“The government has decided to print money in order to pay its large debt. It's as if someone were reaching into my wallet every day and taking money out of it. And it's not just gasoline, either. It's bread, and potatoes, and rent. Things people need.” – The Tuttle Twins and the Hyperinflation Devastation
At the 2024 State of the Union, a slurring President Biden attempted to shift the blame for his poor economy onto businesses when he called out “shrinkflation”, a phenomenon where companies must decide between increasing costs on consumer goods or maintaining existing prices with a smaller product. Corporations and small businesses, like citizens, are affected by bad economies too.
In Connor Boyack’s 2019 book, “The Tuttle Twins and the Hyperinflation Devastation”, Boyack’s twins set off on a trip to South America and quickly learn firsthand the effects of inflation on a country rife with government debt and how bad can go to worse when a catastrophic weather event arrives in the form of an earthquake. In Boyack’s “Choose Your Consequences” series, readers decide the course of action characters will take by being offered plot alternatives throughout the book. In the end, whichever path they take, the twins learn how fast inflation can turn into hyperinflation, how commodities and stable currencies become more valuable, and how a new trend in cryptocurrency can help to overcome spiraling costs.
South America’s uncontrollable debt began with the financing of dams, airports, and public buildings, spending themselves into large deficits where they continued to print money to keep up with the growing debt. As the country teetered on the edge of financial ruin, an earthquake gave them yet another reason to create even more money out of thin air, with inflation climbing to 25, 40, 110, and even 1000 percent. As is often the case, a run on the ATM and banks followed as people panicked, fearing an eventual bank freeze that would prevent access to their money. As such, as more money flooded the economy, the currency lost even more value, as it took more and more units of money to buy products.
Inflation comes from an increase in the money supply by means other than production when money is printed by the government, reducing the purchasing power of the currency. The obvious result is a vicious cycle of economic stagnation, rising prices, and more printing of money. While the US government views a healthy inflation rate of 2 percent a year, the mismanagement of the COVID pandemic saw inflation rise from 4.7 in 2021, to a high of 8 percent in 2022, another 4.1 percent in 2023, and an additional increase of 3.5 percent already in 2024. Chronic inflation since 2020 has cost the average family in America an extra $23,000 per year for food, shelter, transportation, and energy, with overall prices up 19 percent.
Hyperinflation occurs when the rapid increase in a country's money supply brings inflation to 50 percent or higher, creating skyrocketing prices, shortages, and staggering losses in savings. While Weimar Germany is most often used as an example of out-of-control hyperinflation, where soaring costs were finally contained with a new currency backed by gold, Venezuela more recently experienced hyperinflation from 2016 through 2022, with prices rising uncontrollably and inflation hitting a high mark of 10,000,000 percent in 2019 when its currency became utterly worthless.
In the United States, institutions like the Federal Reserve, use the practice of quantitative easing to control interest rates, while fiat money (paper money not tied to gold or silver) makes booms and busts frequent and ongoing. In a system without fractional reserve banking, only money saved would be lent out, rather than the current practice of creating bank notes out of nowhere. To combat today’s inflation, people must now go into debt by purchasing assets that increase with inflation. If not, purchasing power is eaten up as prices spiral out of control.
To assist the twins in exiting South America and making it back home, the twin’s father set up a cryptocurrency account to get them the help they needed. Cryptocurrency is money the government cannot manipulate, and therefore, retains its value, making it particularly important in an inflation crisis, with its value rising and falling on supply and demand without interference from the government. Since no one wanted to accept the national currency that no longer held value, a church in one small community began to trade in a new currency they developed, giving the local population a Scrip they could trust.
Like the government in South America, the United States is being fiscally irresponsible by driving up debt to unsustainable levels. Until America returns to a system of sound money outside the control of the government, our financial well-being will continue to be threatened.
Comments