Friday, July 17, 2009

What is hyperinflation?

Pretty much the worst of all worlds. Most economists describe hyperinflation as "an inflationary cycle without any tendency toward equilibrium." It's a vicious circle of constantly — and rapidly — rising prices.

Many factors can lead to hyperinflation, but the direct cause is an unchecked increase in the money supply. Some governments have occasionally resorted to printing more and more money to meet their expenses. This increase in the supply of currency without any matching increase in demand, leads to a drop in the value of the currency.

Extreme examples of hyperinflation include:

* Germany in the early 1920s, when the rate of inflation hit 3.25 million per cent per month.
* Greece in the mid-1940s with 8.55 billion per cent per month.
* Hungary mid-1940s at 4.19 quintillion per cent per month.

By late 1923, the Weimar Republic of Germany was issuing 50-million-mark banknotes. The National Bank of Yugoslavia issued the largest banknote ever in 1993: 500 billion dinars.

In 2008, Zimbabwe recorded among the highest rates of inflation the world had ever seen. In December 2008, the official inflation rate was 516 quintillion per cent. That's 516 followed by 18 zeros.

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