Hyperinflation in a good economy | Inflation | Finance & Capital Markets | Khan Academy

ruticker 07.03.2025 23:39:00

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We now know a little bit about inflation and deflation. Now, I want to introduce you to **hyperinflation**. As the word implies, it's inflation gone wild. The general idea of how hyperinflation occurs, at least in the cases we've seen in modern times, is that you have some type of government just going wild with the printing press. They're just printing a ton of money. So, the general cycle is: they print money. Let me draw it this way. They print like mad, usually because they don't have any other way of getting revenue. They print like mad, and that leads to prices going up. Prices go up, and then, because prices go up, they have to print more money in order for them to be able to get the same goods and services or pay the government workers what they wanted to pay them, or pay the soldiers what they wanted to pay them. On top of this, this by itself would probably drive the hyperinflation, but you can imagine we're used to thinking high inflation is 5 or 10%. But you can imagine what happens when inflation is 5 or 10% **per hour**. Because then, there's no incentive to actually hold currency. Every second that you hold currency, it becomes worth less and less. So, what happens in a scenario like this is people want to hoard hard assets. If the price of bread is going up by the minute or by the hour, or the price of shoes is going up by the minute or by the hour, the increase in prices is going to make people hoard things. I spelled hoarding wrong—hoarding goes through the roof. You can imagine if hoarding goes through the roof, if the shoe seller doesn't want to sell his shoes anymore because he wants to hold them a little bit longer, then the supply of shoes is going to go down, and the prices are going to go up even higher. So, hoarding leads to even higher prices. If, when people go to the bread market and there's five loaves of bread, they buy all of them, then the next person can't buy any because they know that the price of bread is going through the roof. It just keeps getting worse and worse, and it's all started by the government kind of just going nuts with the printing press. Now, the three most famous examples of this happening—probably the most famous one is what happened in **Weimar Germany** after World War I. They had huge reparations to pay; that's what the Weimar government would have argued was their main cause. But they just printed money like crazy. Some people said that they were almost trying to destroy the economy so that they wouldn't have to pay reparations for what they did in World War I. This just gives you a sense of how crazy it was. Here's the end of World War I, and they just printed money like mad. The inflation was pretty extreme. This isn't the rate of inflation; this is how much it was relative to a gold mark. So, this is one gold mark over here. By only after about 2.5 years, it was over tenfold. This is a logarithmic scale; each last year is a factor of 10. By the end of 1923, you're looking at this—this is not 100,000, not a million, not a billion; this is a trillion. It had gone up a trillion fold in the span of 1, 2, 3, 4, 5, or was that 6 years? The other famous examples of this are **Zimbabwe** from 1980 until 2009. Once again, printing money like mad, and some of their productive capacity went away. This right here is a 100 trillion Zimbabwe dollar, and this shows you the Zimbabwean dollar relative to the US dollar. Once again, this is a logarithmic scale; this is 10 to the 30th power. Then, the largest or most extreme hyperinflation ever was **Hungary** after World War II. This right here is a 10 million pengő note, just to give you an idea of what people were carrying around in their pockets.

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