by Bobby Akart
Greece 1942-1953
Total hyperinflation 50,000,000,000,000 to 1
Brazil 1967-1994
Total hyperinflation of 2,750,000,000,000,000,000 to 1.
Mexico 1982-1993
Total hyperinflation of 10,000%
Bolivia 1984-1987
New currency replaced the old currency at a rate of 1 Million to one.
Iraq 1987-1995
Total hyperinflation of 10,000 to 1.
Nicaragua 1988-1991
Total hyperinflation of 50,000,000,000 to 1.
Argentina 1975-1993
By the end the hyperinflation currency exchanged at 100 Billion to one.
Peru 1986-1991
Total hyperinflation of 1,000,000,000 to 1.
Yugoslavia 1989-1994
By the end the hyperinflation currency exchanged at 1027 to one.
Poland 1989-1994
By the end the hyperinflation currency exchanged at 10,000 to one.
Zaire 1989-1996
By the end the hyperinflation currency exchanged at 300,000,000,000 to one.
Angola 1991-1999
By the end the hyperinflation currency exchanged at 1 Billion to one.
Bosnia and Herzegovina 1992-1993
Hyperinflation at the rate of 100,000 to 1.
Belarus 1994-2002
By the end the hyperinflation currency exchanged at 1 Million to one.
Chapter Twelve
Depression
An economic depression is a severe and sustained downturn in economic activity in multiple economies. In economic theory, a depression is commonly defined as an extreme recession that lasts two or more years—longer than a normal business cycle. A depression is characterized by economic factors such as substantial increases in unemployment, a drop in available credit, diminished manufacturing and production, business bankruptcies, sovereign debt defaults, reduced trade and commerce, and sustained volatility in currency values. In times of depression, consumer confidence and investments decrease, causing the economy to shut down.
Economists agree that for a severe recession to give rise to the level of an economic depression, the downturn cannot be a normal part of the business cycle, lasting for months. A depression is an extreme fall in economic activity lasting for a number of years. However, economists disagree on the duration of depressions; some economists believe a depression encompasses only the period plagued by declining economic activity. Other economists, however, argue that the depression continues up until the point that most economic activity has returned to normal levels.
Some of the common elements of a depression that don't occur during a recessionary period include price devaluation, financial market closures, and bank failures. Periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology. Another accepted criteria of an economic depression include a decline in real GDP exceeding ten percent, and a recession lasting two or more years.
Notable Economic Depressions
There have been several significant depressions throughout history—The Great Depression being the most studied. We will discuss it in depth in a later chapter.
The Panic of 1837 was a financial crisis in the United States that touched off a major recession that lasted until the mid-1840s. Profits, prices, and wages went down while unemployment went up. Pessimism abounded during the time. The panic had both domestic and foreign origins. Speculative lending practices in western states, a sharp decline in cotton prices, a collapsing land bubble, and restrictive lending policies in Great Britain were all to blame.
On May 10, 1837, banks in New York City suspended payments to depositors in coinage, meaning that they would no longer redeem commercial paper at full face value in coins rather than notes. The decision was a reaction to the growing concerns about excessive speculations of land after the Indian removal, which was mostly done with soft currency. The sale of public lands increased five times between 1834 and 1836. Speculators paid for these purchases with depreciating paper money. While government law already demanded that land purchases be completed with coin or paper notes from authorized banks, a large portion of buyers used paper money from state banks not backed by hard money. Despite a brief recovery in 1838, the recession persisted for approximately seven years. Banks collapsed, businesses failed, prices declined, and thousands of workers lost their jobs. Unemployment may have been as high as twenty-five percent in some parts of the country. The period from 1837 to 1844 were, generally speaking, years of deflation in wages and prices.
The Long Depression was a worldwide price recession, beginning in 1873 and running through the spring of 1879. It was the most severe in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. The episode was labeled the Great Depression at the time, and it held that designation until the more commonly designated Great Depression of the 1930s. Though a period of general deflation and contraction, The Long Depression did not have the severe economic retrogression of the Great Depression.
It was most notable in Western Europe and North America, at least in part because reliable data from the period are most readily available in those parts of the world. The United Kingdom is often considered to have been the hardest hit—during this period it lost some of its large industrial lead over the economies of Continental Europe. While it was occurring, the economy of the United Kingdom had been in continuous depression from 1873 to as late as 1896.
In the United States, the Long Depression was kicked off by the Panic of 1873, and followed by the Panic of 1893. The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At five-and-a-half years, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's forty-three months of contraction.
In the US, from 1873–1879, eighteen thousand businesses went bankrupt, including eighty-nine railroads. Ten states and hundreds of banks failed. Unemployment peaked in 1878, long after the panic ended. Different sources peg the peak unemployment rate anywhere from nine to fourteen percent.
The Greek Depression or the Eurozone sovereign-debt crisis began in 2009. Greece sank into a recession that, after two years, became a depression. The country saw an almost twenty percent drop in economic output, and unemployment soared to near twenty-five percent. Greece's high amounts of sovereign debt precipitated the crisis, and the poor performance of its economy since the introduction of severe austerity measures has slowed the entire Eurozone's recovery. Greece's continuing troubles have led to discussions about its departure from the Eurozone.
The European sovereign debt crisis occurred during a period in which several European countries faced the collapse of financial institutions, high government debt and rapidly rising bond yield spreads in government securities. The crisis began in 2008 with the collapse of Iceland's banking system and spread to Greece, Ireland, and Portugal during 2009. The debt crisis led to a crisis of confidence for European businesses and economies.
The European sovereign debt crisis was brought to heel by the financial guarantees of European countries who feared the collapse of the euro and financial contagion, and by the International Monetary Fund (IMF). Bond rating agencies downgraded the debt of several Eurozone countries, with Greek debt at one point being moved to junk status. As part of the loan agreements, countries receiving bailout funds were required to meet austerity measures designed to slow down the growth of public sector debt. The demand for austerity resulted in the near societal collapse of Greece.
The European sovereign debt crisis deepened by the end of 2009 when the peripheral Eurozone member states of Greece, Spain, Ireland, Portugal, and Cyprus were unable to repay or refinance their government debt or bail out their beleaguered banks. Without the assistance of third-party financial instituti
ons such as the European Central Bank (ECB), the IMF and the newly-created European Financial Stability Facility, the Eurozone might have collapsed.
Some of the contributing causes of the sovereign debt crisis included the financial crisis of 2007-2008, the Great Recession of 2008-2012, as well as the real estate market crisis and property bubbles in several countries, and the aforementioned states' fiscal policies regarding government expenses and revenues. These factors collided in 2009 when Greece revealed its previous government had grossly underreported its budget deficit, signifying a violation of EU policy and spurring fears of a euro collapse via political and financial contagion.
A 2012 report for the United States Congress summarized the situation as follows: "The Eurozone debt crisis began in late 2009 when a new Greek government revealed that previous governments had been misreporting government budget data. Higher than expected investor levels eroded investor confidence, causing bond spreads to rise to unsustainable levels. Fears quickly spread that the fiscal positions and debt levels of a number of Eurozone countries were unsustainable."
In 2010, with increasing fear of excessive sovereign debt, lenders demanded higher interest rates from Eurozone states with high debt and deficit levels, making it harder for these countries to finance their budget deficits when faced with overall weak economic growth. Some affected countries raised taxes and slashed expenditures to combat the crisis, which contributed to social unrest within their borders, and a crisis of confidence among their leadership, particularly in Greece. During this crisis, several of these countries including Greece, Portugal and Ireland had their sovereign debt downgraded to junk status by international credit rating agencies, worsening investor fears.
In early 2010 these challenging developments reflected in rising spreads on sovereign bond yields between the affected peripheral member states of Greece, Ireland, Portugal, Spain, and most notably Germany. The Greek yield diverged in early 2010 with Greece needing Eurozone assistance by May 2010. Greece received two bailouts from the EU over the following five years during which the country adopted EU-mandated austerity measures to cut costs while experiencing a further economic recession as well as social unrest. In June 2015, Greece, with divided political and fiscal leadership and a continued downturn, was facing a sovereign default. However, on July 5, 2015, the Greek people voted against further EU austerity measures, with a possibility of Greece leaving the European Monetary Union entirely. The withdrawal of a nation from the EU would be unprecedented, and the speculated effects on Greece's economy if the currency was returned to the drachma range from total economic collapse to a surprise recovery.
Ireland followed Greece in requiring a bailout in November 2010, with Portugal next in May 2011. Italy and Spain were also vulnerable, with Spain requiring official assistance in June 2012 along with Cyprus. By 2014, Ireland, Portugal and Spain, due to various fiscal reforms, domestic austerity measures and other unique economic factors, all successfully exited their bailout programs requiring no further assistance. Cyprus, too, reported a slow but steady ongoing recovery, averting further financial crisis thus far. The road to full economic recovery is still underway.
PART THREE
CASE STUDIES IN ECONOMIC COLLAPSE
Chapter Thirteen
The Roman Empire
The Romans built an empire of legendary stature. At the height of its expansion, it covered the entire European continent as well as parts of the Middle East and Africa. The empire stretched from England to Egypt, from Spain to Iraq, and from southern Russia to Morocco. Incredibly, ancient Roman civilization prospered for nearly one thousand years. During its peak, the Roman Empire's population was one hundred thirty million over an empire comprising one and a half million square miles. The influence of the Romans over all of those subjects defies measure.
After adopting Christianity, the Romans systematically spread it to every corner of their empire. As they conquered more territory, they also brought their brand of law and order. Concepts of Roman justice such as being innocent until proven guilty have been carried forward into modern civilization.
Latin, the native language of the Romans, became the basis for several modern European languages, including Italian, French, and Spanish. Today, our alphabet, calendar, literature, and architecture have their roots in the Roman Empire.
Trade was vital to Rome. Their primary commodities included grain, beef, olive oil, glassware, wines, spices, and silk. The Roman Empire was also rich in iron, silver, lead, marble, timber, and tin. The ability to form trading alliances was critical to Rome's success as it generated vast amounts of wealth for the empire.
The Romans were adept in organization, government administration, and engineering. They had a highly trained and disciplined military, and an efficient administrative bureaucracy. Without these qualities, the Romans would never have been able to manage their sprawling empire. They built fifty thousand miles of roads, as well as many aqueducts, amphitheaters, and other elements of modern critical infrastructure.
The Romans were pioneers in creating a form of government—a republic, that was copied by countries for centuries. In fact, the government of the United States is based partly on Rome's model—a government in which citizens elect representatives to rule on their behalf. A common misconception is that the United States form of government is a democracy. A republic is quite different from a democracy, in which every citizen is expected to play an active role in governing the state.
Aristocrats, known as patricians, were the wealthiest Romans and they dominated the political landscape of the early Roman Republic. The highest positions in the government were held by two consuls who ruled the Roman Empire. A senate, composed entirely of patricians, chose these consuls via an election process. At this time, lower-class citizens, or plebeians, had no say in the republic. Although men and women were legal citizens in the Roman Republic, only men could vote.
Roman customs dictated that patricians and plebeians should be rigorously separated and, therefore, marriage between the two classes was prohibited. Over time, the plebeians were given a greater voice and elected their representatives, called tribunes, who gained the power to veto measures passed by the Senate. Although the plebeians obtained more power, and eventually could hold the position of consul, the patricians were still able to use their wealth to buy control and influence over elected leaders.
From time to time, an emergency situation arose, such as a war, that required the decisive leadership of one individual. Under these circumstances, the Senate and the consuls could appoint a temporary dictator to rule for a limited time until the crisis was resolved. The position of the dictator was very undemocratic in nature. Indeed, a dictator had all the power, made decisions without any approval, and had full control over the military.
The best example of an ideal dictator was a Roman citizen named Cincinnatus. During one severe military emergency, the Roman Senate called Cincinnatus from his farm to serve as a temporary dictator and to lead the Roman army. When Cincinnatus stepped down from the dictatorship and returned to his farm only fifteen days after he successfully defeated Rome's enemies, the republican leaders resumed control over Rome. The republican form of government worked for the Romans.
For centuries, historians have tried to understand the causes of the decline of the Roman Empire, in particular the causes of the third-century crisis. The fact that opinions are so numerous reflects the complexity of the issue and the views themselves often tend to take into account the time in which they were written. For example, Enlightenment intellectuals such as Voltaire and Gibbon were obsessed with political reasons and the effect of the rise of Christianity. Machiavelli spoke of the barbarian invasions as being central, and Paulo Paruta felt that the relations between the Senate and the people were largely to blame. Other factors which have been put forward as crucial include, the decline in military spirit, disease (plague, malaria), depopulation, and immorality.
One of the essential causes of Rome's decline
was structural economic weakness inherent within the empire long before the third century AD. These shortcomings include things like the inherent problems of a slave-economy, decentralization of industry and agriculture, and the unsustainable bureaucracy administering the Roman Empire.
However, this is not to suggest that there were no other important factors at play other than economic ones. Things like the increasing barbarization of the military and the political classes, intellectual and spiritual decline and the growing pressure on Rome's borders could also be cited as important. The decline of Rome should be seen as part of a complex process without a single, concise explanation. It was the result of a complicated process of interwoven weaknesses, defects, and contingencies.
In the famous work The Decline and Fall of the Roman Empire written by English historian Edward Gibbon in 1776, he states that the period in the history of the world when the human race was most happy and prosperous was in the first and second century AD. This period, known as Pax Romana, or Roman Peace, exemplified the Roman Empire in its glorious prime. A vast area of the Roman Empire around the Mediterranean was now linked economically, politically and culturally. There was prosperity, peace and security throughout the region and life was perceived to be running smoothly.
The end of this apparently good period was marked by the onset of civil wars lasting from 180 to 285 AD. Beginning with the death of famed Roman emperor, Marcus Aurelius in 180 AD, twenty-seven emperors or would-be emperors, met violent deaths during this intense period.
Meanwhile, the Persians raided Antioch in the East and in Europe, the barbarians broke through the frontiers. Vast areas of countryside were devastated. The middle-classes were increasingly squeezed out of existence, and many farmers and laborers were transformed into serfs. When Diocletian pulled the empire together again in 285 AD, there was little left of the prosperity of the Pax Romana. What seems clear is the causes of the decline must have been evolving during the Pax Romana period of happiness and prosperity. Many of the most serious weaknesses developing during this time were of an economic nature, and one can trace back the roots of some of these fundamental structural economic weaknesses to the Republic and before.