Saturday, September 18, 2010

The Virtue Of Hyperinflation?

The Washington Post has a story claiming that not only is price deflation necessarily bad, but even low price inflation is also bad because:

"Hoarding, in turn, weakens the economy further, putting more downward pressure on prices.

But that vicious cycle doesn't suddenly kick in only when inflation moves from slightly positive to slightly negative. For example, businesses that forecast a very low rate of inflation would be more inclined to hold onto cash than they would if inflation were higher. Yet without new investment, the jobless rate could remain high, keeping wages - and ultimately prices - from rising."

So "hoarding" due to low inflation is the main thing preventing growth, according to this theory. Since hyperinflation would encourage people to "hoard" nothing and instead always spend all the money they have immediately, I guess this means that hyperinflation will cause great economic booms, just like it did in Germany in 1923 and recently in Zimbabwe...