Hyperinflation Unfolds Only When Public Confidence Collapses

COMMENT: Mr. Armstrong, I read your piece on South Africa and you are the only person to explain that the hyperinflation in Zimbabwe took place after they stole all the land from the white farmers. You really turn over every stone in your research.

My hat is off to you sir.


ANSWER: Well I was not aware of that, but it does not surprise me. Everyone attributes hyperinflation to the simple increase in the supply of money. I have stressed countless times that hyperinflation unfolds ONLY when people NO LONGER TRUST THE GOVERNMENT! The Zimbabwe hyperinflation ended the same way as Germany. Once Zimbabwe expropriated white farmers without compensation, public confidence collapsed. Nobody would invest in Zimbabwe after that. This is what South Africa now risks. Nobody will invest in a country that does not respect property rights. This is what we call COUNTRY or POLITICAL RISK! 

The French hyperinflation took place with the assignats, which were issued in conjunction with the revolution. They were so interested in robbing the rich and even the Catholic Church, that the confidence in banks and the government collapsed.

I have also shown numerous times that the famous German hyperinflation followed the Communist Revolution in 1918, which established the Weimar Republic. Once again, if you had any wealth, you hoarded it. People held foreign coins as the alternative to German currency.

In Venezuela, once more it is the collapse in the confidence of government that compels it to produce more and more money to pay its troops. This is the net effect once again when people no longer trust the government and wealth is hoarded using foreign currency – in this case, American dollars.

I have also make it abundantly clear that Japan LOST its ability to even issue coins for 600 years because, with each new emperor, he devalued the outstanding money supply to worth just 10% of his new coins. Once again, people lost faith in Japanese coins and began to use Chinese and bags of rice. It is ALWAYS the CONFIDENCE in government that is the primary component of hyperinflation.

I have also shown that the hyperinflation that took place in the Roman Empire during the 3rd century followed the capture of Emperor Valerian I in 260AD by the Persians. Once that took place, the barbarians from every angle began to invade the Roman Empire. Money was hoarded and the government had no choice but to debased the coinage to try to cover its bills.

There is a wealth of examples that demonstrate it is the collapse in CONFIDENCE that takes place and then the hyperinflation unfolds as a RESULT of that. It is NEVER as the goldbugs pitch to sell people gold that an increase in money supply is the cause of hyperinflation. It is ALWAYS, and without exception, the collapse in public confidence that precedes the hyperinflation.