What happens when government massively overspends and either goes into debt or prints money to covers it expenditures? The answer has been known for generations: The ultimate result is inflation. How much and how fast is anyone’s guess, but history is clear about the consequence of increasing the supply of a nation’s currency without appropriate controls and corresponding increases in production. It’s simply a matter of too much money chasing too few goods.
However, what is not discussed much is how rapidly accelerating rates of inflation affect life for those who are forced to deal with it, and the steps that governments generally take in their efforts to control it.
The process begins with the creation of substantial amounts of money, either by borrowing or printing currency without any “backing,” or both. That is, without a corresponding increase in production (productivity) to offset rapidly rising prices, as consumers compete for available goods.
As it continues, the value of savings and investments is eroded, until they eventually become worthless, with the result that retirees and others living on a fixed income quickly descend into poverty.
Argentina experienced chronic inflation from 1949 through the 1980s. Hyperinflation exploded to almost 5,000 percent in1989, when government expenditures reached 35.6 percent of GDP (gross domestic Pproduct) and subsequently topped out at an annual rate of more than 20,000 percent.
Living in Argentina in the 1980s by Dale and Lynette Martin, who were missionaries in southern Argentina from 1988 to 1990, describes life during hyperinflation in graphic detail:
“On my mission, my parents sent me $400 to support me each month. When I first got to Argentina, that money converted into 4,000 austral. By the time I left (two years later), $400 U.S. gave me 1,000,000 austral.
“The American dollar was worth so much to them because it was a stable currency. The austral was under constant hyper-inflation. The austral decreased in value every single day. When they went to work on Monday and were working for 3 austral an hour; by Friday they were working for half price. It got to the point where the rich did not keep any of their money in their native currency; it was kept in American dollars … The banks that kept the dollars were not even stable. Sometimes when we went to the bank it was closed … When the banks were closed, all the stores were closed, too. Argentines did not have any way to store their food, so they usually went shopping every day. Their food supply ran out very quickly … The austral depreciated at a rate of 50 percent per day for 17 days. At this rate, 1 million austral at the beginning of the inflation cycle would be worth 7.63 austral at the end compared to the first day’s value.
“The lines of people trying to get into stores were outrageous. They would be way out the doors and into the street. People stopped going to work because the money they earned for the work they did on Monday, at the Monday price, was worth almost nothing by the time Friday rolled around … Workers demanded to be paid, so they could stand in grocery lines with what little money they had and buy all the food they possibly could. Everything in the stores was sold; the shelves were complete empty. The owners had to restock during the night for the next day … In the few hours from one business day to the next, the store owners had less wealth than they did when they sold the products … The stable food was worth more than the fluctuating money. People started breaking into grocery stores and stealing food. Some people even shot at managers, and some of those managers shot back.
“Good people do crazy things when they cannot get food. Riots broke out everywhere. The people did not plan on rioting, but their emotions got carried away with them and they were pulled into the panic. I heard a story of two missionaries who were on a bus. It was calm and quiet. Then, without warning, a huge eruption of noise and violence raked the air. The missionaries felt an impression to duck, and as they did a bullet shattered the glass where their heads had been. Outside, people were tipping cars and buses on their sides. The police came to stop the crowds, and that’s when the fighting really started. It was mayhem everywhere.”
It’s hard to say what would have happened if an external source of financial stability hadn’t rescued the country. It’s likely whole sections of the population, especially in the cities, would have died.
If you think it can’t happen here (in the United States), think again. The process has already been launched by President Obama’s massive, unfunded spending.
— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who has lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.