Hyperinflation: Still More Than A Monetary Phenomenon

http://www.businessinsider.com/hyperinflation-still-more-than-a-monetary-phenomenon-2012-8

One of the bigger myths in the world of economics and finance remains the cause of hyperinflation. As I’ve highlighted many times over the years, hyperinflation is more than just a monetary phenomenon (and misunderstanding this led to many incorrect hyperinflation predictions in the USA in recent years). In fact, the monetary explosion is almost always the result of some other rare or extreme exogenous factor. My original conclusions on this found that hyperinflations tended to occur around the follow events:

Collapse in production.

Rampant government corruption.

Loss of a war.

Regime change or regime collapse.

Ceding of monetary sovereignty generally via a pegged currency or foreign denominated debt.

These events usually lead to a collapse in the tax system or expansion in deficits that appear like the cause of the hyperinflation when the reality is that the debt increase is always the result of some rare or extreme exogenous event. And let’s be clear – when we say “rare” we mean really rare. As in wars that destroy countries, regime changes that shift entire countries, corruption that destroys an economy, ceding of monetary sovereignty in the use of a currency peg or foreign debts, or a collapse in production.