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Hyperinflation History May Provide Valuable Lessons for Fed’s “Target”

hyperinflation history lesson for fed

From Birch Gold Group

Hyperinflation History May Provide Valuable Lessons for Fed’s “Target”

In April of 1980 inflation peaked at a staggering 14.76%. That same year, the Fed triggered a rise in interest rates to near 20% around the same time, employing the controversial “Volcker Rule.”

Paul Solman explained in a 2009 PBS Newshour:

If by “interest rates” you mean the rate set by the Fed — the Fed funds rate — it rose to TWENTY PERCENT in 1980. But no, it was not inaction but just the opposite: a deliberate rise in rates triggered by inflation.

And as you can see in the chart below, the 1980s also represented the 3rd highest average inflation percentage in a decade since 1913:

average annual inflation

So inflation rose dramatically, and the Fed employed a dramatic strategy, hiking rates through the roof.

But as you look at the same chart, it’s also clear three other decades had severe inflationary periods as well. Each time that happens in the U.S. the dollar loses buying power quickly as prices for food, energy, and fuel go through the roof.

Serious hyperinflation can happen relatively quickly. Venezuela is a recent example, where it only took about 5 yearsfor the local bolivar to lose 90% of its value. Inflation soared to a ridiculous 1.37 million percent.

We also have historic examples of severe hyperinflation. From 1921-1923 the Weimar Republic of Germany suffered massive inflation. Sovereign Man highlighted, “a single egg at the market would cost millions of marks” during this economic upheaval.

Oddly enough, Germany’s hyperinflation came not too long after a decision to print money became standard policy. (Sound familiar?)

Zimbabwe also had a period of massive war-based hyperinflation in 2008-09 after printing money and devaluing its currency.

These hyperinflation horror stories beg the question, will the Fed’s “target” of 2-3% inflation per year be effective?

 …click on the above link to read the rest of the article…

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