- What is a hyperinflationary depression and could it happen?
Think Zimbabwe a moment. This is the most recent example of a hyperinflationary depression. Basically in Zimbabwe the black nationalists ejected the white farmers and replaced them with locals who could not farm, crashed the economy and started printing money. Hey presto! Rampant hyperinflation and a very depressed economy.
The problem with printing money to solve economic problems is that once started it is very hard to stop. It is always easier to print more than deal with underlying issues such as over-spending and a government-dominated economy. Democratic politicians like turkeys do not usually vote for Thanksgiving.
You could see the official concern mounting in the last minutes from the Federal Reserve’s main committee. The Fed is fully aware of the dangers of keeping interest rates too low for too long and printing money ad infinitum. But it only recently set a target of 6.5 per cent unemployment before it will rescind QE money printing, is that now in doubt?
Money printing is also highly contagious. It sets off competitive devaluation and invites the same policy action by other central banks who can justify their policy by reference to their peers. Besides so many countries also have the humungous debts that money printing is designed to cure by the supposedly painless process of robbing savers through inflation.
Take Japan. Its new government is copying the Fed with gusto, just as the Japanese once copied American automobiles until they overtook them. Actually the risk is very similar, namely that the Japanese version of QE succeeds in damaging the US economy, this time through a lower yen and cheaper Japanese imports.
Could the Fed take away the punch bowl of QE while the Bank of Japan is liberally welcoming guests? And Japan is hardly alone. The Bank of England QE program is reckoned to have been the largest per capita of any nation. The European Central Bank is committed to bond buying to support the national debts of the growing list of struggling eurozone members.