Wish that article finished with why this is good or bad for America, what real effects it has..
You commonly hear about how we are indebted China or whoever and because of that, they wield power over us.
This isn't loan shark style debt. The US holds all the cards in this case. It's sort of like, the mantra, "if you owe the bank millions of dollars, it's your problem". If you owe them billions, it's their problem.
The US could even pay back that debt with money they themselves issued if needed.
Hyperinflation is effectively defaulting. No one will give credit to those who pay with Monopoly money.
Here, Zimbabwe for hyperventilators:
For example various currency’s have dropped so their only value is as a novelty item or physical object. But once it hits that point it’s value can’t continue to fall.
In my opinion, it's misleading to insist that the cause of hyperinflation is "printing" money and, never mention, that the real cause is the falling in the productive capacity of the economy.
For instance, the narrative about the Zimbabwe crisis is always the same: The government just went crazy and started to print money.
In my opinion, that's a totally dishonest narrative (and politically motivated maybe?), when what really happened is that they destroyed their main productive activity (agriculture).
>>"Similarly, hyper inflation requires the state to continue to exist."
Well, yes, of course, are you saying that the state stopping to exist would be a better alternative?
I would recommend you to read the below link. It doesn't seem to me that the problem was "printing too much money".
From http://bilbo.economicoutlook.net/blog/?p=3773 :
-Unemployment rose to 80 per cent or more and many of those employed scratch around for a part-time living.
-45 per cent of the food output capacity was destroyed.
-In 2007, there was a 57 percent decline in export mineral shipments (see Financial Gazette for various reports etc).
-Manufacturing output fell by 29 per cent in 2005, 18 per cent in 2006 and 28 per cent in 2007. In 2007, only 18.9 per cent of Zimbabwe’s industrial capacity was being used. This reflected a range of things including raw material shortages. But overall, the manufacturers blamed the central bank for stalling their access to foreign exchange which is needed to buy imported raw materials etc. The Reserve Bank of Zimbabwe is using foreign reserves to import food. So you see the causality chain – trash your domestic food supply and then have to rely on imported food, which in turn, squeezes importers of raw materials who cannot get access to foreign exchange. So not only has the agricultural capacity been destroyed, what manufacturing capacity the economy had is being barely utilised.
[1] https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe#Inf...
i.e. the Zimbabwe narrative should be: the government tried to dig itself out of a hole by printing money.
Similarly, the German government printed money in the 1920s to try to keep up with reparations payments which were larger than the economy could bear through taxation. (Though of course printing money is effectively a tax on savings, with the added effects of disruption to contracts.) And since the reparations were denominated in hard currency there were diminishing returns, as the government was printing ever-devaluing Papiermarks with which to buy Pounds Sterling and Francs.
Ok, I though we were talking about the final cause of inflation, not the mechanism, maybe you had something else in mind.
Now, if half of the productive economy disappear overnight, inflation is going to happen whatever the government do. You make it look like a government have an option in that situation.
If tomorrow morning half the fields and factories in the USA have magically disappear you will have inflation. In those circumstances, what sense would make to say that the "government is guilty because they printed too much money"?
Maybe you can tell me some example where something so catastrophic to the real productive economy happened like in Germany in the 20's or Zimbabwe and where inflation didn't happened.
Also of note hyperinflation does not occur with when the physical currency has high intrinsic value. Such as with the gold or silver standard meaning that any physical cause is insufficient on it’s own. Though a currency can and generally will be moved off of these standards in though economic situations.
So really the minimum requirements are fiat currency or a close equivalent allowing for significant money creation. Everything else is at best a trigger, but is not always repeated in every instance.
It a morbid thought, but perhaps this is because such a war may lower demand a significant amount by killing or impoverishing sufficient numbers of people.
In the German case, there was no massive damage to the economy; the war had been fought on the territories of France and Russia, and the only major disruption was a brief occupation of and general strike in the Rhineland, affecting maybe 10-20% of the German economy.
A last note: recessions are generally accompanied by deflation, though there the cause-and-effect relationship is complicated.
We agree. Inflation is caused by too much money chasing too few goods. That can happen because the money grows or the goods shrink. My point is that the historical episodes of hyperinflation are originated by the later.
>>"In the German case, there was no massive damage to the economy [..]"
From https://alphahistory.com/weimarrepublic/reparations/ :
"Berlin had failed to pay a £1 billion interim instalment, leading to the occupation of three industrial cities along the Rhine."
"In April the London meeting of the Commission fixed a final reparations figure of £6.6 billion. The reparations instalments were to be paid quarterly in gold or foreign exchange backed by gold, along with tradable commodities such as steel, raw iron or coal. Berlin was informed that any defaults on these payments would lead to the occupation of the industrial Ruhr region and the confiscation of raw materials and industrial equipment there. Though this revised amount was less than two-thirds the figure first proposed, it remained well beyond the capacity of the war-ravaged German economy"
I don't think hyperinflation could be avoided after that.
Inflation could have definitely been avoided by harsh taxation of the general population... but again, the government tried to dig itself out of the budgetary hole by printing money instead. (A budgetary hole exacerbated by the government promising to pay the salaries of workers on strike in the Rhineland.)
Yep, I keep Zimbabwe currency from around then as a reminder. I have a paper note for 1/2 a Zimbabwe dollar (aka 50 cents) and a few others printed less than two years later with amounts up to 100 TRILLION dollars.
Argentina is a serial defaulter, every decade or so it defaults on it's debt.
The next day creditors line up to give it money again.
It's hilarious.
https://ftalphaville.ft.com/2019/04/30/1556614127000/Why-inv...
I agree that state-level credit dynamics are unique, but playing like they don’t matter at all typically lands one into trouble.
Because in order to develop an industry you need investments and protection of the new industry until it's able to compete. Investment can't be only in your currency because you need to import things for the new industry. And protection is "discouraged" by those that are already developed (1).
(1)[pdf] - http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings...
Because if you are Argentina (a country with little industry and exports) and you get a debt in Dollars in order to be able to import, of course you can get in the situation where you have to default your debt in a foreign denominated currency.
At what rate? In what currency?
The creditors are also using Monopoly money.
Using the quantity theory of money as your model, how do you define the size of the money supply? Do you include or exclude government debt? It is a highly liquid financial asset, so maybe it should be included. Maybe not at par, but at some discount.
If it is included at par, then monetizing the debt (issuing new money and buying debt with it) [2] does not change the money supply. Here's the math: money supply is M + D (money + debt), and you monetize X dollars of debt, then the new money supply is (M + X) + (D - X), which is equal to M + D. Therefore, according to the model, we should not expect inflation.
Note that, in the US in the last 10 years, the Federal Reserve monetized trillions of dollars of debt [3]. Has there been hyperinflation, as you would claim?
[1] https://en.wikipedia.org/wiki/Quantity_theory_of_money
[2] https://en.wikipedia.org/wiki/Monetization#Debt_monetization
[3] https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1,_QE...
Intergovernmental debt is a geopolitical concern. The U.S. could freeze interest payments and redemptions to China. It could place those holdings in receivership and pass a law granting those oppressed by Beijing damages from it.
With international debt, the debtor holds the cards.
I think this sentence needs "if the debtor has equal or superior military capabilities". Some small country owing to the US certainly isn't in the same position.
Please point to a case where US attacked a defaulting debtor.
You can't, because using the military against a defaulting debtor is against UN law.
The fact of the matter is that military strength is what -internationally- decides who holds the cards.
Just look at how EU was forced to erase more than 50% of Greece's debt.
Or look at how US hedge funds are still fighting Argentina (in court) to recoup some of the money. According to your logic US should have threatened Argentina by now.
Greece is a member of the EU.
> Or look at how US hedge funds are still fighting Argentina (in court) to recoup some of the money.
Private interests aren't the nation's interests, until they are large enough or invest enough money into PR, see United Fruit Company.
It also doesn't mean that any and all questions of international diplomacy will be handled by the military. But if push comes to shove, and the country with the far superior military isn't happy with the conditions of the default (or nationalization, or annexation, or... anything, really), they tend to come down not to international contracts, the UN, or ethics, but to military strength. Consider the situation in Ukraine for a well-documented example that certainly would have played out very differently, were Ukraine and Russia similar in military strength (that is in this case: if Ukraine still was a nuclear power).
Show me an after WW2 example were one country used the military against another because of unpaid debt.
Gunboat diplomacy [1] features vibrantly in history. "The Venezuelan crisis of 1902–03," for example, "was a naval blockade imposed against Venezuela by the United Kingdom, Germany and Italy from December 1902 to February 1903, after President Cipriano Castro refused to pay foreign debts and damages suffered by European citizens in recent Venezuelan civil wars" [2].
Broadly speaking, the UN provides guidelines--not actual limits--to the anarchy that is geopolitics.
[1] https://en.wikipedia.org/wiki/Gunboat_diplomacy
[2] https://en.wikipedia.org/wiki/Venezuelan_crisis_of_1902–1903
>>If you owe them billions, it's their problem.
It is also entirely possible that if the US decides to actually make this (say) China's problem by overtly refusing to pay back the debt, everyone else who holds US Treasuries would start dumping them, driving demand lower and lower until both (US and China) the giant economies come crashing down.
That is, this may not a zero sum game. By which I mean, both countries could lose (and also end up taking the entire world economy down with them for at least a while).