Hyperinflation can be also caused quite nicely by hiding normal inflation by governmentally fixed prices and rationing, as often happens during wars. This governmental act can lead to a scenario where people can not spend all the money they earn, because a) there are only few goods available (or even only a fixed amount per person) and b) people can not pay more money for those goods they really want because prices are fixed. The money, which can't be spent, is saved, but this saved money is (nearly) worthless, because no goods existed which could have been bought with it. Therefore no consumption is relinquished which could be invested to later produce goods the saved money could be spent on.

If the conditions change later, i.e. the prices are freed, people can spend all their money but there are (probably) still not much more products to buy (remember no investment happened). Inflation will very suddenly take care of the excess money. This is mainly the reason for the hyperinflations in Eastern Europe when regimes went from communistic (fixed prices and a limited amount of products) to capitalistic (free prices but still derelict industries).

In East Gemany the to be expected hyperinflation was avoided in 1990 by exchanging East-Mark 2:1 against West-Mark. This ensured an overwhelming victory in the next election for Mr. Kohl but was IMHO also one of the reasons why the eastern-german economy went from no. 1 within the COMECON to nearly extinct within a few years: The loans of the companies had to be exchanged 2:1 also and due to that almost all of them were broke from the beginning. So hyperinflation might sometimes be a good thing ;-).

Log in or register to write something here or to contact authors.