The Hyperinflation Hype: Why the U.S. Can Never Be Weimar


U.S. government finances might look Zimbabwe-esque, but a look back at some of history's worst hyperinflation episodes show why goldbugs' fears are completely unfounded now.RonPaul.jpg

There is a specter haunting our economic debate -- the specter of hyperinflation. A depressing number of arguments the past few months (and years) can be reduced to the following exchange: "We need more stimulus!" "If we keep spending, we'll just end up like Greece!" "Greece is mostly in trouble because they can't print their own money." "Great, you want us to print money and end up like the Weimar Republic!"

Fears of hyperinflation in the United States are almost certainly unfounded. I don't say that because I can see the future, but rather because we can all see the past. The countries that have suffered the pain of a worthless currency share very little with the United States. Here's a financial disaster tour of recent history's worst hyperinflation episodes -- in descending order -- that suggests we shouldn't lose much sleep about the dollar becoming worthless.


HUNGARY: 1945-46


Weimar Germany and Zimbabwe have both captured our popular imagination when it comes to money-printing ad absurdum, but post-war Hungary has both of them beat. By many, many orders of magnitude. Indeed, on an annual basis, Hungary's peak inflation rate was over 10,000,000,000,000,000 times more severe than Weimar's. Prices in Hungary doubled every 15 hours.

Hungary turned to the printing press with such unparalleled gusto because they thought the alternative was much worse. The war had destroyed nearly half of Hungary's productive capacity. Basic infrastructure had quite literally been obliterated. The government wanted to rapidly rebuild this lost capacity (and put people back to work), but it couldn't afford to do so. The occupying Soviets had burdened the Hungarians both with onerous reparations (this will become a recurring theme) and the bill for the occupation. Hungary was left with a colossal government deficit and no way to finance it. They printed the difference.

There was at least some kind of logic at work here. Even absent any printing, the large-scale destruction from the war meant that inflation was going to jump up. There were simply fewer goods for money to chase. If inflation was going to surge anyway, why not at least use it to repair the country's bombed-out infrastructure? Short answer: because printing money to pay your bills quickly spirals out of control. In Hungary's case, this happened to the tune of an annual inflation rate of 9.63x10^26 percent.

ZIMBABWE: 2007-09


Unlike most hyperinflations, Zimbabwe's wasn't the consequence of war or revolution. It was self-inflicted. In 2000, the Mugabe government broke up the mostly white-owned farms that formed the backbone of the nation's agricultural sector into smaller ones. As a matter of social policy, trying to undo the enduring iniquities of the colonial era made sense. As a matter of economic policy, it was suicidal.

Foreign capital fled. The farms themselves were horrendously mismanaged. Years of drought didn't help, either. Zimbabwe's economy promptly collapsed, which, of course, worsened the government deficit. Mugabe turned to the printing presses. The world's first $100 trillion bill was born.


The economic consequences of the Versailles Treaty were dreadful. The political consequences were worse. Even before you-know-who took power.

German reparations after World War I were both economically impossible and politically fantastical. The treaty's unexpectedly savage terms shocked the Germans. They were determined to highlight just how absurd the treaty was by conspicuously failing to make their payments. And fail they did.

In 1923, the Allies decided to force payment at the end of a gun barrel. They occupied Germany's industrial heartland, the Ruhr valley -- setting the stage for Germany's final descent into monetary madness. German workers responded to the occupation with a general strike. The economy ground to a halt. Just about the only people still working were the ones manning the printing presses.

The Weimar government had previously sent inflation to eye-popping levels by having its central bank foot its bills. But the combination of money-printing and the so-called "passive resistance" to the Ruhr occupation changed the nature of the inflation. It became virulent. As it turns out, printing money and pretending to have a real economy when you don't actually have a real economy doesn't work.

BOLIVIA: 1985-86


Too much foreign borrowing can be risky. Overseas lenders might abruptly decide that they've been irrationally exuberant. They'll call in their loans overnight -- leaving the borrower starved for cash. Economists call this a sudden stop. It's what happened to Mexico, Thailand, and Korea in the 1990s. It's what happened to Greece, Portugal, and Ireland after the Great Recession. And it's what happened to Bolivia in the 1980s. Except instead of getting a bailout, Bolivia printed money. Lots of it.

Bolivia spent the 1970s borrowing large sums from abroad. This wasn't a problem as long as its foreign creditors were willing to roll over their loans. And they were willing to do so, until the early 1980s. Then, things changed. Bolivia's slowing exports scared away its lenders. Suddenly, Bolivia had to start paying back its mountain of debt.

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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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