[jstalin]

Of course, there were two components: the physical (stopping the runaway printing of money) and the psychological (changing people's expectations). So the title should more properly be something like "How Current Abstraction Helped Stop Runaway Inflation in Brazil."

----

"You have to slow down the creation of money, they explained. But, just as important, you have to stabilize people's faith in money itself."

[crdoconnor]

https://en.wikipedia.org/wiki/1970s_energy_crisis <-- this caused the hyperinflation, not money printing.

[marcosdumay]

You simply can not have hyperinflation without the government printing money. In normal situations, there's not enough money to keep an economy running after a 1000 times increase on the prices level.

Now, if you are arguing that the government started printing money because the energy crisis destroyed its budget, then yes, the energy crisis caused the printing of money, that caused the hyperinflation. Thus, in some indirect sense, the energy crisis caused the hyperinflation.

[crdoconnor]

This idea of Milton Friedman's that "inflation is always and everywhere a monetary phenomenon" needs to die already. It's wrong in every possible sense.

[AnimalMuppet]

You want to present some evidence for that claim? Some alternate ideas? Some argument on why Friedman's claim is wrong? Something besides just a contemptuous dismissal?

[crdoconnor]

The evidence is staring you in the face. Brazil's hyperinflation in the 70s was triggered by a supply shock that had nothing to do with their money supply.

Zimbabwe was similar, in that they destroyed their agricultural sector but continued to buy food.

If you keep the level of money printing and spending the same but your ability to produce goods and services is suddenly hit, you will experience inflation.

If that inflation reaches a trigger point, it will start to feed upon itself in a positive feedback loop, causing what we know of as hyperinflation.

[meira]

Reduce income inequality and promote social rise creates inflation, too. In the past you could pay someone R$300/month and have her cleaning your home everyday. Now the same value doesn't pay one week. Inflation to the riches, better work for the poors.

Controlled inflation == growth.

[koolkat]

I think you miss understood him. Money is just like any good subject to suply and demand. So if a country produces goods that they sell only in their national currency the more you produce of this goods the more demand there is for your money. So imagine there is a fixed quantity of money and a certain level on demand based on the quantity of the wealth produced. If suddenly you stop producing this goods then demand for your currency sinks. If this happens what you are left with is inflation. And all of this without the need to create money. For example the us prints masive amounts of money and they can do so because of the Bretton Woods system. Because the dollar is the international currency they print based on demand for their money that commes from goods produced all around the world by many countries. So it also depends on the power the nation has to oblige others to use their money.

[marcosdumay]

Hyperinflation is a completely different game. Your explanation also does not cut it, because a country's GDP simply does not reduce 1000 times in a month, month after month for years. You can not have it if your government isn't printing money like mad.

Also, no the 4 QEs of the US since 2008 weren't not nearly enough to create hyperinflation. They are not even growing exponentially.

[crdoconnor]

>a country's GDP simply does not reduce 1000 times in a month, month after month for years. You can not have it if your government isn't printing money like mad.

Yes, but the trigger almost never a government that goes insane and decides to print money like mad. The money printing is ramped up in an attempt to maintain the same level of spending in response to a supply shock.

>Also, no the 4 QEs of the US since 2008 weren't not nearly enough to create hyperinflation.

QE actually causes retail deflation. Which is counter-intuitive, I know.

(the reason is that money printing doesn't cause inflation - spending does, and QE actually reduces spending in non-investment products)

[Retric]

Considering the terrible tax / spending policy and massive amounts of money being printed at the time I have my doubts the energy crisis was nearly as important as you suggest.

Also of note the inflation rate in 1991 was very close to the 1970, and 1976 rate of six percent. So spiking to up another 6% to 12% percent briefly was clearly related, but 1/2 of that total was directly from failed policy.

http://www.frbsf.org/education/publications/doctor-econ/2003...

PS: Another way to look at it was the oil crisis created a price spike, which poor monetary policy turned into increased inflation.

[crdoconnor]

>Considering the terrible tax / spending policy and massive amounts of money being printed at the time I have my doubts the energy crisis was nearly as important as you suggest.

The inflation spikes that happened all around the world at that time in other countries that also experienced the 1970s oil crisis should clue you in.

That's not to say that the hyperinflation might have been avoided if the Brazilian military dictatorship spent a little less at the time. But this was still mainly cost push inflation, not demand pull inflation.

[Retric]

First off hyperinflation is when "monthly inflation rate exceeds 50%", US monthly inflation was ~1% though this time period. http://en.wikipedia.org/wiki/Hyperinflation So, clearly the US never had anything close to hyperinflation even with the oil shocks.

Second, a ~6% annual inflation spike due to increased oil prices is significant. But, the US baseline inflation rate from 1970-1990 was ~6% so the oil shocks at most explained 50% of US inflation.

For a country to turn a ~0.5% monthy shock into 50% monthly price increase means something else is clearly very wrong with their economy.

[crdoconnor]

>First off hyperinflation is when "monthly inflation rate exceeds 50%"

This was always an arbitrary definition that never really touched on the actual mechanism - the positive feedback that causes inflation to feed upon itself and increase exponentially when spending is > the capacity of the economy.

>clearly the US never had anything close to hyperinflation even with the oil shocks.

Clearly. Which is why I used the term "inflation spike" and not "hyperinflation".

I'm sure there have probably been some economies that have gotten close to the hyperinflation trigger point without realizing it, though (not America, however).

>For a country to turn a ~0.5% monthy shock into 50% monthly price increase means something else is clearly very wrong with their economy.

It means that their economy was probably spending at close to full capacity already and they were heavily dependent upon oil imports. This exposed them to the supply shock, but still, without the supply shock, the hyperinflation trigger point would probably have been avoided.

"Wrong" is a normative judgement. You wouldn't use it to describe physical phenomena. Why would you use it to describe economic phenomena?