Understanding Impact of Inflation, Hyperinflation, and Deflation

                                                                                         

Are you wondering why the prices of commodity and basic services are rising at unprecedented levels? Are you confused why the U.S. dollar is losing its shine and continues to lose value? Well, these are some of the net impact of inflation, an economic condition which generally involves the excessive amounts of money in circulation. Because the money supply is abundant, market forces dictate that its general real value should decline. And if this condition goes unchecked, uncontrolled inflation or hyperinflation could happen any moment.

There are some debates as to why the abundance of money in circulation could push the uncontrolled rise in commodity prices and services. However, modern economists maintain that a general increase in prices is usually tied to an increase or excessive circulation of money in the economy. That is why central banks normally increase the interest rates to curb inflation and control the circulation of money. Inflationary effects are debilitating to the economy and to the real value of income of wage earners. As money in circulation loses its value, more and more people will find it hard to afford basic services and goods. Because of the decrease in purchasing power, the general economy usually contracts which could lead to an inflationary recession.

If unchecked, inflation will go into hyperinflation. Its simple meaning is uncontrolled inflation which may sound benign. But if you are looking at double digit inflation or a massive economic hemorrhage such as 30-percentile inflationary figures, then hyperinflation becomes a nightmare. It means your money is practically worthless and has less value than your average toilet paper. Inflation could develop slowly but it can go overboard in a wink of an eye. It is highly probable that you may wake up one day to see your dollar collapsing like paper cards. And when you go to grocery stores, you may find empty shelves or commodities that have price tags of one million dollars. This is hyperinflation and it has happened and still happening to other countries.

Hyperinflationary scenarios are realities that could face Americans one day. As the U.S. dollar removed itself from the discipline imposed by the gold standard, production of fiat currency has become a norm in the Federal Reserve. In the past, the principal culprit of recessionary trends was deflation. This is the opposite of inflation where money supply in the economy contracts or become scarce. When deflation hit an economy, prices of goods and services will tumble. Economic activity may go into a grind because producers are losing their profitability. Some economist calls this positive inflation as prices tend to go down. Stimulus is usually the solution to this problem to put money back in circulation.

Today, there is a growing irresponsibility to answer inflation by pumping more money into the already currency-saturated economy. The Federal Reserve has been printing more paper money in order to fund official spending. Such step could further fuel the worsening inflation and would eventually lead to hyperinflation. If this happens, the entire U.S. economy will collapse like a house of sticks.

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