Author Archives: Brian Schadow

Hyperinflation

As Mansa Musa traveled on his storied Hajj he brought with him the generosity of Islam, and copious amounts of gold. So much so, that some of it need be melted down and given to servants to carry as walking sticks. The King of the Malian empire showed incredible generosity on his holy walk, gifting gold ingots to beggars, making charitable donations to other empires, and even ordering the construction of new mosques in the cities he visited. His lavish generosity earned him the approval of those areas he passed through on his journey to Mecca. Even looking back on this story today we can say without a doubt that Mansa Musa was a generous king.

 

However, gold is a precious metal, many of those areas he visited had previously held gold in high regard as a form of currency due to its scarcity. A sudden, massive influx of a precious currency is certainly going to cause problems for people in those areas, right?  Mansa Musa distributed literal tons of gold throughout his journey to Mecca, causing upheaval in the economies he visited. Hyperinflation ensued with the new abundance of currency. Prices for simple goods ballooned upwards as people had more money(gold) to spend and traders could ask for higher prices. Gold was suddenly significantly less valuable and Mansa Musa, unintentionally, brought decades of economic strife to the areas he visited. But how can we relate this to modern Americans?

 

Americans are unlikely to ever experience hyperinflation the way the empires that Mansa Musa visited did but that doesn’t mean we’re immune from inflation entirely. Each year Americans experience a 2-3% inflation, meaning the average cost of, just about everything, goes up by 2-3%. Those numbers aren’t nearly as frightening as the 1000+% inflation rates experienced in examples of hyperinflation, but they still do make an impact.

 

We have, in post-recession America, what is known as anchored inflation. Anchored inflation means that the Federal Reserve(Fed) has a goal to keep inflation rates around 2-3% per to combat runaway inflation. To manage this, they exercise what are known as rate hikes, meaning they dictate the amount of a bank’s total value they must keep on hand and not invested. When rates increase it means the there is less cash flow due to banks having to hold onto more of it. This means it become more expensive to borrow money regardless of who you are. This in turn trickles down to the consumer in the form of higher interest payments when borrowing. This is an important issue as we reach record low unemployment levels. The more rates rise the less likely businesses will be to seek loans for new ventures (less hiring) dues to increased interest rates. On the other hand, keeping rates low too long could mean increased inflation. It’s a balancing act and a difficult one at that. The thing is, no one entirely agrees on how rate hikes do and don’t affect the American economy. With the introduction of new tariffs and ever-increasing debt only time will tell how well the Fed can, or can’t, keep inflation from getting out of hand

Contemporary Source

Primary Source

Leave a comment

Filed under Uncategorized