Hyper inflation is the result of exhausting your countries' production capacity. This is generally a temporary phenomenon because the supply side can always eventually catch up because the demand side is funding it. In economies where it is a permanent problem it is because either the economy is prevented from expanding production (think of preventing new housing in San Francisco or excessively low unemployment) or because there is too much demand for products (generally through printing more money despite the low unemployment or debt).

Well, if we assume that your country is unable to introduce more money into the economy through no fault of its own (well that's never true) you can still fix the problem by investing into more production capacity and education. The unemployment in Zimbabwe is relatively low at around 5% so any additional money it prints will turn into inflation. If you were to follow MMT you would stop introducing more money because that is the core argument in MMT: print until inflation is back on track. Inflation is already on track in Zimbabwe.

The thing is, once you are in this situation you are almost set up to fall into the pit of success. All you need to do is invest into businesses, expand production capacity through automation and also invest into education. Follow the Chinese model by creating special economic zones where foreign investors can easily do business. Follow the German model of vocational training to solve the education problem. These problems are far less intractable than what first world countries are suffering through.

Sovereign nations don't indebt themselves through banks. They're not taking out loans to fund their spending, so they don't need a creditor

Avoiding hyperinflation is about "how" you spend the money, not where they come from. In the case of Zimbabwe, the events leading up to their crash was massive destruction of productivity, which meant their wealth generation no longer matched the amount of money in circulation

The trust in their currency took a nosedive, because of the confiscation of assets from wealthy farmers - basically a clear message saying, that the government will not protect assets purchased with their currency, making it risky to own and use

Most western economies are much more stable and have high levels of demand for their currencies, which acts as a counterweight to inflation as well

This is patently false and a rather strange claim.

Sovereign nations do indebt themselves through banks and financial markets in general, most often through the issuance of bonds, which can be defined as highly tradeable loans.

This is why sovereign debt is given a rating by credit agencies and why interest rates on debt freely vary based on the perceived risk by creditors. This also means that it can become difficult for a country to borrow at all (hence organizations like the IMF sometimes stepping in)

There is no magic.

However you spend money, inflation is created by an excess supply, not least when money is printed to cover debts (an effective devaluation). This is actually what happened in Zimbabwe.

I think you're missing the point

A nation doesn't issue bonds to cover the cost of its spending, but to remove money from circulation. It's simply a way of saying "hey, there's too much money around. If you let us remove some of it now, we'll give you back more in the future"

There's literally no situation where a sovereign nation would not be able to pay out the bonds it has issued. It's simply a matter of making the money printer go "brrrrr" and presto - the debt has been resolved

In the most broad terms, the only difference between realising bonds and simply printing the money is the lag time

As you say yourself - there is no magic

In the case of Zimbabwe, and as stated very well by imtringued in the other post to this thread, Zimbabwe could have invested in production, education, and infrastructure to grow the economy, instead of trying to sell bonds, which is essentially saying

"Hey, you know this currency that is rapidly loosing value - we're going to print so much more of it in the future! Doesn't this seem like a great investment?"

> In the most broad terms, the only difference between realising bonds and simply printing the money is the lag time.

Another significant difference: Printing money transfers wealth from the rich to the poor, borrowing transfers wealth from the poor to the rich. So countries which cares for their poor and low corruption among politicians see low government debt rates, while countries like USA where politicians are very close to rich people just continues borrowing forever.

99% rich people store their wealth in assets - which are not affected by inflation at all (in fact, the value appreciation often beats it - even during a pandemic). Only the poor people have to store their wealth in cash because they don't have enough of it to buy a diversified range of assets, and the short term risk is unbearable to them (while rich people will simply hodl a little longer). Additionally, poor people usually don't have the means to renegotiate their salaries often enough to keep up with inflation, much less to beat it.

The government printing bills that they then buy stuff with for the poor transfers those things from the wealthy who owned it in the first place to the poor people who got it. As the poor gets more money demand for stuff they buy increases which raises prices and leads to inflation, meaning that said inflation is a direct result of the original wealth transfer and therefore can't possible be a reverse wealth transfer as you described.

On the other hand if we do the same thing with borrowed money demand for goods for poor people will still increase, prices will still go up, just that now it all has to be paid back in taxes or other transfers in the future. So the main effect is that poor people now pay more for goods they pay for with borrowed money and rich people got both interest from the governments loan and can sell their goods to the poor for more.

All prices (but not wages - in case of low income people) are rising with inflation. The rich don't store value as currency, so there isn't any transfer of value because they don't own this kind of asset, just like inflating dollar does nothing to my euro holdings. Actually, since the only thing rich people own that's denominated in currency is debt, rich people get richer thanks to inflation. Inflation is making it worse for poor people; rich people would have stopped it a long time ago if it made them lose value.

> "A nation doesn't issue bonds to cover the cost of its spending, but to remove money from circulation"

Another patently false and strange claim...

I am puzzled by where you might have got all of these "theories" from.

Here's a working paper from the levy institute, which covers the issue http://www.levyinstitute.org/publications/can-taxes-and-bond...

Or you could simply spend some time reading the Wikipedia entry https://en.wikipedia.org/wiki/Modern_Monetary_Theory?wprov=s...

Since you now twice called my statements "patently false", without offering any evidence to your argument or even explaining them, I'd like you to provide some sources to support your claims

H

Ah, "alternative theories"...

The sources to support my claims are everywhere. You are claiming that I am not providing sources that water is wet.

Just look up information on your country finances and borrowing, these are usually public information. Look up treasury bond, guilt, etc. These are all extremely basic stuff... Econ 101.

Even the simple existence of bonds and bond auctions demonstrates that foreign nations do use financial markets to borrow and that they do have creditors.

It seems to me that it is used to provide a backing to political agendas by those who have exhausted other, failed, ideas. When the UK government (and most governments at this point) increases borrowing to record level to pay for the Covid crisis this demonstrates that borrowing is used to pay for spending.

If the money borrowed goes into spending it cannot be that it is to remove money from circulation...

What I called out as patently false is indeed patently false.

I'd be also wary of any theory that calls itself "modern". That's a classic rhetorical trick to imply correctness and that those who do not agree are not modern...

Back when the financial system relied entirely on physical assets like metals, the government needed to have those metals available to produce money

Today the overwhelming majority of money is digital and producing more doesn't require the government to have enough metal to mint coins. They simply need to change numbers in a spreadsheet

The "borrowing" you're referring to is not a transfer of physical assets. The money doesn't "go" anywhere, because they only exist as abstract representations in a spreadsheet

The government of the UK has chosen to only spend an amount equal to the one removed from selling bonds, but there's is literally nothing preventing them from doing it without that step

If the government want to spend more money than they get in through bonds and taxes, they can just do it

If they wanted to remove money from circulation they would simply issue bonds and not have an equivalent spending at the same time

It's two independent operations, that seems connected if you have a mental model that a government runs a household budget

That the UK base economic decisions on that assumption does not change the underlying mechanics of the transactions or invalidate MTT as a model for describing economical systems

I think you are very confused, and I write this in a friendly way.

You're welcome to think that

If you can show definitive proof that there is a limitation on the spending power of a government, that can only be overcome by selling bonds or collecting taxes, I'll happily change my position

I'd like to know what evidence would make you change your position?

Government debt means something as long as people can profit from interest of said debt, end of discussion.

Cool