Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. We already have extreme asset price inflation (not to mention the rapid expansion of the monetary base). In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. It is worth noting that every fiat currency throughout history, without exception, has eventually hyperinflated and collapsed to nothing.
> Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value.
That is not actually what hyperinflation means.
> We already have extreme asset price inflation...
Sure, but we don't have asset price hyperinflation.
> In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first.
Dump the dollars for what? Most people have no savings, they have a monthly paycheck that goes right to expenses for the most part. That alone greatly limits the velocity of money and therefore the rate of inflation.
Those people that (rightly) expect inflation (not hyperinflation) have already piled into other asset classes.
Either way, there can't be hyperinflation without a commensurate increase in money supply, which can't be achieved just by people spending their money more quickly.
> It is worth noting that every fiat currency throughout history, without exception, has hyperinflated and collapsed to nothing.
That is untrue. Hyperinflation is exceptional. Inflation over a long time can erode a lot of the value, but that isn't hyperinflation and it's not necessarily a problem either.
> That alone greatly limits the velocity of money and therefore the rate of inflation.
Nitpick. It limits the potential increase in velocity of money. Spending your money as soon as you get it is pretty much as fast as possible. The reason why there is little inflation is that these people don't have enough money to buy all the things they want to buy, meanwhile someone else is sitting on a fat stack of wealth and wondering what to do with it.
"High" inflation is what happens when a government needs money badly but can't acquire more debt. The final option is to just print money. Once there is a precedent of printing money it will be considered a valid policy tool and abused shortly after to expand the government budget. Printing money is actually extracting value from the existing economy. E.g. when you double the amount of money in circulation through printing you essentially steal 50% of value from the rest of the population.
What follows is that people lose trust in the currency and convert their currency into assets that cannot be taken away. This is hyperinflation. The "currency based" economy shrinks and there is less wealth to extract from it. Since there are a lot of fixed government expenses the amount of money that needs to be printed grows exponentially.
I$ = inflation dollar
The economy = the part of the economy that still uses I$
Inflation dollars are equivalent to dollars (I$ = $) in the beginning.
The economy is worth $1000 and has I$1000.
Government doubles money supply by printing I$2000. (100% inflation)
The economy is worth $1000 and has I$2000. I$ = $0.5.
$500 worth of value has been extracted but it circulates in the economy.
Hyperinflation begins: People start losing trust and put half their wealth into gold or something else.
The economy is now worth $500 and has I$2000. I$ = $0.25.
The government still wants to extract $500 of value out of the economy so they need to print money at a much faster rate than before.
Government quadruples money supply by printing I$6000. (300% inflation)
The economy is now worth $500 and has I$8000. I$ = $0.0625.
$375 worth of value has been extracted.
More people stop using the currency which means the economy shrinks again forcing the government to become even more aggressive.
Right now the central banks are following strategies that eventually demand every penny back that they have handed out. If inflation happens they can easily reverse their policies.
There’s no actual definition of ‘hyperinflation’ that I’m aware of in the macroeconomic literature, beyond it being a quantitatively large value of inflation. What you purport to be the discriminante (economic agents’ perceptions, presumably households’?) isn’t actually tenable either, since famously “you need two cretins to make a transaction” (a buyer and a seller, both of whom think they’re getting a good deal).
