Macroeconomics For Dummies®, uk edition Published by: John Wiley & Sons, Ltd

Tackling hyperinflation: Stop printing money!

Sometimes people talk about inflation as if it’s a force of nature, something that was bound to happen and outside anyone’s control. The truth, however, is that whether (and indeed how much) a country experiences inflation is very much in the control of policy makers.

For example, since 2003, the UK has targeted an inflation rate of 2 per cent: politicians have told the central bank that this is the rate of inflation that they want to see in the UK. They could just as well have chosen no inflation or 10 per cent inflation or even 2 per cent deflation (a fall in prices). Although achieving the target exactly all the time is impossible, hitting it on average is quite possible.

Very high levels of inflation are a direct consequence of policy makers creating far too much money. So the simple solution to ending hyperinflation is to tell them to stop printing so much! But things aren’t

that simple. In order to allow the authorities to stop printing so much money, policy makers have to address the underlying cause of their fiscal problems first (that is, the fact that the government isn’t raising enough taxes to cover its spending).


For this reason, economists advising countries experiencing hyperinflation almost always prescribe tax increases and cuts in government spending. The medicine hurts, but it’s the only way the government can end its addiction to the printing press.


Finding Out about Financial Crises

Financial crises are never fun: they often involve massive falls in asset prices, an increase in unemployment, a fall in living standards, loan defaults, bank runs and bailouts. If policy makers could find some way of stopping them from happening, that would be great. Unfortunately, a financial crisis happens somewhere in the world quite regularly. Here are just a few recent ones: 2014 Russian crisis, 2010 European sovereign debt crisis, 2001 dot-com bubble, 1998 Russian crisis (yes, again), 1997 Asian crisis and so on. Not forgetting of course the 2007–08 global financial crisis, which we cover fully in Chapters 14, 15 and 16.