Carts & Horses

According to Quartz.com, hyperinflation in Venezuela is “forcing” the country to “print hundreds of millions of extra banknotes”.

Yikes!

“The more expensive things get in Venezuela, the more 100 bolivar bills Venezuelans are forced to carry in their pockets.”

High inflation is usually, at a deep level, caused  by fiscal failure. For example, countries at war that cannot finance expenditures with taxes or borrowing resort to printing money.

But the proximate cause of the high inflation is the money printing. It’s charmingly naive to see the argument reversed.

The article also refers to 45% annual inflation as “well above much feared hyperinflation levels”.

The common definition of hyperinflation in economics is an inflation rate that is above 50% per month for a sustained period of time. That would be an annualized inflation rate of over 500%.

Venezuela has an inflation problem, which I believe to be caused by a governance problem, but it’s still pretty far away from a hyperinflation episode

 

 

 

 

 

 

3 thoughts on “Carts & Horses

  1. There are economic schools which say that inflation causes growth in the money supply, not the more traditional other way around. Not that I agree with them, but “inflation is never caused by too much money” becomes something of a religion.

    These are the same people who argue that Federal deficits are required for economic growth and that the higher the government debt to GDP ratio the better.

  2. @Arthur: your math is right

    @ThomasW: we try not to speak of the MMTers in polite company

    Thanks to both of you for reading and commenting.

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