When governments cannot borrow any longer, When no one wants to lend the government any more money, the government will resort to the printing press to pay the bills. The most famous one was the Weimer Republic (Germany) hyperinflationary episode, and the latest example is Zimbabwe. The end result is always the same, Hyperinflation.
Chart showing wholesale price of goods during Weimer Republic Hyperinflationary Episode.
Here is an interesting photo taken in Zimbabwe showing how worthless paper money is once hyperinflationary episode has started.
With the US Federal Reserve Bank Chairman Ben Benankie fully determined to print the US Dollars into oblivion in order to continually fund the ever escalating US budget deficit, even going up and dropping it from a helicopter if he has to, the US is sure to experience hyperinflationary episode just like what Weimer and Zimbabwe went through, unless of course he changes course before the onset. For now, so far so good. But the problem with hyperinflation is that no one can ever know exactly when it will start.
Hyperinflation by VICTOR SPERANDEO, Barrons – Dec 18, 2010
Economist Philip Cogen defines hyperinflation as a non-annualized inflation rate of 50% or more in a single month. This rare occurrence should not be confused with the inflation the U.S. went through in the 1970s, which was moderate, almost normal, by comparison.
Unlike normal inflation, which may be attributed to a variety of factors, hyperinflation has a single cause: It occurs when a government cannot borrow money because its debt has risen so much that investors believe they will never be paid back with close to the same purchasing power. As a consequence of this flight of confidence, such a government is forced to print money to meet its obligations. This further undermines the value of its currency, often culminating in a frenzied collapse. That is hyperinflation, and only governments and central banks cause it.
The first occurrence of hyperinflation was in France between 1789 and 1796, when the revolutionary government paid its bills with paper and forced its creditors to accept payment or be guillotined. Since 1920, there have been 29 more hyperinflation events around the world, the most recent being in Zimbabwe beginning in 2007. From Robespierre to Mugabe, government profligacy and the printing of money were the chief causes.
U.S. government debt is now over $13.7 trillion (not including estimated states’ debt of $2.8 trillion and agencies’ debt of $3.0 trillion). The average rollover period for the debt is 49 months. With recent deficits running over $1 trillion a year, the Treasury issues new debt and refunds old debt at a rate of about $4.3 trillion a year. A nation needs to inspire a lot of confidence to keep that Ponzi scheme alive. Unfortunately, markets know that even the U.S. government will print money to meet expenses when necessary.
