Quotar.com reports about hyperinflation.
(emphasis mine) [my comment]
Hyperinflation: "No one was prepared. The shelves in the grocery stores were empty"
The Weimar Hyperinflation? Could it Happen Again?
"It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty. You could buy nothing with your paper money." — Harvard University law professor Friedrich Kessler on the Weimar Republic hyperinflation (1993 interview) [This quote is from Ralph Foster's book, "Fiat Paper Currency - The History and Evolution of Our Money,"]
Some worried commentators are predicting a massive hyperinflation of the sort suffered by Weimar Germany in 1923, when a wheelbarrow full of paper money could barely buy a loaf of bread. An April 29 editorial in the San Francisco Examiner warned:
"With an unprecedented deficit that's approaching $2 trillion, [the President's 2010] budget proposal is a surefire prescription for hyperinflation. So every senator and representative who votes for this monster $3.6 trillion budget will be endorsing a spending spree that could very well turn America into the next Weimar Republic."
In an investment newsletter called Money Morning on April 9, Martin Hutchinson pointed to disturbing parallels between current government monetary policy and Weimar Germany's, when 50% of government spending was being funded by seigniorage — merely printing money. However, there is something puzzling in his data. He indicates that the British government is already funding more of its budget by seigniorage than Weimar Germany did at the height of its massive hyperinflation; yet the pound is still holding its own, under circumstances said to have caused the complete destruction of the German mark [the pound is already dead]. Something else must have been responsible for the mark's collapse besides mere money-printing to meet the government's budget, but what? And are we threatened by the same risk today? Let's take a closer look at the data.
History Repeats Itself — or Does It?
In his well-researched article, Hutchinson notes that Weimar Germany had been suffering from inflation ever since World War I; but it was in the two year period between 1921 and 1923 that the true "Weimar hyperinflation" occurred. By the time it had ended in November 1923, the mark was worth only one-trillionth of what it had been worth back in 1914. Hutchinson goes on:
"The current policy mix reflects those of Germany during the period between 1919 and 1923. The Weimar government was unwilling to raise taxes to fund post-war reconstruction and war-reparations payments, and so it ran large budget deficits. It kept interest rates far below inflation, expanding money supply rapidly and raising 50% of government spending through seigniorage (printing money and living off the profits from issuing it). . . .
"The really chilling parallel is that the United States, Britain and Japan have now taken to funding their budget deficits through seigniorage [I have warned before to stay away from the dollar, pound, and yen. They are finished]. In the United States, the Fed is buying $300 billion worth of U.S. Treasury bonds (T-bonds) over a six-month period, a rate of $600 billion per annum, 15% of federal spending of $4 trillion. In Britain, the Bank of England (BOE) is buying 75 billion pounds of gilts [the British equivalent of U.S. Treasury bonds] over three months. That's 300 billion pounds per annum, 65% of British government spending of 454 billion pounds. Thus, while the United States is approaching Weimar German policy (50% of spending) quite rapidly, Britain has already overtaken it!"
The San José State University reports that The Worst Episode of Hyperinflation in History: Yugoslavia 1993-94.
The Worst Episode of Hyperinflation in History:
Under Tito Yugoslavia ran a budget deficit that was financed by printing money. This led to rates of inflation of 15 to 25 percent per year. After Tito the Communist Party pursued progressively more irrational economic policies. These irrational policies and the breakup of Yugoslavia (Yugoslavia now consists of only Serbia and Montenegro) led to heavier reliance upon printing or otherwise creating money to finance the operation of the government and the socialist economy. This created the worst hyperinflation in history up to this time.
By the early 1990s the government used up all of its own hard currency reserves [gold] and proceeded to loot the hard currency savings of private citizens [The Treasury's market manipulation has the same effect of looting the wealth of private citizens]. It did this by imposing more and more difficult restrictions on private citizens access to their hard currency savings in government banks.
The government operated a network of stores at which goods were supposed to be available at artificially low prices. In practice these store seldom had anything to sell and goods were only available at free markets where the prices were far above the official prices that goods were supposed to sell at in government stores. In particular, all of the government gasoline stations eventually were closed and gasoline was available only from roadside dealers whose operation consisted of a parked car with a plastic can of gasoline sitting on the hood. The market price was the equivalent of $8 per gallon.
The combination of the shortage of gasoline and the government confiscation of German Deutsche mark deposits created a bizaar episode. A man after repeated attempts to get the government to let him withdraw his Deutsche mark deposits as Deutsche marks announced the was going to commit suicide in front of a government building by dousing himself with gasoline and igniting it. On the appointed day he showed up with a canister of gasoline. The media was there to film his protest. The police were also there and arrested the man. Afterwards the television station got numerous phone calls asking what had happened to the canister of gasoline.
Most car owners gave up driving and tried to rely upon public transportation. But the Belgrade transit authority (GSP) did not have the funds necessary for keeping its fleet of 1200 buses operating. Instead it ran fewer than 500 buses. These buses were overcrowded and the ticket collectors could not get aboard to collect fares. Thus GSP could not collect fares even though it was desperately short of funds.
Delivery trucks, ambulances, fire trucks and garbage trucks were also short of fuel. The government announced that gasoline would not be sold to farmers for fall harvests and planting.
Despite the government desperate printing of money it still did not have the funds to keep the infrastructure in operation. Pot holes developed in the streets, elevators stopped functioning, and construction projects were closed down. The unemployment rate exceeded 30 percent.
The government tried to counter the inflation by imposing price controls. But when inflation continued the government price controls made the price producers were getting ridiculous low they stopped producing. In October of 1993 the bakers stopped making bread and Belgrade was without bread for a week. The slaughter houses refused to sell meat to the state stores and this meant meat became unvailable for many sectors of the population. Other stores closed down for inventory rather than sell their goods at the government mandated prices. When farmers refused to sell to the government at the artificially low prices the government dictated, government irrationally used hard currency to buy food from foreign sources rather than remove the price controls. The Ministry of Agriculture also risked creating a famine by selling farmers only 30 percent of the fuel they needed for planting and harvesting.
Later the government tried to curb inflation by requiring stores to file paper work every time they raised a price. This meant that many of the stores employees had to devote their time to filling out these government forms. Instead of curbing inflation this policy actually increased inflation because the stores tended increase prices by a bigger jump so that they would not have file forms for another price increase so soon.
In October of 1993 the created a new currency unit. One new dinar was worth one million of the old dinars. In effect, the government simply removed six zeroes from the paper money. This of course did not stop the inflation and between October 1, 1993 and January 24, 1995 prices increased by 5 quadrillion percent. This number is a 5 with 15 zeroes after it.
In November of 1993 the government postponed turning on the heat in the state apartment buildings in which most of the population lived. The residents reacted to this withholding of heat by using electrical space heaters which were inefficient and overloaded the electrical system. The government power company then had to order blackouts to conserve electricity.
The social structure began to collapse. Thieves robbed hospitals and clinics of scarce pharmaceuticals and then sold them in front of the same places they robbed. The railway workers went on strike and closed down Yugoslavia's rail system.
In a large psychiatric hospital 87 patients died in November of 1994. The hospital had no heat, there was no food or medicine and the patients were wandering around naked.
The government set the level of pensions. The pensions were to be paid at the post office but the government did not give the post offices enough funds to pay these pensions. The pensioners lined up in long lines outside the post office. When the post office ran out of state funds to pay the pensions the employees would pay the next pensioner in line whatever money they received when someone came in to mail a letter or package. With inflation being what it was the value of the pension would decrease drastically if the pensioners went home and came back the next day. So they waited in line knowing that the value of their pension payment was decreasing with each minute they had to wait in line.
Many Yugoslavian businesses refused to take the Yugoslavian currency at all and the German Deutsche Mark effectively became the currency of Yugoslavia. But government organizations, government employees and pensioners still got paid in Yugoslavian dinars so there was still an active exchange in dinars. On November 12, 1993 the exchange rate was 1 DM = 1 million new dinars. By November 23 the exchange rate was 1 DM = 6.5 million new dinars and at the end of November it was 1 DM = 37 million new dinars. At the beginning of December the bus workers went on strike because their pay for two weeks was equivalent to only 4 DM when it cost a family of four 230 DM per month to live. By December 11th the exchange rate was 1 DM = 800 million and on December 15th it was 1 DM = 3.7 billion new dinars. The average daily rate of inflation was nearly 100 percent. When farmers selling in the free markets refused to sell food for Yugoslavian dinars the government closed down the free markets. On December 29 the exchange rate was 1 DM = 950 billion new dinars.
The telephone bills for the government operated phone system were collected by the postmen. People postponed paying these bills as much as possible and inflation reduced there real value to next to nothing. One postman found that after trying to collect on 780 phone bills he got nothing so the next day he stayed home and paid all of the phone bills himself for the equivalent of a few American pennies.
On January 24, 1994 the government introduced the super dinar equal to 10 million of the new new dinars. The Yugoslav government's official position was that the hyperinflation occurred "because of the unjustly implemented sanctions against the Serbian people and state."
Source: James Lyon, "Yugoslavia's Hyperinflation, 1993-1994: A Social History," East European Politics and Societies vol. 10, no. 2 (Spring 1996), pp. 293-327.
Economywatch reports that Inflation, Famine and Instability in Zimbabwe.
Zimbabwe Economy: Inflation, Famine and Instability
Harare, 20 Aug 2008. Zimbabwe has been experiencing ridiculous inflation, widespread famine, social instability and an uncompetitive economy. What was the cause of these disastrous conditions, and what can be done to avoid them in the future?
When inflation is rampant, citizens stockpile goods, as they are worth more than the money that could buy them. This creates a scarcity of supply, and makes valuating inflation difficult.
Zimbabwe has been plagued with inflation since its currency began in 1980, but the hyperinflation only began in about 2004, with the rate hitting 624% early in that year.
The land reforms in the early 90s had a drastic effect on food supplies. These reforms led to President Robert Mugable taking land back from white farmers. Since the brutal farm invasions, crop production has plunged and the economy has suffered. Now, more that 4 million people, or a third of the nation, have to rely on aid from the World Food Programme.
Agricultural exports, which were once a significant source of income to the fertile country, have all but vanished, and this has resulted in Zimbabwe incurring even more of a trade deficit. Mugabe attributes its lack of food to former-British Prime Minister Tony Blair's use of chemical weapons to initiate famine and drought in Africa.
Hyperinflation also robs the citizens of any wealth they may have had. It also causes any little wealth there may be in the nation to be converted into a more stable currency, such as gold,
the US Dollars, Euro, Pounds or physical assets overseas. This exodus of currency further reduces the country's financial capacity, and the problem continues to worsen.
The government feels the pain, too. Any taxes paid become nearly worthless by the time they reach the government (the receivable amount is never met by the payable), nobody will buy the government debt, and the financial power of any entity holding such debt is immediately reduced.
In early 2007, the country's central bank banned any price rises, stating that inflation was illegal. Yet with few people buying or selling anything how will this help? Will Zimbabwe have to abandon their currency entirely and use something else? Or will it take a fundamental change in government leadership to pull the country back into the global scene?
Year Inflation Rate
Charles Cole, EconomyWatch.com
1) A colossal amount of wealth is about to destroyed by the collapse of the dollar, pound, and yen.
2) It will strike like lightning. The shelves in the grocery stores will become empty as retailers can't afford to restock them. Most people won't be prepared.
3) When inflation is rampant, citizens stockpile goods, and paper money becomes toxic. This creates a scarcity of supply (commodities which are bought as a store of wealth become unavailable for consumption). In other words, even if production wasn't down 20 percent, the dollar's collapse would still create a food shortage as a result of hoarding.
4) The US/British/Japanese government will not have the funds to keep the infrastructure in operation (Pot holes will develop in the streets, elevators will stop functioning, etc).
5) The unemployment rate will exceeded 30 percent, as the US/British/Japanese service sector implodes.
6) The United States, Britain and Japan, like the Weimar Republic, have now taken to funding their budget deficits through seigniorage.
7) As inflation accelerates, any taxes paid will become nearly worthless by the time they reach the US/British/Japanese government.
8) Nobody will buy the US/British/Japanese government debt
9) The financial power of any entity holding US/British/Japanese government debt will be immediately reduced.
10) Food stamps and social security payments will be made worthless by hyperinflation.
11) There is likely to be fuel shortages which will impact critical services (delivery trucks, ambulances, fire trucks, garbage trucks, etc) as the dollar price of fuel soars.
12) The US/British/Japanese government will pass laws to try to control price rises. These efforts will fail.
13) The social structure will begin to collapse.
Conclusion: While the dollar collapse has already begun (gold at $1070), most of the above will happen in 2010.