Europe risks entering hyperinflationary mode
The phenomenon of inflation is physiological. What causes inflation? The causes are different, but we can summarize them like this:
1 – imbalance between supply and demand;
2- aumento delle materie prime;[if–>
3 – unexpected events that can cause economic shocks;
4 – distrust towards the reference currency.
I would like to focus on this last cause: mistrust in the reference currency. The demonstration that the inflationary phenomenon is also and above all due to mistrust towards one's currency has been known for thousands of years. Just to give some examples, ancient Rome had an economic crisis in the 3rd century and slowly and inexorably inflation became hyperinflation reaching 1,000%. The French Revolution also had among its causes the strong devaluation of the currency, then there is the Weimar Republic sunk by war debt and that after the first installment he was no longer able to pay the war debts, bringing inflation to 350,000,000%.
However, the highest known and it is quite recent, 14 November 2008, is that of Zimbabwe which reached 89,700 billion billion percentage points (89.7×1021). In 2023 alone, Venezuela boasted an inflation of 316.5%, today reduced to 282.8%, followed, once again, by Argentina with an inflation of 211.4% (+25% in the month alone of December) where the new denominations of 10,000 and 20,000 pesos are worth around 10 and 20 euros (exchange rate 1:1,000), for the moment, Turkey closes the ranking with inflation at 64.77%.
Why all this inflation and hyperinflation? Many have concluded that one of the reasons was to have “decoupled” the convertibility of the currency from gold, becoming “fiat currency” ergo linked only by the trust of people and the economic-financial world towards the reference currency.
I would like to propose a piece of a very interesting article by Gerardo Coco: The centenary of hyperinflation in Germany: the real story – Opinion “What is the lesson for economists? The key to hyperinflation is not at all, as they often claim, the excess of money printing (otherwise contemporary serial quantitative easing would have had to burn the main world currencies), but the collapse of public confidence. When private individuals no longer purchase public debt and spend the currency as quickly as possible or refuse to accept it, the Government has no choice but to print money to meet its commitments.
Hyperinflation is therefore the consequence of devaluation, never there cause. There are no exceptions in history” … “It remains to be questioned whether, today, in Western countries, hyperinflation is plausible. Certainly, the conditions for a strong devaluation are maturing, especially in the European area inhabited by governments with socialist agendas, with low productivity and with increasing difficulty in selling medium and long-term public debt. If we then think that hyperinflation is associated with wars, civil unrest, high taxation, capital controls, flight from bank deposits, uncontrolled immigration which can be followed by the collapse of public confidence, it is plausible that, in a few years, the Europe may enter hyperinflationary mode. I suspect that, this time, the spark could be the cancellation of paper currency and the imposition of digital currency to increase the level of taxation, thus circumventing the growing difficulty of financing through public debt.”
There is a word in English that could encompass everything that has been written and it is “WARNING” (warning, alarm) because it is not with today's monetary policies that we face an imminent tomorrow. To the wise…
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