Causes Of A Hyper-inflation

Characteristics and effects of inflation on the economy why it comes to hyper inflations in currency areas, is today not clearly understood. Only thing that is clear is that several factors come together. The famous hyper inflation of history, such as for example the German inflation from 1914 to 1923, the inflation in Hungary from 1945 to 1946 and the current inflation in Zimbabwe have each similar characteristics. Source: Douglas R. Oberhelman. Prices rise faster than the nominal money supply. This results in a decline in the real money supply. It arises as the quotient of nominal money supply and price level. All market participants always faster convert the money into goods or Exchange the currency in value stable foreign currencies. The velocity of money is increasing strongly.

A strong debt of State comes, to finance these countries and local authorities, which are increasingly about money creation. Hyper inflation can continue to grow the budget deficit of the public sector. A levy of money through tax increases is possible only to a lesser extent, since the rapid inflation makes impossible a proper fixing of the amount of tax. Citizens and businesses can pay relatively easily the taxes of entwertetes money, causing growth of the money supply rather than be reduced to. The external value of losses of money are usually higher than those in Germany. Finally lose confidence in the currency market participants at home and abroad and take refuge in value more stable replacement currencies or assets.

Cause of hyperinflation in a currency area is a high national debt. The debt burden of the State tremendously increasing especially during wars, since the warring States permanently to increase their defense spending and finance these additional expenditure in the majority of cases relating to debts. A horribly consists in the issuance of war bonds on the part of the State. They are drawn either voluntarily or forcibly also by the population.