Germany also suffered from hyperinflation following World War I. Imagine sitting down to dinner at a restaurant. You request a menu, but your server can’t give you one because the price will likely increase before you finish your meal! In Germany, patrons negotiated the price and paid in wheelbarrows full of cash.
The extreme inflation in Zimbabwe and Germany is called hyperinflation. Hyperinflation results in the devaluation of money so rapidly that people find that the goods they own hold their value better than the currency. Business owners do not know what to charge. Customers do not know what a fair price is. They hoard items so they can barter or trade for goods and services in the future. They also spend their paychecks as soon as they receive them to avoid “losing” their money through sharp price increases. Banks do not lend because they do not want to lend currency today that may be worthless tomorrow.
It is improbable that hyperinflation will occur in the United States. However, it is not inconceivable. Suppose our national debt was so high that investors refused to purchase government bonds. How would the government pay its obligations? Instead of taxing its citizens, the government, out of desperation, chooses to print money - lots of money. Theoretically, this could result in hyperinflation.
A central bank’s job is to prevent hyperinflation. Policymakers usually act long before inflation is out of control by tightening the money supply, which increases interest rates and represses demand-pull inflation.
