I talked about hyperinflation in my Ec 10 lecture last week. In today's NY Times
, we can read about a modern example in Zimbabwe:
The trigger of this crisis — hyperinflation — reached an annual rate of 1,281 percent this month, and has been near or over 1,000 percent since last April. Hyperinflation has bankrupted the government, left 8 in 10 citizens destitute and decimated the country’s factories and farms.
The reaction of political leaders is tragicomic:
Mr. Mugabe, who blames a Western plot against him for Zimbabwe’s problems, has rejected all calls for economic reform....The central bank’s latest response to these problems, announced this week, was to declare inflation illegal. From March 1 to June 30, anyone who raises prices or wages will be arrested and punished. Only a “firm social contract” to end corruption and restructure the economy will bring an end to the crisis, said the reserve bank governor, Gideon Gono.
Surprisingly, the Times makes little mention of the money supply, but another article
points out the obvious link:
"The urgency of the need to reduce inflation impels that 2007 be the year for unprecedented fiscal and monetary policy restraint," Gono said in a monetary policy statement. "To this end, the Reserve Bank will reduce broad money supply growth from the current levels of over 1,000 percent to between 415 and 500 percent by December 2007."
It all comes back to Principle Number 9