BA in Womens’ Studies from Mystery University.”

            All of this because I refused to give up enough of my background to possibly identify me.

            This all started when Barkley claimed his father single handedly saved the manned space program by identifying a difference in clocks between the various network components. Which after discussions he later claimed was before orbital space missions were attempted. Exaggerations are lies.

            Coincidentally, some of my early experience was in tracking manned space flights, particularly Apollo.

          20. Barkley Rosser

            CoRev,

            Oh wow, you really think you can somehow make it look like I made inconsistent statements about my late father’s role in the space program. But I never did. When he figured out how to resolve the problem of capsules landing further and further from where they were supposed to the longer they orbited was most certainly after orbital space flight started but before the Apollo program started. It remains the case that if this had not been fixed, Apollo would have been a disaster, and he fixed it. Your efforts to somehow find an inconsistency in my account of this have been a total flop, with you lying that I have somehow changed what I said. Never did.

            The person changing their story was and continues to be what you did and what honors/medallions you got. I repeat indeed that you changed your story on both parts of that so many times I could not keep count. After all those changes in your story, no version of it you put forward now will be believed by anybody, oh, except for maybe that sucker, Econned. Maybe you can con him.

            I also note that I provided evidence of my late father’s important role in the US space program, which is publicly available , although the account of what he did I reported is not in the public record. As Menzie notes, there is zero evidence to support a single thing you have said about your role because you are so paranoid about revealing your precious identity. My identity is public. Why are you such a worthless chicken that yours is s state secret? Your children might figure out you are a major liar? I suspect they already know.

            Yeah, I know that most people here are operating on fake names. But then you refused to provide any information about your college education when Menzie asked you. Would saying where you studied or what your degree was reveal your world-important secret identity? I have seen others here with fake names talk about their educational backgrounds without them having their real identities revealed, but all you have said is the joke that we all know is a lie that you got a degree in Womens’s Studies. Or was that indeed your actual degree?

            Maybe the foolish Econned might be starting to realize that claiming you are more honest than I am is not a position that has a shred of credibility with anybody here. But then, he is a guy who claims on the one hand that he does not get on people for getting involved in his posts without his permission, but then has repeatedly said that if I do not “stay in [my] lane” then I shall have a “house falling on your head.” What a lying hypocrite. You two truly deserve each other.

      2. Econned

        I don’t think the Reichsbank was independent during the early 20’s hyperinflation. See, e.g. “ In 1924 the Reichsbank, over which the Chancellor had exercised ultimate control since its foundation in 1876, was given a new charter as part of the reorganisation of the German monetary system in 1923–4. The new Banking Act expressly laid down that the central bank was independent of the Government. Supervision by the Chancellor was dropped and lending to the Government severely limited.”
        https://link.springer.com/chapter/10.1007/978-1-349-26476-6_2

        Reply
      3. joseph

        T.Shaw: “Berlin officials responded by allowing inflation, which wiped out the German middle class and paved the way for Hitler.”

        Paved the way for Hitler? I think your high school history lesson was gravely abbreviated. The Wiemar hyperinflation was short lived. It mainly peaked in the two years between 1922 and 1924. The reparations were renegotiated and the German economy rebounded and boomed in the years 1924 to 1929 known as the Golden Age of Wiemar. The Nazi Party was a little known faction at that time. Your little history lesson seems to omit this.

        But the 1929 World Great Depression changed everything. It brought great hardship and that depression led to the rise of Hitler. It wasn’t until the elections of 1930, in the grip of depression, that the Nazi Party rose from obscurity to get 18% of the parliamentary vote.

        This distinction is important because misguided politicians (and some misguided economists) cite rising inflation as leading to fascism. It was quite the opposite. It was depression and deflation abetted by misguided monetary and fiscal austerity that gave fascism a foothold.

        Reply
        1. baffling

          hyperinflation led to hitler and the original nazi party attempting a coup of the government. this led to hitler’s incarceration (or more like house arrest), where he wrote mein kampf. during this period he galvanized his party and developed a new approach, without direct violent confrontation with the government. he learned a lesson from the failed coup. he was able to organize his party during this time, so that when the the great depression set in, he struck. the hyperinflation period gave him an audience on his path to destruction.

          Reply
          1. joseph

            baffling: “the hyperinflation period gave him an audience on his path to destruction.”

            Once again baffling echoing the right wingers, this time in their battle against inflationary fears. He just can’t help himself.

            In 1924 at the peak of the hyperinflation, the Nazi Party got less than 3% of the vote, a tiny splinter group. Mein Kampf wasn’t published until two years later and Germany was in the midst of an economic boom. The major themes in Mein Kampf weren’t about hyperinflation but about Communism, Judaism and Nationalism. His analysis of Germany’s problems disregarded economics entirely and instead focused on ethnicity and Aryan culture.

            It wasn’t until the Great Depression starting in 1929 that the Nazi Party started to get traction. It wasn’t hyperinflation that gave Hitler his foothold but instead grinding depression and misguided austerity years after hyperinflation was long over and done with. But the right wing inflationistas keep going back to the hyperinflation of 1923-1924.

            Baffling’s cause and distant effect claim is as silly as the Reaganites who claim that the Bill Clinton economic boom was due to tax cuts a decade previous.

          2. GREGORY BOTT

            No, the party was dead in 1928. Every Left hegelian ideology was at a peak after the great crash.

          3. baffling

            “Baffling’s cause and distant effect claim is as silly as the Reaganites who claim that the Bill Clinton economic boom was due to tax cuts a decade previous.”
            i understand you have animosity towards me joseph, but i am not sure why. i have never done anything to hurt you. but i take issue with you putting words in my mouth. i simply pointed out a truth. hitler obtained national exposure in germany after the beer hall putsch. this was also a period of time when he organized his party. one reason for their quick ascent after the depression started, was the fact they were rather organized, even if small. hitler probably would not have had the opportunity to orchestrate the beer hall putsch if not for the chaos caused by hyperinflation in germany at the time. the rise of hitler was on a much longer timeline than what occurred after the start of the depression.

            now joseph, you can argue that the beer hall putsch and resulting years did not contribute to hitlers rise in power. but that is a pretty weak argument to take.

            “Once again baffling echoing the right wingers, this time in their battle against inflationary fears.”
            i am not the one confusing inflation with hyperinflation, joseph. you are either confusing those topics, or being deliberately misleading in your argument. in fact, i am one of the folks on this blog who has been vocal that i have no real concern with inflation, even if it is high, at this point in time. and we are nowhere close to hyperinflation, which is not even on my radar. joseph, you are just making up straw man arguments.

  1. macroduck

    Three things:

    Define terms is generally a good idea – see previous post. That said, definitions are often arbitrary and this one certainly is. Sometimes, even the same source can’t agree on definitions. Investopedia declares hyperinflation to be “out-of-control inflation, in which the price of goods and services rises at an annual rate of 1,000% or more” and “… hyperinflation is rapidly rising inflation, typically measuring more than 50% per month”. So either 1,000% per year or 13,000%. Either one would be pretty crummy.

    There is a pretty widely shared view among savvier types that hyperinflation is not ultimately the result of bad central bank behavior, even though that may be the proximate cause. Economic collapse causes hyperinflation, not the other way around. Weimar Germany, Peru, France, Greece, Zimbabwe – all used money printing to deal with the collapse of output or government revenue. Good economic management outside of monetary policy avoids hyperinflation, with central bank behavior just a reflection of other economic policy behavior.

    Jack Dorsey is not an economist.

    Reply
      1. Macroduck

        There is an apparent conflict between the port problem and holiday sales forecasts running toward y/y gains of 7% to 10.5%. Apparent, because it may prove possible to sell a bunch more stuff than last year even with ports overwhelmed. Stuff, just not the stuff you want.

        Reply
        1. baffling

          people forget that the port issue is not that we cannot get stuff through the ports. we cannot get the record setting amount of stuff through the ports. ships are not sitting outside of la because no activity is occurring at the port. there is still a tremendous amount of stuff coming through the ports. and i will define stuff as material for economic trade, to appease those quarrelsome folks on the blog.

          Reply
  2. Paul Mathis

    For 5 months in early 1980, inflation exceeded 14% annualized which was the worst at anytime since 1950. Today’s inflation in energy and housing can be readily supressed by tapping the SPR and raising mortgage rates. These actions have worked in the past and there is no reason they would not work now. But the political will to utilize them is lacking.

    Reply
    1. Barkley Rosser

      Paul M.,

      30 year mortgage rates were above 3% for the last several weeks, first time in quite some time, but as of this most recent week fell back below 3% again. Does this reflect a declining expectation of inflation by the market, despite the ongoing headlines?

      Reply
    2. baffling

      “For 5 months in early 1980, inflation exceeded 14% annualized which was the worst at anytime since 1950.”
      so this is a better discussion point than hyperinflation. hyperinflation is simply not an issue the usa needs to be concerned with at this point.

      however, the discussion should revolve around what level of inflation is problematic. as you pointed out, we are currently still quite a ways from 14%, which was problematic. i would guess a sustained period exceeding the 6-7% range becomes problematic. one or two quarters not problematic, but not really good.

      with regard to mortgage rates, how would you target those specifically? would a taper target these better than a rate hike?

      Reply
  3. Robert Flood

    The great Friedman/Cagan scam was claiming stable money demand functions EVEN IN HYPERINFLATION. In the German case workers economized on real balances to the extent that they were paid several times per day. The workers then passed the earnings to their waiting wives who raced off to spend the cash.

    BTW Cagen cut off his German data early in the summer of ’23 – the demand function did not fit well because of the expectation of monetary reform. (See F&G)

    Reply
    1. Menzie Chinn Post author

      Robert Flood: Good point. This was a standard methodology if I recall correctly; in grad school the monetarist (not monetary) model of exchange rates was always taught as if the money demand were stable. A couple decades ago, I remember talking about a paper on hyperinflation and being re-acquainted with the 50% criterion. If you have a more up-to-date one (my intellectual human capital has depreciated a lot!), I’d welcome hearing of it.

      Reply
      1. Anonymous

        That chart is the most inaccurate thing iv seen. Your telling me Paul Volcker never raised interest rates in the 70s… that neve happen? This is propaganda. How much they pay you? Probably dirt because that all you are.

        Reply
        1. Menzie Chinn Post author

          Anonymous: How is plotting an official time series (m/m CPI inflation) and Cagan’s definition of hyperinflation propaganda? I have often plotted interest rates on this blog, so I do not understand your accusation. My advice is to take a deep breath, and also to learn how to construct a grammatically correct sentence.

          Reply
        2. pgl

          The legend of the chart reads: “Figure 1: Month-on-month CPI inflation, % (blue), and Cagan’s (1956) definition of hyperinflation.”

          The chart in no way says anything about interest rates. Chill out dude.

          Reply
      2. Moses Herzog

        ” (my intellectual human capital has depreciated a lot!), ”

        It’s difficult, but every once in awhile I catch Menzie in a lie. Don’t believe him kids, he’ll tie one hand behind his back and body slam you on the ring mat like Hulk Hogan did Sylvester Stallone. It’s an affectionate body-slam though, done in the name of learning.

        Reply
      3. Moses Herzog

        This is from a 2003 IMF article on hyperinflation written by Carmen Reinhart and Miguel Savastano. They don’t appear to change Cagan’s definition of hyperinflation, but have interesting thoughts related to “modern hyperinflation”~~~they say the following “Seven Lessons to Remember”:
        1. Hyperinflations seldom materialize overnight and are usually preceded by a protracted period of high and variable inflation.
        2. Stabilization may take years if fiscal policies are not adjusted appropriately. Even when fiscal adjustment is implemented, it takes time to achieve low inflation, especially when money is used as the nominal anchor.
        3. Sharp reductions in fiscal deficits are always a critical element of a stabilization program, regardless of the choice of monetary anchor.
        4. Unifying exchange markets and establishing currency convertibility are often essential ingredients of stabilization, irrespective of the choice of main nominal anchor.
        5. Output collapses during, and sometimes in the run-up to, hyperinflation. Although stabilization measures cap the implosion in economic activity, there is little evidence to suggest that they kindle a robust rebound in economic activity.
        6. Hyperinflations are accompanied by an abrupt reduction in financial intermediation.
        7. Stopping a hyperinflation does not restore demand for domestic money and domestic currency assets to the levels that prevailed before the hyperinflation began. Capital returns to the country when high inflation stops, but dollarization and other forms of indexation dominate financial intermediation for many years.
        https://www.elibrary.imf.org/downloadpdf/journals/022/0040/002/article-A007-en.xml

        Reply
  4. David O'Rear

    Another example is Zimbabwe: huge budget deficits (unfinanced veterans’ pensions), unconcerned central bank, political unrest, poor income equality, and a severe lack of current or accurate data.

    Reply
    1. Barkley Rosser

      The silence of death, rsm, the death of your brother, whose ghost must be completely disgusted by the ranting you have been engaging in here.

      Reply

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