When the average person hears talk about the potential for hyperinflation and how it would affect our world, it often sounds like a tale from Charles Dickens or something that could only happen in countries very far away from the United States.
Of course that is not the case. Over the past century, 56 countries have suffered the devastating consequences of hyperinflations as a result of their fiat currency systems.
During any fiat currency’s lifespan, there is an intangible factor that gives the currency purchasing power: trust. When the public trusts a local currency, that currency has some “value” only because it is perceived by the public to have value. Once that public's trust is lost, the currency devlaues and eventually becomes valueless.
Even though some fiat currencies enjoy public trust and thus have purchasing power, governments or central banks (which control the world’s currency supplies) can degrade that purchasing power overnight (even bring it down to zero) by expanding the currency supply.
For every new unit of currency created, every existing unit of currency falls in value—it takes more units of currency to buy the same goods and services.
The process of expanding the currency supply is called “inflation.”
Although many of us have been taught that the term “inflation” means rising prices, the true definition of “inflation” is an expansion of the currency supply. The resulting higher prices, or “price inflation,” is a symptom of currency supply expansion or inflation.
When governments or central banks expand the currency supply a lot and very rapidly, “hyperinflation” may occur. Hyperinflation is something like inflation on steroids, as described by Mike Maloney in his book, Guide to Investing in Gold and Silver:
"There's no exact definition of the point where big inflation turns into hyperinflation. Some say it's when inflation reaches 20 percent to 30 percent monthly. I like to think of it as the point where confidence in the currency is falling faster than the currency can be printed, and therefore the total value of the currency supply contracts regardless of how fast the total quantity of currency is increased. The International Accounting Standards Committee says it's when cumulative inflation approaches or exceeds 100 percent over a three-year period. That's only 26 percent annual inflation, and we're already inflating the currency supply at 18 percent. But the definition I like best is from John Williams, who says it's when “the largest pre-hyperinflation bank note ($100 bill in the United States) becomes worth more as functional toilet paper/tissue than as currency.”
The most common cause of hyperinflation is war, which destroys the capital of an economy and reduces a country’s production dramatically. When governments and central banks try to intervene in the economy by implementing flawed monetary and fiscal policies, the economy may explode into hyperinflation.
Below are some examples of modern-era hyperinflations:
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Hungary: August 1945 – July 1946 > Daily inflation rate: 207%, prices doubled every 15 hours.
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Zimbabwe: March 2007 – November 2008 > Daily inflation rate: 98%, prices doubled every 25 hours.
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Yugoslavia: April 1992 – January 1994 > Daily inflation rate: 65%, prices doubled every 34 hours.
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Weimar, Germany: August 1922 – December 1923 > Daily inflation rate: 21%, prices doubled every three days, 17 hours.
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Greece: May 1941 – December 1945 > Daily inflation rate: 18%, prices doubled every four days, six hours.
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China: October 1947 – May 1949 > Daily inflation rate: 14%, prices doubled every five days, eight hours.
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Peru: July 1990 – August 1990 > Daily inflation rate: 5%, prices doubled every 13 days, two hours.
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France: May 1795 – November 1796 > Daily inflation rate: 5%, prices doubled every 15 days, two hours.
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Nicaragua: June 1986 – March 1991 > Daily inflation rate: 4%, prices would duplicate every 16 days, 10 hours.
The Zimbabwe lesson
In 1980, Zimbabwe issued a new dollar currency in which 1 ZWD (Zimbabwean dollar) was worth $1.47 U.S.
Twenty-seven years later, in 2007, the Zimbabwean economy was undergoing severe turmoil and distress, resulting in the progression of a monetary hyperinflation, a state of rampant paper currency debasement:
At the peak of the hyperinflation, 300,000,000,000,000 Zimbabwean dollars equaled $1 U.S.!
In February 2009 the Zimbabwean dollar was re-denominated for the last time before it was finally abandoned for foreign fiat currencies in April 2009.
Today, all fiat currencies, including euros, yen, pounds, pesos, dollars, etc… seem to be devaluing simultaneously.
Fundamentally, all fiat currencies are the same: pieces of paper with numbers on them, accepted by society as a medium of exchange and payment, while losing purchasing power every day. All are identical in another important way: all eventually will fail and will exist only in people’s memories.
Because today, for the first time in human history, every currency—including the world’s reserve currency, the U.S. dollar—is fiat currency, when the next currency crisis occurs, there will be no “safe” currency to run to for wealth preservation. And this is why we at GoldSilver.com own physical gold and silver bullion.
We believe the greatest wealth transfer in history lies ahead, in the not-too-distant future. We encourage and applaud you who have taken action to safeguard your wealth; history has a way of favoring the prepared.
For undeniable proof of how all fiat currencies continue to devalue in relation to real monies, gold and silver, please click here.
The following video explains the 30 years (or less) lifespan of fiat currencies:
