Times are hard. You sit at a bar sipping your drink, thinking about the runaway inflation in
the country. The United States government seemed to have everything under control,
and then after one bad decision, the rate of inflation spiraled out of control. Inflation
hit 100%. The five-dollar cocktail you ordered yesterday is ten dollars today.
You finish your drink and ask the bartender for another. He mixes up your cocktail,
brings it over, and looks you dead in the eyes. “That will be twenty dollars,” he says.
You stare back at him in disbelief. “But my last one was only ten dollars,” you exclaim.
The bartender just shrugs. “Inflation is out of control today,” he responds,
shaking his head. “Prices are changing by the hour.”
This is an extreme scenario where inflation increases at a dramatic rate. But it also
serves as an example for what could happen if inflation in the United States reaches 100%. The
simplest way to explain this what-if scenario is that whenever inflation increases by 100%,
the price of products doubles. For example, if gasoline in the United States costs 4 dollars a
gallon in the year 2050 and over the course of that year inflation increases by 100%,
then in 2051, gasoline will cost 8 dollars a gallon. The following
year it would cost 16 dollars a gallon, then 32 dollars a gallon, and so on and so forth.
You can see how having 100% inflation could get out of control really quickly. But
this is only the tip of the iceberg. If the United States suffered from 100% inflation,
there would be drastic consequences for not only U.S. citizens but people around the world. These
problems would be exacerbated depending on how frequently inflation increased by 100%. If it
happened annually, the U.S. economy would be in dire straights. If the increase was happening
monthly, there would be a very quick economic collapse. Perhaps the worst-case scenario can
be explained using a very real tragedy that is currently playing out in the world today.
But before we get into the real-world consequences of rapid inflation,
we should talk about what inflation is, what causes it, and what can be done to stop it.
Inflation is a rise in prices over time. Another way to think about it is that when
inflation increases, a unit of currency, for example, the U.S. dollar, buys less than what
it did previously. An example of this can be expressed in candy bars. At one point in time,
you could walk into a store and buy a candy bar for 1 dollar. Now when you go to the store,
that same candy bar is one dollar and fifty cents or even more. You can thank inflation for that.
In every economy, there are good years and bad years. During the good years, the economy booms,
citizens have extra income to spend, and prices for goods are relatively low. During these years,
inflation is low, or there can even be deflation, and the overall cost of goods decreases. However,
over long periods of time, the cost of doing business and the demand for products tend to
increase. There are numerous reasons for this, such as an increase in population,
scarcity of certain resources, or global conflicts that affect supply chains. Unfortunately,
the years where overall prices increase due to these issues are more common
than the years when everything is going well, and therefore, inflation occurs.
It’s important to note that these years of inflation are different than when a sudden
change in price occurs due to supply chain issues or incredibly high demand for a product that has
a low supply. This happens with things like collectibles. If you have a first edition
holographic Charizard Pokemon Card it can be worth over $20,000 even though in 1998 that
same card had no value except for the paper it was printed on. The fact that collectors want
to own the Charizard Pokemon card and there are only a limited number in existence is the
reason the price has gone up by thousands of dollars over time, not because of inflation.
When we talk about inflation, we normally aren’t just talking about a single product.
Inflation measures the overall impact of rising prices in an economy. More often than not,
if a product’s price increases but all other products stay around the same price, the change
in that product’s price likely has to do with supply and demand. Conversely, if the price of
most products in a country increase over time, this likely has everything to do with inflation.
When a unit of money buys less than it could before due to inflation,
the people in a country suffer. Now their weekly paychecks won’t be able to buy them as much food,
gasoline, or other necessities. This is also true of goods that aren’t vital to someone's survival,
such as new electronics, clothing, or luxury items. The inability of people to purchase
as much as they once could using their currency can lead to the economy slowing
down and eventual collapse. This is one of the reasons inflation can be so scary.
So, what causes inflation,
and how does it get to the point where the United States ends up with 100% inflation?
Usually inflation occurs when there is an increase in money supply in a country. This can happen in
a number of different ways. The most obvious is when a country’s treasury literally just prints
more money and releases it into circulation through various programs. When this happens,
the money already in circulation decreases in value because now there is more of it,
and as a result, the cost of goods begins to rise.
A currency can also be devalued as legal tender in its own country or worldwide.
If a currency is not seen as stable and therefore less reliable than another,
it can cause that nation's money to be worth less. This increases the amount needed to
buy goods. For example, many currencies are compared against the U.S. dollar or
Euro. If one unit of currency is only worth half of a dollar, people will need more of
it to buy the same amount of goods as a U.S. dollar would. If that currency continues to
be worth less and less over time, it can lead to an increase in inflation in that country.
The most common way that inflation rises is when financial institutions and governments loan out
new money and increase the available cash its citizens have access to, which they then put
into the economy. This money may only be on credit, but the influx in spending by people
because they have a higher purchasing power at the moment can drive prices up and cause inflation.
If done correctly, selling government bonds and allowing financial institutions to loan
out money at appropriate interest rates is not only good for the economy but necessary. However,
if mistakes are made, and the overall increase in the availability of money becomes too high,
it can cause inflation rates to rise. This is one
of the key factors that is leading to inflation in the U.S. today.
When the COVID-19 pandemic hit, millions and millions of people lost their jobs or
were hit hard by medical costs. They couldn’t pay their bills and having enough money to buy
groceries was a real threat to many. In certain parts of the world, governments stepped in and
provided monetary relief to people in the form of stimulus checks. This was not only
to help people make it through the pandemic but also to keep economies from stalling.
In the United States and many places around the world, stimulus checks were absolutely necessary
and saved many lives. However, not everyone who received stimulus checks spent them all on food,
goods, and services. Instead, some of that money was saved, and as the restrictions started being
lifted, people had more cash to spend than before the pandemic began. Since they couldn’t
spend their money on things they wanted to buy or do during the pandemic, the amount of money
people had that they could spend when things started opening again increased. Basically,
the government boosted the amount of money available, which almost always leads to inflation.
When people could leave their homes and do things again, they started spending the money
they had saved either from their stimulus checks or their jobs which meant there was
much more money going into the economy than there had been previously, and therefore,
inflation rates started to increase. Other factors, such as supply chain issues and
geopolitical problems, also contributed to the increase in prices, but the overall effect in
the United States was that inflation rates climbed higher than they had in decades.
Is the U.S. on track to reach 100% inflation? Probably not, but only time will tell. In fact,
the highest inflation rates the United States has ever experienced happened after two major wars.
In 1778 the U.S. experienced an inflation rate of 29.78% as the Revolutionary War ramped up,
soldiers were enlisted, and the country desperately needed to
increase production and purchase weapons. The only other time that the United States
experienced an inflation rate over 20% was in 1917 during World War I.
War leads to the destruction of property, businesses, and manufacturing facilities,
all of which can drive inflation rates higher as supply is harder to get. Simultaneously,
when a country is at war, it needs to borrow money from other nations,
which can devalue its own currency. These factors, along with printing more money to
pay debts, led to high inflation rates in the United States during wartime.
If things continue on their current course without any interventions,
inflation rates will continue to increase. 100% annual inflation could theoretically happen,
and if this were the case, the price of everything you buy would double every
year. But just because prices are doubling does not mean wages are also doubling. This is when
things get really bad. If people can’t afford basic necessities because their salaries don’t
increase at the same rate as inflation does, the entire economy will collapse.
But the terrifying thing is that there are situations in which inflation can
increase by 100% in less than a year. In fact, inflation can increase by over
100% in less than a day. How do we know this? Because it has happened in countries before.
When inflation increases by 50% or more a month, it becomes hyperinflation. Unfortunately,
this is not a hypothetical situation. The consequences for a country that is
experiencing hyperinflation are dire. If this happened in the United States,
it would cause the global economy to come crashing to the ground.
The most recent case study for this type of inflation is occurring right
before our very eyes. Venezuela is experiencing hyperinflation at
unprecedented levels. Between 2017 and 2018, Venezuela experienced a 65,000%
increase in inflation rates. Let that sink in. The annual inflation in Venezuala was 65,000%.
Business owners literally had to calculate the price of their products by the hour as every
minute that went by, inflation would cause the prices to increase. Today,
the inflation rate in Venezuela is around 2,300% annually, which is still an unsustainable number.
How did the situation in Venezuela get so bad,
so quickly ? It started in the late 90s when the country was making large amounts
of money from oil exports. Hugo Chavez used these profits to back the national
currency called the bolivar. Around 90% of the nation's money was coming from oil exports.
The profits from the oil were used to pay for social programs that were put in place
to combat poverty and increase health services. This seemed to be a step in the right direction,
but since the government was spending a lot of money on these programs, it was imperative that
the oil kept flowing. Otherwise, they would have no way to pay for their own programs.
Unfortunately, the global price of oil began to drop, and the demand for foreign oil decreased.
This caused the oil-backed bolivar to crash in value, and as a result, the currency fell in price
compared to other nations’ money. This meant the cost to import goods rose to astronomical levels.
Oil prices continued to fall as other problems caused oil production in Venezuela to decrease.
Both of these things pushed the bolivar's value even lower, and the economy crashed.
The government tried to quickly pay their bills by printing more money, which only made the inflation
problem worse. As more bolivars were printed, the value of the currency declined even more. All of
these factors together led to hyperinflation. The bolivar became practically useless, so people in
Venezuela scrambled to convert their money into U.S. dollars which was seen as a stable currency.
However, as they did this, the bolivar lost even more value, and inflation skyrocketed even higher.
For years this vicious cycle continued. It became so bad that people in Venezuela
started using the bolivar as toilet paper because it was more economical. Eventually,
it was decided that the bolivar needed to be purged from the markets, so the government
began to destroy money to remove it from circulation. This has stabilized the currency
but has yet to remedy the hyperinflation that the country is experiencing on a yearly basis.
If something similar to this were to happen in the United States, it would be catastrophic.
The problem with the U.S. experiencing hyperinflation or even 100% inflation
annually is that it would cause the dollar to decrease in value. Unfortunately,
since the U.S. dollar is seen as a stable currency, many foreign governments have
invested in it. If the value of the dollar were to plummet, it would cause a global financial crisis
as everyone tried to convert their dollars to a more stable currency like the Swiss Frank or Euro.
This would cause the U.S. dollar to lose even more value,
which would cause inflation to increase even more in the United States. But this cycle
would also affect U.S. exports which much of the world depends on. At the same time,
the ability of consumers in the United States to purchase imports would diminish, which
would stall the economies of countries that rely heavily on the U.S. buying their products. As the
U.S. economy tanks and imports and exports slow down, a shockwave would rock the global economy.
We can’t be entirely sure what would happen if the U.S. reached 100% inflation, but it would
be nothing good. There would likely be a global economic collapse for the sole reason that the
United States has a GDP of around 23 trillion dollars a year, the highest in the world, meaning
that the biggest economy on our planet would crash. And we would all feel the consequences
It’s possible that countries like China would benefit from the United States
experiencing 100% inflation rates by picking up their economic slack,
but even this is unlikely due to the fact that the U.S. imports massive amounts of Chinese products,
which would all cease if the United States was experiencing hyperinflation rates.
If the United States experienced 100% inflation, it would have ramifications that would affect the
entire world. The people living in the U.S. would be hit the hardest at first,
but as spending decreased and U.S. citizens could no longer purchase products from other countries,
every nation that is a part of the global economy would feel the effects.
This is why it’s highly unlikely the United States would ever reach a point where it would
experience inflation at this kind of scale . Hypothetically, the only way the United States
could reach 100% inflation is if the government began printing massive amounts of money while
keeping interest rates extremely low. Both of these things will almost certainly never happen.
One of the Federal Reserve's main jobs is to make sure inflation doesn’t reach
unsustainable levels. There are a few ways a country can combat inflation,
which is what is happening in the United States today to ensure that its inflation doesn’t
skyrocket. The main way the Federal Reserve can lower inflation is by raising interest rates. By
increasing interest rates, people will borrow less money from financial institutions and,
therefore, will spend less money. As demand for products decreases and supply increases,
the prices for products will go down, and inflation rates will also go down.
The goal right now is to stabilize prices and get inflation rates back to around 2.5%, which
is what the Federal Reserve sees as sustainable levels. By keeping inflation within this range,
businesses can plan for the increase in costs over time, and inflation becomes priced into the
market. Hyperinflation can only occur if there is a huge financial crisis and terrible mismanagement
of monetary policies. There are checks and balances put in place in the United States to make
sure that excess money can’t be printed or loaned in a way that could result in runaway inflation.
Also, the Federal Reserve and other financial committees are tasked with making sure the
U.S. economy remains stable even in times of trouble. It’s very improbable inflation rates
will reach 100% in the near future in the United States. However, if this did happen,
goods would double in price, the U.S. dollar would lose its value, and the global economy
would be hit hard due to the reduced amount of products that U.S. citizens would be able to buy.
Now watch “What If The US Economy CRASHES?” Or check out “Why Are
People In Venezuela Starving (Hyperinflation Explained)?”