The Hyperinflation Myth Explained

There is a widespread myth that hyperinflations are caused by excessive government money “printing.” Perhaps you are among the vast majority who believe this pernicious myth.

Well, it simply isn’t so, and the belief alone is responsible for great misery, worldwide.

Consider these excerpts from the following article:

Fed analysis warns of ‘economic ruin’ when governments print money to pay off debt
NOV 26 2019, Jeff Cox, CNBC

St. Louis Fed economists warn in a paper of potential “economic ruin” if policies that advocate money-printing to pay off government debts are ever adopted.

Immediately, the article provides us with a misunderstanding. “Money-printing” never is used for paying off U.S. federal debt.

The federal debt is the total of net deposits into Treasury security accounts. When you buy a T-bill, T-note, or T-bond (aka “federal debt”), you open a T-security account, and into that account, you deposit the price of the T-security.

There, your dollars remain, collecting interest, until the T-security matures, at which time, your dollars — the dollars you deposited plus the interest in the account —  are returned to you.

During that entire round trip — you depositing dollars and those same dollars being returned to you — the only so-called money “printing” has occurred daily over a period of years, as your account accumulates interest.

The U.S. federal government could pay off the entire U.S. debt today, if it wished, simply by returning the $20 trillion that currently exist in T-security accounts. No money “printing” or taxes involved.

Returning to the article:

“A solution some countries with high levels of unsustainable debt have tried is printing money.

“In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money,” wrote Scott A. Wolla and Kaitlyn Frerking.

“History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin.”

They cite Zimbabwe in the 2007-09 period, Venezuela currently and Weimar-era Germany . All three faced massive deficits that led to hyperinflation due to money printing.

In fact, all three nations provide examples of the real cause of hyperinflation, and it isn’t money “printing.”

(As an aside, money is  not printed; it is created via bookkeeping. Money has no physical existence. A dollar bill actually is a title to a dollar. Just as the paper title to a car is not a car, and the paper title to a house is not a house, the paper dollar bill, is not in itself a dollar. The actual dollar is nothing more than a non-physical accounting notation on the government’s books.)

The cause of general price increases, i.e. inflation, is shortages. Usually, these are shortages of food or energy. It is shortages, not money “printing” or full employment or excessive demand (as some people claim), that makes prices go up.

Hyperinflation in Zimbabwe began in February 2007. . In the late 1990s, the Robert Mugabe government evicted white landowners and gave their farms to blacks.

Many of these “farmers” had no experience or training in farming. As a result, from 1999 to 2009, the country experienced a sharp drop in food production, creating massive food shortages.

The non-farmers were unable to obtain loans for capital development, (money shortage). Food output capacity fell 45%, manufacturing output 29% in 2005, 26% in 2006 and 28% in 2007, and unemployment rose to 80%.

Everything, especially food, was in shortage, which is what caused the Zimbabwean hyperinflation.

Hyperinflation in Venezuela began in November 2016 during the country’s ongoing socio-economic and political crisis.

Since the 1990s, food production had dropped precipitously, with the government beginning to rely upon imported food using the country’s then-large oil profits.

In 2003, the government created a currency control board that placing currency limits on individuals, and that caused widespread shortages of goods.

In 2005, the government announced the initiation of Venezuela’s own “great leap forward”, following the example of Mao Zedong’s Great Leap Forward. An increase in shortages began to occur that year as 5% of items became unavailable.

In January 2008, 24.7% of goods were reported to be unavailable in Venezuela, with the scarcity of goods remaining high until May 2008, when there was a shortage of 16.3% of goods. Shortages increased again in January 2012 to nearly the same rate as in 2008.

In 2013, shortage rates continued to increase and reached a record high of 28% in February 2014. In January 2015, the hashtag #AnaquelesVaciosEnVenezuela (or #EmptyShelvesInVenezuela) was the number one trending topic on Twitter in Venezuela

General shortages caused the Venezuelan hyperinflation.

The Weimar Republic, Germany
The Weimar Republic experienced hyperinflation, between 1921 and 1923, primarily in 1923.

In April 1921, the Germany Reparations Commission announced the “London payment plan”, under which Germany would pay reparations in gold or foreign currency in annual installments of 2 billion gold marks, plus 26% of the value of Germany’s exports.

Since reparations were required to be repaid in hard currency, one strategy that Germany used was the mass printing of banknotes to buy foreign currency, which was then used to pay reparations, greatly exacerbating the inflation of the paper mark.

The brief German hyperinflation was caused by shortages of hard currency with which to pay for imports of goods, especially food and food production.

The resultant shortages caused the general increase in prices, i.e. the German hyperinflation.

In summary, prices rise not because the people have too much money (Germans, Zimbabweans, and Venezualians certainly didn’t) but because needed products, mostly food and/or oil, are in short supply.

Back to excerpts from the article:

The Fed analysis references a paper on MMT (Modern Monetary Theory) in a sidebar box on monetary “owls” — the owls, “suggest that a government that controls a fiat money system is not constrained because it can simply create more money to pay its debts.”

Indeed, MMT supporters argue that a country that runs up debts in its own currency can never default, and as long as inflation remains tame, there really are no problems with government deficit spending.

They further say that public spending can be used to stimulate the economy, that essentially a deficit in the public sector can be a surplus in the private sector.

In this, MMT is absolutely correct, and noted economists agree:

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.

The article continues:

The total federal government debt is just over $23 trillion, or 103.2% of GDP.

The Fed itself has come under criticism for “money printing,” which it did in three rounds of quantitative easing during and after the Great Recession.

This came along with keeping its short-term lending rate anchored near zero for seven years.

However, the central bank’s stated aims were to bring down long-term interest rates and stimulate economic growth, not to finance the national debt.

And that is exactly what happened. Despite all the hand-wringing from the deficit hawks, inflation stayed low, the economy grew, and the national debt was not “financed.”

Nothing “finances” the national debt if the word “finance” means pays off. The national debt is not like your debt, my debt, business debt or state/local government debt.

The national debt is just the net total of deposits into T-security accounts, that are paid off by simply returning the money in those accounts.

“There are ways in which the government can make investments today, that increase deficits today, that produce higher growth tomorrow and build in the extra capacity to absorb those higher deficits,” Stephanie Kelton, professor of public policy and economics at Stony Brook University, said in a video for

“Their red ink becomes our black ink and their deficits are our surpluses.”

Kelton added that deficit spending can be used to fund improvements in education, infrastructure and other inequality-reducing programs without causing long-term damage.

Absolutely, 100% correct is Stephanie, a very bright lady with whom I have been in contact for many years.

Some of the most prominent advocates for MMT are Democratic presidential candidate Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez, both of whom identify as democratic socialists, as well as former Pimco economist Paul McCulley.

Too bad Sanders and Ocasio-Cortez do not really believe what Kelton has told them. They continue to search for ways to “pay for” Medicare for All, when the solution hangs right before their eyes: The federal government can and should pay for Medicare for All via deficit spending.

And contrary to what Ocasio-Cortez claims, this does not require more borrowing. Remember this quote from the St. Louis Fed: ” . . . the government is not dependent on credit markets (i.e.borrowing) to remain operational.

Most mainstream economists and Wall Street authorities, however, reject the basis that deficits don’t matter absent inflation.

Bond market guru Jeffrey Gundlach at DoubleLine Capital has called MMT “a crackpot idea,” while former White House economist and Treasury Secretary Larry Summers has labeled it “dangerous.”

However, hedge fund king Ray Dalio at Bridgewater Associates said its adoption is “inevitable” amid growing wealth disparity.

“Most mainstream economists and Wall Street authorities” do not understand the truth of Monetary Sovereignty. They still disseminate the “Big Lie,” that federal financing is similar to personal financing, where debt is a burden on the debtor.

Federal debt (deposits) is not a burden on anyone — not on the federal government and not on future taxpayers. It is a benefit to the economy and to taxpayers, and does not cause inflation.

There has been no relationship between changes in federal debt, aka deficits  (blue) and inflation (red).

One of the many places where MMT (Modern Monetary Theory) and MS (Monetary Sovereignty) differ is with regard to the relationship between “full” employment and inflation.

MMT claims that one cause of inflation is “excessive demand.” We never have seen anyone point to nationwide demand as excessive (especially when inflation describes not one or two products and services, but an entire nation). We cannot agree on MMT’s proposed solution to inflation: Taxes.

Taxes are recessionary, and the opposite of inflation is not recession; it is deflation. Taxes are austerity, and are not a cure for inflation.

MMT also says that deficit spending at a time of full employment is inflationary. Again, we disagree. Deficit spending means the federal government’s taxation is less than its purchases of goods and services.

It is not clear why the federal purchase of goods and services during times of full employment (if those times ever really have existed outside of WWII), should be more or less inflationary than during times of low employment.

The theory seems to be that during full employment, people have more money (not necessarily true), and they will spend rather than save that money (also not necessarily true), and when they are spending in competition with increased government spending, all that increased demand will cause inflation.

The main problem with that hypothesis is that in the real world, it never actually happens:

1) No one can agree on exactly what “full employment” is.

a. Does “full” employment include single or married, men or women or children and of what age?
b. Does one person earning $100K equal four people each earning $25K?
c. Does “full” include only full-time or part-time work, and exactly what are the definitions of each?
d. Does “employment take into consideration productivity, i.e is one man on a riding mower equal to 4 men pushing manual lawnmowers?
e. And what about unemployed or retired people. Some have a great deal of money to spend; others don’t. How is that accounted for?

2) Federal spending not only increases demand, but it also increases supply. In response to federal contracts, contractors gear up to create more product to meet the anticipated demand.

3) The federal government generally buys different things than the public buys, creating demand in different areas, so a general increase in all prices does not ordinarily occur. Prices may increase in specific products or materials but overall price increases are not caused by federal buying except during major wars, when the government buys so much a broad range of products is affected.

Consider the case of Medicare for All. Will federal funding of this program cause a general increase in prices at a time of “full” employment? Will it cause a shortage of food and/or oil, the main cause of inflation?

That is the real question, and I submit the answer is, “No.”

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell


The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.



29 thoughts on “The Hyperinflation Myth Explained

  1. I saw that CNBC article with highlighted reference to MMT =rubbish etc. But I couldn’t see where to post a comment so it’s good you saw it as well. Previously at his Senate hearing he said MMT was fake idea, but he hadn’t studied it. How scholarly was that?!
    This is the level of discourse among the critics, all people who have much to lose eventually.The sooner the better of course

    Liked by 2 people

  2. Very well-said, Rodger. Have you ever considered making edits to Wikipedia articles, particularly the Hyperinflation article. There seems to be a bit of misinformation in that article.

    Also, I should point out that the inflation line of the inflation/debt graph in your article looks incorrect, since it does not seem to match known inflation data. We know inflation was double-digits in the 1970s and early 1980s, and has been hovering around or below 2% for the past several years, yet the graph appears not to match that for some reason (wrong data set perhaps?).

    Otherwise, this article is excellent. Keep up the great work!

    Liked by 2 people

      1. That makes sense. I remember in other articles I believe you juxtaposed the absolute inflation rate with the year to year change in national “debt” / “deficit” spending. You may want to put that chart in this article just above or below it as well. Another good chart is the “deficit” as a % of GDP as well. In any case, the correlation with actual price inflation, (except perhaps during truly major wars that chew through ludicrous amounts of non-monetary resources) is either null, negligible, or even negative sometimes.

        Liked by 1 person

  3. Good post. The concept of “full employment” is somewhat of an economic anachronism that predates the widespread adoption of technology and automation. Technology has enabled increasing levels of productivity out of a diminishing workforce, thereby significantly altering the meaning of “full employment”. Deficits and inflation will never correlate provided there is slack in the productive output the economy, irrespective of (un)employment levels.

    Given the on-going GDP gap from the great recession and lack of any significant capital investment since, there would seem to be plenty of available slack in the current economy, as well as government fiscal space, to forestall inflation for the foreseeable future.

    The only risk for inflation would likely come from some massive mobilization of the entire economy as in WWII, which would likely only come from some sort aggressive variant of the Green New Deal. Even during WWII when deficit spending hit as high as 26% of GDP, average inflation was largely kept to under 10% overall, not by taxing, but by deferring spending through voluntary savings (war bonds).

    Liked by 1 person

    1. Indeed, I always tend to laugh whenever anyone uses the phrase “full employment”: full compared to what exactly? And you are correct about inflation, it generally takes truly major wars which chew through ludicrous amounts of non-monetary resources to trigger very high inflation. Even then, rationing of resources can put a limit on inflation in such cases, as can deferred savings through war bonds. And even a Green New Deal would probably not be enough in itself to do it unless it is extremely aggressive–after all, conservation of resources is kinda the point.


      1. Barring a giant meteor, large inflation requires a shortage of food and/or energy. Hmmm, I guess a meteor would do that. Small inflation can be prevented/cured with interest rate control (to increase the value of the dollar.)


  4. (Resubmitted comment below)

    When both MMT as well as more orthodox economists say “excessive demand” for goods and services, it usually means that it is excessive *relative* to supply, not on an absolute basis. But neither supply nor demand of anything are static, they are both dynamic and influence each other endogenously. A mild excess of demand relative to supply resulting in mild inflation (i.e. below 3%) is normal during economic growth as and in fact benefcial to growth, but more that that is believed to be harmful. But usually, supply then rises to meet the demand, with the exception of major wars or exogenous catastrophes. Thus (albeit with a slight lag), demand typically ends up creating supply, NOT the other way around as Say’s Law would have one believe. In fact, the only thing for which supply creates its own demand is money itself, the opposite of the case for goods and services.

    As for using taxes as a (crude) tool to tamp down excess demand and prevent so called “overheating” (which is a very rare phenomenon at least during relative peacetime), the least worst way to do it is through a financial transactions tax such as the Universal Exchange Tax. And such a “thermostat” or “automatic stabilizer” effect can be achieved with even very low levels of federal taxation, which do not have to match levels of spending. Just set it and forget it.

    And if any inflation still occurs, then simply raise interest rates to a level where the real cost of money (i.e. interest rate minus inflation rate) is significantly greater than zero. When inflation begins to drop, then start lowering interest rates (to prevent a longer-run cost-push inflation and collateral damage to the economy), but keep it high enough so the interest rate still remains a bit higher than the inflation rate until inflation drops to an acceptable level (below 3% or so), then drop it below the inflation rate, and then in the longer run adjust it to the rate predicted by the Taylor Rule. There really does seem to be a science to it, something Canada apparently learned the hard way in the 1980s.

    Liked by 1 person

    1. Agree with all except the “tax” paragraph.

      Taxes are a horrible way to control inflation. Taxes are:

      1. Too slow for Congress and the President to pass
      2. Too slow to end
      3. Not incremental enough, so there is a high likelihood of overshooting or undershooting.
      4. Recessionary
      5. Too political
      6. Have an unknown effect on specific parts of the economy.
      7. Mostly prove to be regressive.

      There are no “automatic stabilizers.” They are an MMT myth. Inflation has myriad causes, and taxes have myriad unanticipated consequences, in addition to taking dollars out of the economy.

      Try making a list of all the possible consequences of a financial transaction tax. I’ll bet if you try, you can come up with a dozen.


      1. The only downside I can think of to a financial transactions tax specifically is a shrinking trading volume, which would paradoxically increase market volatility. But that would only occur when it is excessively high, say more than 0.3-0.5% based on data from a study on China’s financial transactions tax. A tax of no more than 0.1%, for example, would be indistinguishable from a rounding error, yet would help tame the casino of Wall Street by toning down high-frequency (usually algorithm-based) speculation and discouraging the formation of bubbles.

        Other benefits to such a tax include discouraging money laundering and any other transactions done primarily for the obfuscation of ownership.

        But yes, if too much money is taken out of the private sector in general, that is recessionary. Fortunately, such a tax is simple to adjust up and down.


        1. Either the tax would or would not take a significant amount of money from the economy.

          If significant:
          1. It would be recessive
          2. Reduce liquidity (the very purpose of financial transactions)
          3. Punish one industry for national inflation
          4. Reduce high-frequency trading which is not known to cause inflation
          5. I would be at cross purposes to the real inflation cure: Interest rate control.
          6. Still have all the objections mentioned in the previous response.

          If not significant
          1. It would have no effect
          2. It would have no purpose


          1. That said, such a financial transactions tax such as the UET is still justified on Pigouvian grounds IMHO, provided it is between the extremes of too much and too little.

            As far as taxes go, it is one of the least-worst, and is actually quite progressive in practice since the rich make disproportionately larger transactions and volumes than the non-rich. At least it’s not a bubbling VAT of toxin–now that would be regressive and highly counterproductive. IMHO the USA was wise to be one of the very few countries to never adopt a VAT.


  5. These shortages exist because the government uses its monetary sovereignty to recklessly create enough fiat money to buy whatever goods it needs or wants from the local economy, thereby leaving the private sector to fight over the remaining supply of goods. Of course, he private sector bids up the price of these scarce goods in an effort to acquire what it needs, which is otherwise known as inflation.

    Liked by 1 person

      1. I think we agree on the role of resource shortages with respect to inflation, but you do not seem to appreciate the cause of the resource shortage that I am suggesting. If the government uses its unlimited money creation power to buy “too many” goods and services from the local economy, then there is a “shortage” of remaining resources for the private sector to buy.


          1. I agree that “too much” is not a particular helpful phrase. In this context, “too much” was intended to refer to an amount of government purchases of goods and services that results in a loss of confidence in the government’s ability to use its money creation power responsibly, which in turn translates into crippling levels of inflation.

            I see that you want to eliminate the concept of “public debt.” I agree that issuing bonds to fund deficit spending is an antiquated concept when the government can create any amount of money it wants by adjusting the size of a money account or two. Government spending can still be tracked in other ways. What are your other top policy proposals other than the elimination of government bonds?


          2. “What are your other top policy proposals other than the elimination of government bonds?”

            Answer: The Ten Steps to Prosperity (See above), the purpose of which not only is to add growth dollars to the economy, but to narrow the Gaps between the richer and the poorer.


  6. The function of money has always only been that of unit of account, and the vast majority has at anytime just existed as ledger entries. What these ledger entries represents is the sole thing that matters, and also simply an expression of the record owners value/time preferences. The general confusion here is the indoctrination into the pseudo-science of economic in general, and Jevon’s 1875 definition of ‘money’ in particular. The latter only refers to commodity money, which was at no time relevant for economic activity at scale. —

    Liked by 1 person

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