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Central Banking, Inflation and Hyper-Inflation

Central banking, as an institution, has been around for hundreds of years. Its primary objective is to manage and regulate the country's money supply, interest rates, and credit policies. While central banks around the world have different functions and responsibilities, they all play a role in shaping the economy of the country they "serve".

While central banking has numerous benefits, one downside is the potential for inflationary pressures. Inflation occurs when there is an increase in the general price level of goods and services in an economy. Central banks can contribute to inflation through their monetary policy decisions.

One way that central banks create inflation is by lowering interest rates. When central banks reduce interest rates, they make it easier for people to borrow money, and borrowing becomes cheaper. When individuals and companies can borrow money at lower rates, they will have more money to spend. This extra spending leads to increased demand for goods and services, which can then drive up the economy's general price level. Put simply, this is the law of supply and demand.

Central banks can also create inflation by increasing the money supply--this is the most prominent way that inflation occurs . When central banks print more money, the value of each individual banknote decreases as they become more abundant. This increase in the money supply can lead to higher prices as people have more money to spend, and the value of the currency is diminished. When a $1.25 for a dozen eggs creeps up and becomes $2.00 for the same 12 eggs, your purchasing strength has diminished as a result of inflation.

You can think about it like baseball cards, as an example: If you have the only Babe Ruth rookie card in existance, its value would be considered "priceless." If there's one more somewhere out there in someone else's ownership, you can still command a high price for yours, but not as much as if you held the only one. Now, if there's twenty Babe Ruth rookie cards in circulation, you still have a rare asset, but the price that you can command for your card is now substantially diminished. Carried further, if there are 200 Babe Ruth rookie cards in circulation, the value of yours is even less, And so on.

While central banks have tools they can use to combat inflation, like tightening monetary policy, it is not always effective. Sometimes, central banks can even make inflation worse by raising interest rates too high or cutting off the money supply too early. This can result in a decrease in economic growth and even a recession.

Hyperinflation refers to an economic condition where the value of a country's currency erodes rapidly over a short period of time, leading to an increase in prices of goods and services. Simply put, hyperinflation is rapid and out of control inflation. This confuses people because the terms hyperinflation and inflation are often used interchangeably, however, they are very different economic maladies.

Hyperinflation is often caused by a rapid increase in the money supply by central banking which results in too much cash chasing too few goods. Prices then start to increase, leading to wage and price controls, shortages of goods, and breakdown in the economy.

Hyperinflation can be devastating to a country's economy, government, and citizens. Prices rise so rapidly that people can't keep up, wages and pensions become worthless, and savings accounts are wiped out. In some cases, hyperinflation can lead to social unrest or even regime changes.

One infamous example is the hyperinflation in Germany in the early 1920s, where prices skyrocketed to such unrealistic levels that people had to carry wheelbarrows of cash to buy basic goods. The European country of Zimbabwe also went through hyperinflation in the 2000s, where prices skyrocketed to such unrealistic levels that the government was forced to abandon its own currency and switch to the US dollar.

Central banking can also contribute to inflation if the monetary policy is not carefully managed. Hyperinflation is a horrible condition that must be prevented or stopped as soon as possible. It's nearly always the result of poorly managed monetary policy, and in some cases, political instability. As citizens, we must be aware of the economic policies of our government and hold them accountable to prevent the conditions that lead to hyperinflation.

As consumers and businesses, we should pay attention to the overarching economic climate and keep up with news regarding central bank decisions in our country. Understanding the role of the central bank in creating inflation and the potential negative consequences can help individuals and businesses prepare for and respond to economic changes.

With a prepper's mindset, here are some things we can do to hedge against the possibility of hyperinflation:

  • Invest in assets that tend to retain their value during inflationary times, such as

Real Estate

Durable Goods

Precious metals like gold and silver

Consumable items that can be traded/bartered (canned goods, ammunition,


  • Create a diversified investment portfolio that includes a mix of stocks, bonds and other assets, including international investmenst that can help mitigate against inflation in any one particular country or economy.

  • Develop a skill-set or a trade that you can use to barter your services for goods, bypassing the need for cash.

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