Table of Contents
What is Hyperinflation?
Hyperinflation refers to rapid, extreme, and uncontrollable general price increases in an economy. Steady price increases, otherwise known as inflation, is expected. The U.S. Federal Reserve System (FRS) claims an annual inflation rate of 2% results in maximum employment and price stability.
Hyperinflation rarely occurs in a developed economy. Economists have two different thresholds to define periods of hyperinflation. Some define it as inflationary rate increases of more than 50% per month; others define hyperinflation as periods where the inflationary rate is 1,000% or more annually.
In this article, the Zero Theft Movement will look at the differences between hyperinflation and inflation. Stick to the end to see how the Federal Reserve’s calculations of the inflation rate might not accurately reflect real inflation.
The Zero Theft Movement is a crowdfunded effort to fight against the rigged economy and crony capitalism with hard proof gathered through citizen-led investigation. As a distributed organization, we firmly adhere to our policy of one-citizen-one vote. Regardless of who you are, how much you donate, or what company you work for or represent, you get one vote per investigation.
How Inflation and Hyperinflation Affects Economic Equilibrium
Economic equilibrium refers to a theoretical state where supply and demand have achieved perfect balance. The number of goods for sale exactly matches the number of customers. This scenario benefits both parties: the business producing the goods does not have any waste, and all customers get to own whatever it is they want or need. Of course, the economy rarely, if ever, achieves equilibrium.
That means the economy remains in a state of flux, or ‘disequilibrium.’ Inflation factors into disequilibrium because price increases reflect an imbalance between supply and demand. Higher inflation rates hurt your purchasing power. What costs ten dollars currently might cost fifteen dollars in a year or two. Most come to accept and expect incremental price increases across the board.
Hyperinflation supercharges the effects of inflation. What costs a few dollars today might cost fifty or a hundred dollars (perhaps even more) in a year or two. To give you an idea of just how expensive hyperinflation can be, take a look at the table below.
It seems unreal just how much hyperinflation can multiply prices, and you likely haven’t seen such increases. That’s because, as we already mentioned, true hyperinflation proves rare in developed economies.
What Causes Hyperinflation?
Excessive Money Supply
Hyperinflation has occurred during economic depressions. High unemployment rates, bankruptcies, low economic output, and restricted lending contribute to an extreme economic downturn. A country’s central bank will often try to weather the storm by increasing the money supply (i.e., printing money). The injection of funds is intended to coax banks into lending to consumers, who might be more inclined to spend and invest.
In the case that the increased money supply fails to stimulate economic activity and growth, the financial system becomes vulnerable to hyperinflation. A stagnant gross domestic product (GDP), a measure of the production of goods/services in an economy, leads to businesses raising prices to boost profits and survive the depression. Consumers will have to pay the higher prices, leading to further inflation. This becomes a vicious cycle of money printing and extreme inflation.
Loss of Public Confidence
Periods of turmoil or upheaval (not necessarily economic) can seriously impinge on a country’s financial system. For instance, wartime will hurt public confidence in their nation’s currency. Companies operating within and outside the country might demand a risk premium for doing business in an unstable currency. That risk premium influences the profit margin throughout the supply chain, potentially leading to hyperinflation.
Public confidence in the economy can also take a hit if citizens and outsiders do not think a government is properly managed. When a nation’s currency holds little or even no value, investors will also sell off their assets tied to a troubled nation to purchase investments in other areas. Citizens will hoard goods, especially essentials such as food and fuel. Supplies grow scarce, and prices start to shoot up due to the demand. This is known as demand-pull inflation.
Businesses go under, unemployment rises, and tax revenues drop. The government has bills to pay, too! It will have to print more money in an attempt to stabilize prices and bring liquidity to the market. As explained in the previous section, excessive money supply can actually harm the economy.
Hyperinflation in U.S. History?
The only official period of hyperinflation in the U.S. occurred during the Civil War (1861-1865). The Confederate Government printed money to finance its war effort. At its highest point, a $3.00 Confederate dollars was worth one Gold Dollar—a 200% inflation rate since the beginning of the Civil War.
As mentioned in the introduction, the Federal Reserve targets an annual ‘core’ inflation rate of 2%. No inflation isn’t necessarily a positive state, contrary to what you might believe. Mild inflation often helps stimulate the economy. The core inflation rate, measured by the Consumer Price Index, omits oil, gas, and food prices due to their volatility. The Fed ensures that hyperinflation does not occur by regulating the money supply. Limiting the money supply reduces the risk of inflation while loosening it increases the risk of inflation. It will use its other monetary policy tools to tighten the money supply and lower prices again.
According to the Fed’s calculations, the U.S. has consistently been around or lower than the core inflation rate. Critics, however, doubt the accuracy of using CPI as the measure of inflation. In an article for Business Insider, author Charles Hugh Smith claims, “Unbiased private-sector efforts to calculate the real rate of inflation have yielded a rate of around 7% to 13% per year, depending on the locale — many multiples of the official rate of around 1% per year.”
The Damages of (Hyper)Inflation
Hyperinflation causes cost increases across the economy: rent, healthcare, education, food, etc. Your money completely loses its value, effectively reducing how far your dollars go. During World War II, specifically 1946-1948, food costs increased by 55.2%. We have since experienced gradual inflation, at least according to CPI-based calculations. While we might not necessarily be in a period of hyperinflation, does the Fed’s CPI calculations accurately reflect real inflation? If inflation routinely comes in at 7%-13% per year, that’s a significant annual pay decrease for workers.
We need to figure out an accurate figure for inflation to truly know whether price increases are as minimal as the Fed has calculated. If real inflation proves higher than the Agency’s calculations, that means all of us effectively make less than the year before even though our salaries remain the same. The Zero Theft Movement provides the powerful investigative tools for you to help yourself and your fellow citizens to uncover the truth about inflation. We have created the only platform where you and your fellow citizens can systematically and democratically determine the rigged areas of the U.S. economy. Many of us could be losing money every year because of broken legislation, corrupt lawmakers, and predatory corporations. It’s up to us to protect ourselves.
Through our software, you decide whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.