text: First, once inflation gets going, it keeps going, even if the expansion of the money supply slows or stops, due to the EXPECTATION of inflation & sensitivity to money holding (i.e., spending it quickly). Inflation is psychological, too. When people believe, rightly or wrongly, that their money will be worth less tomorrow, they have an incentive to spend what they would ordinarily save. This can keep inflation going regardless of the Fed’s monetary policy. And the Fed dealt itself a significant loss of credibility by maintaining for so long that inflation would be transitory. Even if the Fed is able to combat inflation, officials face the popular psychology that inflation will remain high.Second, hyperinflation is more common than widely thought. We all know about the hyperinflationary disasters of Weimar Germany (1921-23), Zimbabwe (2007-), Venezuela (2016-), and maybe Argentina (1975-1990).But add Soviet Russia (1917-24), Greece (1943), Hungary (1945-46), China and Taiwan (1945-49), Korea (1950-53), Vietnam (1966-69), Yugoslavia (1992-94), and many other examples.Third, do you know what most of these cases of hyperinflation had in common? War. A civil war, foreign bombardment, or foreign occupation. The domestic outbreak of war erodes the tax base and subsequently government tax revenue, while the money supply remains the same or increases, giving you inflation and then hyperinflation.Given that the US likely has a worsening domestic conflict and/or a higher intensity conflict with China on the horizon – both of which risk catastrophic disruption to the US economy – history says the US must be cautious about its monetary and fiscal policies. And yet those in control of monetary and fiscal policy are not.The book outlines a handful of lessons on how governments can avoid hyperinflation. I’ll share the pertinent ones below.“Governments must avoid substituting money creation for taxation.” Once tax revenues decline, governments tend to print money to fund their budgets. Historically, this has been a prerequisite for hyperinflation.“Inflationary finance can only be temporary.” Inflation promotes velocity in the money supply when savers spend their money to avoid declines in value. This shrinks the tax base, requiring higher rates of money printing and inflation, which has historically led to hyperinflation.“One-time measures fail.” Governments facing severe inflation and budget shortfalls often resort to selling off government assets, such as bonds or real assets. This solves short-term funding issues but does not provide monetary stabilization.“Public policy often worsens inflation.” Not only do governments have a poor track record of implementing policies to tackle hyperinflation, domestic policies that may be advantageous politically, such as price controls, are often ruinous monetarily.“The inflation rate is likely to accelerate over time.” One reason for this was already covered – inflation is also a psychological factor, so beliefs that inflation will worsen tend to be self-fulfilling prophecies. The second reason is that inflation will persist through tax collection and money printing. The falling real value of money requires higher rates of tax revenue or money printing in the future, which forces the government into more extreme funding measures.This is the fifth book I’ve read on hyperinflation since last summer. After reading about what happened in Weimar, Zimbabwe, Argentina, and numerous other places, a hyperinflationary collapse is not my base case scenario. I do remain very concerned because there are a number of ways I see hyperinflation unfolding. I’ll cover how it could happen in next week’s EEW. – M.S.Blackstone’s predictions for 2022