If you’ve never heard of inflation touching billion percent, read on...
Germany, hyperinflation and World Wars were once considered mere synonyms. The first was the great hyperinflation of 1920-23, which expropriated the wealth of the German middle class; the second catastrophe was the hyperinflation of 1945-48, a consequence of massive deficit financing of World War II. On both the occasions, Germany borrowed heavily; in addition to these debts, it faced huge reparation payments which cumulatively exceeded their GDP!!! While Germany was struggling to pay reparations, French and Belgium troops gave another blow to Germany by capturing Ruhr, Germany’s main industrial area. Without its major source of income, the German government opted for printing money to fund its expenses. It reached a point where the government was financing almost its entire budget through money printing. What happens after that came to used in business schools as a classic first definition of hyperinflation. At its peak, the monthly rate of German inflation reached a mind-boggling 3.25 billion percent!!! In simple words, prices were doubling every 49 hours.
Thomas M. Humphrey, Federal Reserve Bank of Richmond, in his white paper ‘Eliminating Runaway Inflation: Lessons from the German Hyperinflation’ analysed, “The authorities adhered to these theories (some fallacious theories like money supply should accommodate themselves to the needs of trade, and the central bank can stabilise nominal market interest rates simply by pegging its discount rate at some arbitrary level) to a ludicrous degree.” Hilariously, German authorities blamed external non-monetary factors for the inflation and explained that money growth was the consequence of, not the cause for the hyperinflation.
Germany, hyperinflation and World Wars were once considered mere synonyms. The first was the great hyperinflation of 1920-23, which expropriated the wealth of the German middle class; the second catastrophe was the hyperinflation of 1945-48, a consequence of massive deficit financing of World War II. On both the occasions, Germany borrowed heavily; in addition to these debts, it faced huge reparation payments which cumulatively exceeded their GDP!!! While Germany was struggling to pay reparations, French and Belgium troops gave another blow to Germany by capturing Ruhr, Germany’s main industrial area. Without its major source of income, the German government opted for printing money to fund its expenses. It reached a point where the government was financing almost its entire budget through money printing. What happens after that came to used in business schools as a classic first definition of hyperinflation. At its peak, the monthly rate of German inflation reached a mind-boggling 3.25 billion percent!!! In simple words, prices were doubling every 49 hours.
Thomas M. Humphrey, Federal Reserve Bank of Richmond, in his white paper ‘Eliminating Runaway Inflation: Lessons from the German Hyperinflation’ analysed, “The authorities adhered to these theories (some fallacious theories like money supply should accommodate themselves to the needs of trade, and the central bank can stabilise nominal market interest rates simply by pegging its discount rate at some arbitrary level) to a ludicrous degree.” Hilariously, German authorities blamed external non-monetary factors for the inflation and explained that money growth was the consequence of, not the cause for the hyperinflation.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)
