Zimbabwe and similar are used continuously, by some people, as an example of the problem of running government deficits. That it's dishonest or ignorant.

The same happened in Venezuela, only they weren't able to control it. Inflation preceded the scarcity, and then scarcity made inflation even worse. And now they have mass starvation, no medicines etc.

That's fairly typical. Government prints money, there's hyper-inflation, government tries to fix things by banning marking prices up, people stop selling and manufacturing stuff; scarcity and having to go the black-market to get food makes inflation even worse.

In Brazil it followed and was mainly triggered by the 1970s energy crisis.

Iraq has had 300% a year at one point and it came down.

Venezuela seems to me a similar case to Zimbabwe. Their only asset (oil, agriculture in the case of Zimbabwe) was taken from the hands of the people that was exploiting it (if that it's fair is another question) and the production plunged (1).

It didn't help that the price of oil dropped at the same time.

So, a supply problem also.

The consequences: they can't get foreign currency. As they don't produce almost anything else than oil they have to import everything. The value of their currency goes down, they have "to print" money to keep the government working. Hyperinflation. They try price control (that don't work very well).

If there is a "fairly typical" process for hyperinflation is that one.

(1). https://tradingeconomics.com/venezuela/crude-oil-production

Take a look at: https://tradingeconomics.com/venezuela/inflation-cpi

Of course 800% is worse than 100%.

But how do you explain 30%-100% inflation at a time when oil was at peak price?

It's simply impossible not to have inflation when you're printing money and flooding the economy with it -- no matter the supply side.

The oil situation probably became the tipping point when compounded with their monetary policies and price control efforts.

[0] https://tradingeconomics.com/venezuela/inflation-cpi

[1] http://www.macrotrends.net/1369/crude-oil-price-history-char...

[2] https://ycharts.com/indicators/venezuela_oil_production (barrels per day, average across the year, goes through 2016)

Hyperinflation is usually very, very high inflation. Original definition was 50% monthly inflation (this would be 600% annual, higher actually since it would be compounding). 30% annual inflation isn't hyperinflation (though it's certainly not good, and after several years could be catastrophic on its own).

https://tradingeconomics.com/venezuela/crude-oil-production

https://tradingeconomics.com/venezuela/inflation-cpi

Please, for a better comparative, view it with the 5 years window for the graphs.

Only after the government realizes they can't indefinitely finance their spending by printing money, then they turn to seizing wealth production, or do stupid things like price control. Then things get really ugly.

It's difficult to tell if statements are true without hard evidence and data to back the claim.

Article in Spanish https://es.wikipedia.org/wiki/Hiperinflaci%C3%B3n_argentina_...

Autotransalation: https://translate.google.com/translate?sl=es&tl=en&js=y&prev...

Edit: Nonexistent government is also a government problem - I didn't mean it in that way, I meant it in the sense of "problem related to government!"

As for "how can you keep things running when the supply-side collapses," you could replace inflation with taxes. You could achieve the same re-assignment of value explicitly instead of implicitly: people would end up just as robbed, but the currency wouldn't have to end up devalued. (This might end up helping the economy and making people less poor in the end, since it would mean that you still get to think about your inflationary/deflationary policy decisions. Essentially nobody would choose the regressiveness/progressiveness profile of hyperinflation if given the option, and would instead probably prefer to arrange the necessary pain in some other way.)

Somalia hasn't had a national government in 25 years, so there's no central authority to regulate the money supply or print currency.

Consequently, 98% of the bank notes in circulation are now poor-quality counterfeits, and buyers and sellers know they're fake.

The market has reached an equilibrium, with a single 1000-shilling denomination that trades at approximately the cost to print it.

Hyperinflation ends when the value of the currency equals the cost to print it, and when the population won't accept arbitrarily larger denominations.

You don't need a government to create a useful currency. Hyperinflation can begin and end with or without a government.

I suppose that what you mean is that hyperinflation will stop at some point, not that it "can't happen". If you destroy the 80% of the economy what follows is hyperinflation. Never mind if you are in the gold standard, a fiat system or whatever.

>"The real question is, what happens to governments that causes them to respond to supply problems with inflationary policy?"

What happens is, it seems to me, obvious. You have to keep the services running, so, you have to pay people, but the money is not valuable anymore, so, you have to give more.

What it seems that you are insinuating is that a country would be better off if the government would not try to keep the country running. I don't think this is the case. But I suppose that it is the real question.

Even if inflation could be advantageous, sometimes, for some people, hyperinflation don't benefit anyone, but it benefit rich people the less.

If you have liquid or even financial assets, you don't want inflation.

If somebody owns you money you don't want inflation.

If you want to hire cheap you don't want government spending in the economy and making workers more expensive. So, you have an interest in scare people about become the next Zimbabwe and all that.

We can be sure that the cronies are already in charge when a little inflation is sold as worse than unemployment for instance.

If you think about it, being rich or wealthy is really just having a disproportionate share of the economic output of a region. You increase this share by taking in more money from other people than you spend. Most of the time, this happens through returns on investments, but getting the government to tax someone else more than they do yourself achieves the same result (more relative assets).

This is part of the reason lobbying has such a great ROI for companies.

Governments don't try to devalue sovereign debt, they try to pay off their foreign debts. For that, they buy up all foreign currency in the market, sending the value of their currency plummeting.

The government has the most to lose from hyperinflation, because without currency anyone will accepts, the government is severely reduced in power. With a healthy currency, the government has nearly unlimited ability to finance itself.

My understanding is that the overnight rate gives the fed the power of making more expensive for banks to give credits, but only if there is a deficit of money, in the inter-bank market, respect the demand of credits by firms and families.

Are you talking about that?

The link between the overnight rate and longer maturities has always been tenuous. Banks borrow I the short end, consumers on the longer end. Before QE, the Fed often had a difficult time pushing the long end around, but with QE it just did it direct.

Uh, what? economic contraction causes deflation, not inflation.

if no one has a job and weighs spending every cent very carefully, businesses have to cut prices in order to sell anything. Which means they have to cut what they pay everyone else, and so on. Or say if everyone loan out lots of money and now realizes that those loans are never going to be paid back, they realize that they have a lot less money than they thought they did, and that means they can't repay others, and so on.

"productive capacity" being lost doesn't mean your "money" is "less and less valuable". No, it means money is extremely valuable, because you don't expect to be able to get any more of it. Everyone has a lot less money than they expected to have. It's a shortage of money, which therefore becomes more valuable. That's deflation.

For example, during the Great Depression the US experienced 30% deflation.

Hyperinflation where the nominal value of currency decreases by thousandsfold is always caused by inflationary finance where a treasury resorts to fund operations by simply printing money. Though that could happen because they were militarily forced to and could not collect taxes or sell bonds. Everyone has too much nominal currency relative to real valued goods and is afraid the nominal currency won't be accepted for the same amount of real value tomorrow.