Question

Reading from Brealey, Myers, Marcus Fundamentals of Corporate Finance (sixth edition)

Chapter 5 discusses inflation. After World War I, Germany experienced severe inflation. At one point in the 1920s, a German mark (the German currency) would be worth a fraction of the value that it was worth the previous day. What are the effects of severe inflation? Are there any positive effects (think about debt)? What are your thoughts about the U.S. Economic Inflation/Collapse?

Answer 1

Effects of Severe Inflation:
Hoarding and stockpiling create shortages of consumer goods, like vehicles and laundry machines. Even perishable goods, like bread and milk, become scarce because the economy falls apart. individuals lose their life savings as money becomes worthless. For that reason, the aged are the most prone to hyperinflation.

Banks and lenders go bankrupt since their loans lose value and people stop making deposits.

Hyperinflation sends the worth of the currency plummeting in exchange markets. The nation's importers go out of business because the price of foreign merchandise skyrockets. unemployment rises as corporations fold.

Then government tax revenues fall, and it's trouble providing basic services. the govt prints extra money to pay its bills, worsening the hyperinflation.

Positive Effects of Hyperinflation:
Debtors: Higher prices make their debt worthless. by comparison until it is virtually wiped out.
Exporters: Due to the falling local currency exports become cheaper with respect to the competition. They receives foreign currency which increases in value in comparison to the falling local currency.

US Economic Inflation: The US economy has been growing at a fair lick. Unemployment is low and signs of inflation are starting to appear. The dollar is weak and share prices have been on a sustained upward run.  The weakness of the dollar makes imports dearer, while Trump’s tax cuts will kick in at the worst possible moment, toward the end of a long cyclical upswing when there is a danger of the economy overheating. Economic fundamentals are good and there will be no real inflationary threat from rising earnings provided productivity also picks up.