Hyperinflation

500 Billion Dinara

May 20, 2010 by rickety 3 Comments

I hold a 500 billion dinara banknote, worth $6 when first issued

Millions of U.S. citizens are concerned about deficit spending and the possibility of high inflation and even hyperinflation. To illustrate how easily fiat money can become hyperinflated, I have been highlighting the top four countries that have had hyperinflation. They are:

Hungary, 207% daily inflation rate in July 1946
Zimbabwe, 98% daily inflation rate in November 2008
Yugoslavia, 65% daily inflation rate in January 1994
Germany, 21% daily inflation rate in October 1923

Note that the inflation rates cited are daily. O my, I am glad I didn’t have to live through hyperinflation. Also observe that these countries are not confined to Europe. China is not listed but if they were they would come in at number 6. Anywhere fiat currencies are used (that’s basically everywhere) the danger of hyperinflation is forever present.

To complete the gang of four, today I am discussing Yugoslavia.

The 500 billion dinar banknote was introduced on December 23, 1993, and was worth $6. By noon it was worth only $5. By evening its value was less than $3. There was 5,000,000,000,000,000,000 percent inflation from October 1, 1993 to January 24, 1994 (prices doubled every 1.4 days).

From when the 100 dinara coin was struck in 1989 until the 500 billion banknote was issued on December 23, 1993, the currency declined in value 100 billion to one. The note was the largest nominal value ever issued by Yugoslavia. Children’s poet Jovan Jovanovich Amaj adorned the obverse of the bill.

Also see 34 Examples of Hyperinflation.
Rickety signature.

One Hundred Million Marks

May 5, 2010 by rickety 14 Comments

Weimar Republic 100 million mark banknote

The 100 million mark banknote I am holding was mere pocket change compared to the value of the banknotes yet to be issued in 1923. In early 1921 German currency was trading at 60 marks to the U.S. dollar. By November 1921 there were 330 marks to the dollar. A year later a dollar bought 8,000 marks. In December 1923 the exchange rate was 4,200,000,000,000 marks to the U.S. dollar.

The Wiemar Republic did not have the worst hyperinflation in history — Hungary holds that “honor”. Zimbabwe was the second worst offender, followed by Yugoslavia, Germany, and Greece: the top five hyperinflators of all time.

The highest denomination in Germany was a 100,000,000,000,000 mark banknote issued in 1923. Workers were paid three times a day and wives would meet them to rush to the store to pay 200 billion marks for a loaf of bread.

The hyperinflation was caused by the government issuing massive amounts of new money. This caused prices to rise. Germans with money saved had it wiped out, making them destitute. The German government essentially monetized its debt, much like the U.S. is doing of late. Germany failed to raise its interest rate sufficiently, just as in the U.S. at present.

The main force in the 1920s which gave the nightmare German inflation its momentum was the relentless decrease in the real value of currency in circulation.

Just like in the United States in 2010.
Rickety signature.

One Hundred Thousand Milpengo

May 3, 2010 by rickety 4 Comments

Hungarian 100,000 Milpengo banknote

I recently wrote that I was concerned about the increased deficit spending by the Obama Administration. I showed what happened to Zimbabwe when the government failed to control their currency and their spending. Although hyperinflation destroyed their currency and their citizens lives, the worst offender of all time was Hungary.

Above is a 100,000 Milpengo banknote if I am reading it correctly. A Milpego is a million pengos. So this note is a 100 billion pengo banknote. However this is small change. The largest denomination banknote in history was in circulation in Hungary in 1946. It was for 100 quintillion pengo or 100,000,000,000,000,000,000 pengo.

Hungary had the highest monthly inflation rate ever — 41,900,000,000,000,000% in July, 1946. Prices doubled every 13.5 hours.

When I show friends this banknote and the Zimbabwe note, handling them brings home the fragility of our own Federal Reserve Notes. They know that our printing presses are bigger and faster than any that Zimbabwe or Hungary ever ran. Their economies were destroyed by hyperinflation.

And the same fate could befall us.

Rickety signature.

One Hundred Trillion Dollars

April 26, 2010 by rickety 3 Comments

When announced, the note I hold was worth 30 US dollars but would quickly lose value

Recently I have been concerned about the increased deficit spending by the Obama Administration. The risk of inflation, even hyperinflation, seems to be in our future. With a little study I was surprised to learn scores of countries have experienced hyperinflation.

In November 2008, Zimbabwe had a monthly inflation rate of 79,600,000,000% and an annual rate of 89,700,000,000,000,000,000,000%. The daily inflation rate was 98% and prices doubled every 24.7 hours.

Even these horrendous numbers do not equal those of Hungary in 1946 that had an daily inflation rate of 195% with prices doubling every 15.6 hours. Other notable hyperinflators were Yugoslavia in 1994 with prices doubling every 1.4 days, Germany in 1923 doubling prices every 3.7 days, Greece every 4.5 days (1944), and China every 5.6 days (1949).

One would hope that we are not headed for the same fate as Zimbabwe. Perhaps this November, by voting out of office members of Congress that are the worst spenders, we can strengthen the dollar and make it worthy of reserve status.