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  • Jim Costa

Dear Jim: Your Inflation Rate Is Incorrect.

Hyperinflation is not defined as 0.5% per month.


Economists usually follow Cagan's description that hyperinflation occurs when the monthly inflation rate exceeds 50% (this is equivalent to a yearly rate of 12974.63%).


Response:

You are absolutely correct.

In fact we are both correct. Let me explain, which I should have done a long time ago.


The book I studied is:


The Hyperinflation Survival Guide, Strategies For American Businesses.

1989


By Gerald Swanson, PhD.

Economist - University of Arizona

College of Business and Public Administration.


In his opening page he says:

The classic definition of hyperinflation, as described in 1953 by economist Phillip Cagan, is a 50 per cent average monthly price rise, translating into an annual inflation rate of 12,875 percent compounded.
While Bolivia met that criterion in 1985, Argentina’s and Brazil’s inflation peaked at 20 to 25 percent monthly, or 800 to 1,400 percent annualized. Still, this was sufficient to wreak havoc on all three economies.
For the purposes of this report , hyperinflation is used to signify rapid, debilitating inflation that leads to a major devaluation of a country's currency, which happened in all three countries.

So he too agrees with you and sets the stage to disagree.


His thesis is that the classic definition is faulty because it (I am paraphrasing here now) defines quick sand only after we are trapped in it. He redefines it so one can spot it before entering and thus save oneself.

2.7 monthly rate (corrected)

Some non-government economists say we are currently between 12% and 32 % Annually.

This equates to, at max, 2.7 monthly rate (corrected).


My apology for the confusion.


Upon examining again today, that number is extremely low. However, if we assume the 32% Annual hold begins to raise at an exponential rate, we could easily hit a psychological death rate rapidly, before we could keep our businesses out of the fray by either temporarily closing or slowing down, or perhaps some contract clause protection.


Add to the mix our country is deliberately out to destroy the Dollar as quickly as possible.

So my question is What should the Get Outta Dodge rate be?

P.S. The author never answers that question.


Thanks for putting me through my paces, I needed that.

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