Question

the causes and consequences of that hyperinflation, and then state whether you think what occurred in Germany then could ever happen in the U.S. Support your point of view with cited, credible evidence and carefully considered arguments.

Answer 1

Hyperinflation starts when a country's government begins printing money to pay for its spending. As it increases the money supply, prices rise as in regular inflation. An increase in the money supply is one of the two causes of inflation. The other is demand-pull inflation. It occurs when a surge in demand outstrips supply, sending prices higher.

But the government continues to print more instead of tightening the money supply to prevent inflation. Prices are skyrocketing with too much currency slipping around. They expect ongoing inflation once customers understand what is happening. To prevent paying a greater cost later, they purchase more now. That excessive demand makes inflation worse. If they store products and generate shortages, it's even worse.

People start hoarding to maintain from paying more tomorrow. This stockpiling produces deficiencies. It begins with products that are durable, such as cars and washing machines. People hoard perishable products like bread and milk if hyperinflation continues. These daily supplies are becoming scarce and the economy is falling apart.

As money becomes worthless, people lose their life savings. The elderly are therefore the most vulnerable to hyperinflation. Soon, as their loans lose value, banks and lenders go bankrupt. They run out of money as deposits are stopped by individuals.

Hyperinflation sends the value of the currency plummeting in foreign exchange markets. The nation's importers go out of business as the cost of foreign goods skyrockets. Unemployment rises as companies fold. Then government tax revenues fall, and it has trouble providing basic services. The government prints more money to pay its bills, worsening the hyperinflation.

During the Weimar Republic in Germany in the 1920s, the most well-known instance of hyperinflation was. First, the German government published cash to pay for the First World War. From 1913 until the end of the war, the amount of German marks in circulation increased from 13 billion to 60 billion. Government bonds have also been printed. It is having the same impact as money printing. The sovereign debt of Germany fell from Mark 5 billion to Mark 156 billion. This fiscal stimulus initially reduced export costs and enhanced economic growth.

When the war ended, the Allies saddled Germany with another 132 billion marks in war reparations. Production collapsed, leading to a shortage of goods, especially food. Because there was excess cash in circulation, and few goods, the price of everyday items doubled every 3.7 days. The inflation rate was 20.9 percent per day. Farmers and others who produced goods did well, but most people either lived in abject poverty or left the country.

During the Civil War, the only time that the United States experienced hyperinflation. The government of the Confederate printed cash to pay for the war. If hyperinflation were to happen again in America, it would be measured by the Consumer Price Index. If you inspect the present level of inflation, you'll see that it's not even in the double digits close hyperinflation. Inflation is actually too small. For economic growth, mild inflation is good.

The Federal Reserve is preventing monetary policy hyperinflation in America. The main task of the Fed is to regulate inflation while preventing recession. It does this by tightening or relaxing the supply of cash, which is the quantity of cash permitted on the market. Strengthening the availability of cash decreases inflation risk while loosening it increases inflation risk.

The Fed has an annual inflation target of 2%. That's the key rate of inflation, leaving out volatile prices of oil and gas. Depending on commodity trading, they move up and down quickly. This impacts the food price transported by trucks over lengthy distances.

For this reason, the CPI also removes food prices from the core inflation rate.

If the core inflation rate exceeds 2 percent, the Fed will raise the fed funds rate. It will use its other monetary policy tools to tighten the money supply and lower prices again. Some experts say that the Fed's interventions to lessen the recession will cause hyperinflation.