Hyper-inflation is Terrible…

Hyper-inflation is caused when a government decides to print up a lot of new $100 bills to avoid the pain of having to pay for what it is spending.  For every new $100 bill that is created out of thin air, this reduces the value of all the other dollars in circulation.

Imagine that you have a rare mint baseball card and it is worth $1,000.  Now imagine that someone discovers a cache of previously unknown baseball cards all in mint condition.  They learn that 50,000 of the cards are the exact same one that you have and they are all in just as good of condition as yours… Your $1000 card is now worth maybe $10. 

The same thing happens with paper money.  The more there is, the less it is worth so prices for things go up.  Once they start going up rapidly as people trade their rapidly-devaluing dollrs for tangible things, then a hyper-inflation spiral can be the result.

Here is what happened in Zimbabwe in 2007-08:

They even created a trillion dollar bill during this crisis. Hyper-inflation puts the cost of many basic goods out of reach: in Zimbabwe a loaf of bread in 2008 costs what 12 new cars did in 1998.

The only ways to recover from the sort of deficit spending we are now engaged in is either default (the government tears up its obligations and doesn’t pay back the money that they borrowed) or hyper-inflation.  Neither of these options is pretty but this is the result of a country spending itself into bankruptcy.

The other choice is to stop borrowing more money and start paying it back before the interest rates go up and make it impossible to pay the interest every year.  But who thinks the politicians or the voters have the guts or the decency to do what would be the obvious thing if we were talking about a family overspending instead of an entire country…