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Hyperinflation

 

Hyperinflation is an economical situation when inflation is extremely high. Regularly it is a result of inflation spiral and some disasters (as war), and is very dangerous for the economy. Just try imagine your business, if the prices of everything is higher by 20% every month. 

 

Investing in hyperinflation conditions would require specific knowledge and decisions. When inflation gets off the control, prices of everything jumps unpredictably fast and money have to be printed consistently new with many zero numbers. 

 

In one way or another hyperinflation is a result of “printing” new money in to the circulation. When more and more money reaches the economy, sooner or later money is oversupplied which causes the deficits of the goods for the same price, and prices have to increase. Usually governments are “printing” more money in mass amounts when they are facing very serious problems and don’t have other sources for funding. Until economy starts to react, governments still can use new money for its needs, so it can be justifiable is case of a war of similar disaster.  

 

Hyperinflation may be even more problematic than stagflation, which is also very bad for financial markets. But the worse effect of hyperinflation is that this type of inflation can completely destroy bond market as well as investments in other fixed income securities and money market instruments. 

 

The easiest way to deal with hyperinflation is to pledge currency to some other stronger currency or stabilize the prices of goods and services by law which is very rude intrusion in to the markets.

 






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