At Bygone Relics show, we continue discussing five of the very worst hyper-inflations and the ramifications of a currency collapse and juxtapose these historical events against the US situation today.
“We now know that inflation results from all that deficit spending.” Ronald ReaganSome of these numbers are eye wateringly high and nobody did it worse than Hungary. The worst inflation in history was the Hungarian Inflation after World War II. They had reparations, sanctions, and the Soviet Union made them pay for the troops occupying the country. This was after the war had destroyed up to 90% of the industrial infrastructure. 4.19 quadrillion % in July 1946 and prices in Pengo were doubling every 15 hours. Remember how we talked about the monopoly of the money supply in Argentina made the inflation less bad today because everyone just bought dollars, well Hungary was seeing a rise of the black market so the government instituted the death penalty for anyone caught using alternative currencies. TINA- there is no alternative to the law of the land. The result was eventually a 100 quintillion Pengo note was issued. The currency in circulation went from 25 billion in July 1945 to 47 septillion a year later. Bryan Taylor writes for Global Financial Data “…the Hungarian government decided to stimulate the economy by printing money. It loaned money to banks at low rates who then loaned the money to companies. The government hired workers directly, they provided loans to consumers, and then gave money to people. The government literally flooded the country with money to get the economy going again.” Sound familiar? The numbers seem fictional, but they did achieve the desired effect of rebuilding the country’s infrastructure, but creditors were wiped out and worker’s lost 80% of their wages and fell into poverty. The communists took over and the Republic of Hungary became the People’s Republic of Hungary and for the next 40 years resistance to communism was met by Soviet suppressions, show trials, and death.
The Federal Republic of Yugoslavian (Serbia and Montenegro) after other provinces had declared freedom and the chaos created hyper-inflation was the second longest and second highest in history of the world. Trade sanctions, embargoes and the war were a fiscal shock that triggered an increase in the monetary supply. This was a wild west of lots of banks printing money with no controls and at its zenith in early 1994, the monthly inflation rate reached over 300 million percent. The parabolic numbers defy logic in most of these cases, and this one resulted from the massive money printing by the government to satisfy the debts of the country as it was breaking up. The real growth in the country was collapsing and the fiscal deficit reached 28% of GDP. Montenegro bailed and announced its independence and the country actually failed to exist any longer. Slobodan Milosevic was the Serbian leader during the hyper and the president of The Federal Republic from 1997-2000. He became the first sitting head of state to be charged with war crimes and died in prison. He was found to have participated in ethnic cleansing in Croatia, Bosnia, and Albania. Serbia’s economy under his command contracted by 27.2 and 30.5% in 1992 and 1993. In contrast, the US economy contracted by 4.2% during the Great Financial Crisis of 2008. Let’s move to our most recent example and our first African representative on this infamous list.
Zimbabwe inflation reached 80 billion percent per month in 2008. After the Rhodesian bush wars Robert Mugabe was elected in 1980 and the Marxist-Leninist turned socialist became a de facto dictator. He first conducted a bit of ethnic cleansing himself with the extermination of 20-30k ethnic Ndebele which he called a rebellion suppression. Zimbabwe took part in the two Congo wars which we have learned are very expensive. The socialist didn’t want to nationalize banks but the methods of production too. He established a plan for unskilled blacks to seize by force all white owned farms by divine right without compensation and against the courts’ rulings. Many were executed, raped, and tortured. The national banks lent to these new farmers and the results were disastrous. Agricultural production of corn fell 75% from 2000 to 2008 as the farm labor went from skilled to unskilled. Food shortage and riots ensued. Remember when we studied Argentina and their inflationary problems when there was violence and the capital investment just evaporated? The same thing happened in Zimbabwe as foreign investment fell over 90% from 1997 to 2007. Unemployment reached 80% in 2005 and in 2007 the WHO reported that the average life expectancy for women had fallen from 63 to 34 and for men 54 to 36 in just ten years. He may have lacked the raw numbers of Mao or Hitler, but when playing the percentages Mugabe’s policies and ensuing hyperinflation were just as devastating by percentage. This hyper wasn’t in black or white but happened in your lifetime, the genocide on television, and the removal of white farmers from their land was after the onset of the cell phone.
Over 85% of history’s hyperinflations are caused by governments and their debt financing. The US currently has a debt to GDP of over 120%, and the Federal Reserve which had 0 dollars on its balance sheet before the Great Financial Crisis has over $8 trillion today. What struck me about these hypers was the speed with which they acted. Like an avalanche and often without warning, the government assumes too much power, then enacts a poor policy, and then human nature takes over. External shocks can serve as accelerants like Covid did with the US government spending. One big war, one more bout of inflation and extended time at these levels of debt expense could very well push the US into a similar situation. One real difference is that the US is the world’s reserve currency. Often in a year or two an entire country’s savings and financial system was destroyed leaving them very vulnerable to political upheaval resulting in massive loss of human rights and/or outright massive death of life and liberty. Hyperinflation is bad, but the medicine for fixing it can be just as convulsive.
I leave you with another passage from Parsson’s Dying of Money and his excellent investigation into the Weimar inflation, “The grand-daddy of all credit squeezes ensued…Germany now took its stored up dose of hard times. Germans who had been caught in the inflation were relieved of their worldly goods. Businesses which were based on nothing but the inflationary boom were swept away. Credit for business was practically impossible to come by. Unemployment temporarily skyrocketed. Government spending was slashed, government workers dismissed, taxes raised, working hours increased, and wages cut. Almost 400,000 government workers alone were discharged. The shock to the German people of the final inflation, the stabilization, and the unemployment was so great that in the elections of May 1924, six months after the close of the inflation, millions of voters flocked from the moderate center parties to either the Communists or the Nazis and Nationalists on the extremes.” Parsson wrote this 50 years ago looking back 50 years and my takeaway is the same. Governments and inflation left unchecked is a matter of life and death.
Sincerely Yours,
C Thomas Printer
On this date in history
48 years ago to be exact, the movie Jaws was released. That was the last time it was safe to go into the water.
Last week’s thought experiment
If you were to call your congressman and worried about hyper-inflation what topic would you start your conversation with? My response would be to start a conversation with my congressman about when they are going to stop spending and balance a budget?
This week’s thought experiment
Here is an example- home prices in Austin are down almost 20% year over year. If you put 20% as a down payment and took out a mortgage, the bank will be within its rights to ask you to come up with more collateral. Double down payment. Even if you haven’t missed a payment. As a homeowner, are you ready for that? Banks probably won’t do that unless they are in financial trouble which they are not, oh wait…
Also born on this date
Audie Murphy. One of the most decorated soldiers in World War II, he carved out a movie career in Hollywood often performing in westerns.