Pethokoukis

Hyperinflation in Iran: Is America next?

There’s been a big surge in Google searches on “hyperinflation.”

I assume the Fed’s new bond-buying program is playing a role. So, too, what’s been happening in Iran. Steve Hanke over at Cato:

Since the U.S. and E.U. first enacted sanctions against Iran, in 2010, the value of the Iranian rial (IRR) has plummeted, imposing untold misery on the Iranian people. When a currency collapses, you can be certain that other economic metrics are moving in a negative direction, too. Indeed, using new data from Iran’s foreign-exchange black market, I estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation.

So can hyperinflation happen in America? Highly unlikely. As Matt O’Brien points out, hyperinflation is what you get when a nation has truly massive debt problems, out-of-control money printing, and economic chaos.

Right now getting the markets to buy our debt isn’t the problem. Getting enough debt for the markets to buy is the problem. Investors are so crazy to load up on Treasuries that they’re actually paying us to borrow, taking inflation into account.

Second, the United States isn’t really printing money. … Quantitative easing is usually  described as “money-printing” but it’s not really. QE involves the Fed buying longer-term bonds from banks. It simply swaps one asset for another — in this case, cash for longer-term bonds.

Third, the most important difference between us and post-war Hungary or Weimar is that our roads haven’t been razed to the ground and half the country isn’t striking. It’s very difficult to have hyperinflation when you still have a functioning economy. Almost all examples of hyperinflation result from huge economic shocks that devastate an economy so much that leaders think printing money is the only solution to growth.

Here’s a table of the rogues galleries of nations that have experienced hyperinflation.

5 thoughts on “Hyperinflation in Iran: Is America next?

  1. So because the Fed is just adding zeros on a computer instead of firing up the printing presses — all’s gravy? Color me unconvinced. America certainly qualifies for having out of control debt, money-printing, and general economic chaos.

  2. Storing 90 Trillion gallons of water in towers isn’t really flooding the city either. But what exactly do you think is going to happen when you start releasing all that water someday?

  3. LOL…The way that I look at history there is nothing to suggest that the US government is any different than other governments that have resorted to liquidity injections and massive borrowing schemes. The price of gold will tell us what investors think of the effectiveness of the central planners at the Fed and Treasury.

  4. I don’t think hyperinflation will be a problem in the foreseeable future.

    The US has our debt problems, but they are nothing compared to those of the Weimir Republic or early Soviet Union (their respective debts were about 4-5x their GDP. Ours is little over 1x).

    The US has our economic problems, but they are nothing compared to the crippling unemployment experienced in the post-war nations.

    The US has our infrastructure problems, but we still possess some of the best roads, trade hubs, and reliable energy plants in the world.

    Above all, the US is still a relatively free and open economy. It is possible for competition to keep costs low and consumers can always turn to cheaper goods. As long as we keep our trade barriers low (preferably non-existent) and our currency can be easily traded, hyperinflation will remain a scare tactic and nothing more.

  5. What do you think the actual value of those mortgage backed securities is? Almost nothing. From lawsuits and the pitifully small amount of investigative reporting that’s gone on we’re finding out that a *lot* of MBS included mortgages that were included in multiple bonds. Half the point of this is for the Fed to sweep away the evidence from crushing lawsuits. But, if the Fed created money to buy each leaf in your back yard at the rate of a million dollars per leaf, would you call that inflationary, Mr. Pethokoukis? After all, it was a swap. They’d have some lovely oak and maple leaves in the Fed vault.

    Apologists for financial disaster will be very embarassed later. Not everyone can be as wrong as James Fallows was about Japan in the late 80′s and keep blundering on with a cushy career and not be affected by being stupendously wrong.

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