Professor Bill Mitchell on inflation

Zimbabwe for hyperventilators 101

A very good read. Today’s hyper inflation fears due to ‘money printing’ are pure fear mongering.

My comment to Bill in support of his article:

Russia in 1998 is an example of how much the flat earth economists are wrong in what determines the value of a currency

Russia had a fixed fx rate of 6.45 rubles to the US dollar going into the August crisis.

At the end, rates on gko’s went to over 200% until there was no interest rate where holders of rubles did not want to cash them in at the CB for dollars. Dollar reserves were depleted, and no more dollars could be borrowed to support the currency.

Instead of simply floating the ruble and suspending conversion the CB simply shut down the payments system and the employees all walked out the door.

It was several months before the payments system was restarted.

There was no confidence, no faith, and no expectations of anything good happening.

The ruble went from 6.45 to about 28 or so in what has turned out to be a one time adjustment.

There was no hyper inflation, and not even much inflation as per Bill above, just a one time adjustment.

Pretty much the same for Mexico when it’s fixed fx regime blew up in the mid 90′s. The peso went from about 3.5 to 10 in a one time adjustment.

These are two examples of stress far in excess of whatever the US, Uk, and Japan could possibly face, yet with no actual inflationary consequences, as defined.

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