Economic question for RPF

[Pauls' Revere]

How would you measure the inflation capacity of a fiat currency? i.e. Take Zimbabwe when their Dollar inflated into the 1000% - tile. At what limit can that currency withstand inflation before collapse? I'm thinking that for every currency out there, there must be a limit of tolerable inflation in which that currency can hold up.

Off the bat I'm thinking of Dollars per GDP? Assets - Liabilities perhaps GDP-Debt outstanding?

there's the Debt to GDP ratio.
https://en.wikipedia.org/wiki/Debt-to-GDP_ratio
But some countries are way over 100% already.

Any ideas?

[dannno]

I'm pretty sure there is no limit, I mean, presumably it could cost 20 billion dollars for an apple.

But I guess by then everybody would switch to bitcoin.

[oyarde]

How would you measure the inflation capacity of a fiat currency? i.e. Take Zimbabwe when their Dollar inflated into the 1000% - tile. At what limit can that currency withstand inflation before collapse? I'm thinking that for every currency out there, there must be a limit of tolerable inflation in which that currency can hold up.

Off the bat I'm thinking of Dollars per GDP? Assets - Liabilities perhaps GDP-Debt outstanding?

there's the Debt to GDP ratio.
https://en.wikipedia.org/wiki/Debt-to-GDP_ratio
But some countries are way over 100% already.

Any ideas?

It is interesting because one would think I can pick a number and it cannot go past this or things will turn dire .I used to think there would be a certain tipping point that could be pegged . I think I was wrong . I was basing that on the premise that at that point the peasants would no longer trust and accept the worthless paper currency. I am no longer certain of it .

[Pauls' Revere]

It is interesting because one would think I can pick a number and it cannot go past this or things will turn dire .I used to think there would be a certain tipping point that could be pegged . I think I was wrong . I was basing that on the premise that at that point the peasants would no longer trust and accept the worthless paper currency. I am no longer certain of it .

I agree, I look around at other countries (for example) and see an economy get trashed do to the inflation rate, as in Argentina. This brought me to my question that perhaps it has to do with the size/scope/influence of the particular currency in question. Certainly the Dollar has greater scope than the Argentine currency since the Dollar is the reserve currency.

There is no currency in the world that I know of that is backed by Gold. Therefore, all currencies are backed by legal status and a certain level of faith in it or trust in it. As far as the dollar goes, this "trust or faith" is nothing more than the promise by the Federal Government that payments to our debts will be honored. Just as we are judged by a credit score so is the government. This promise of repayment is enforced through taxation and the tax code.

Perhaps then, the tipping point is the level of taxation a populous is willing to tolerate? I did find this article interesting and hope you do too.

https://www.economicshelp.org/blog/2...tax-tolerance/

[Brian4Liberty]

The dollar is backed by guns. Gives them a lot of extra leeway to inflate.

[devil21]

The dollar is backed by guns. Gives them a lot of extra leeway to inflate.

The FRN is backed by your ass and your ass' willingness to keep laboring to pay interest on the FRN-denominated debt to the debtholders. The Fed holds your birth certificate (as well as gold) as the collateral.

eta: Falling Treasury/Fed interest rates indicate less of that tax money (interest) is expected to be paid by the laboring class.

[oyarde]

With the current House , we'll find out a lot about tax tolerance if biden were to win and there is not a couple seat GOP majority in the senate

[Pauls' Revere]

The dollar is backed by guns. Gives them a lot of extra leeway to inflate.

Dam, I was thinking this too. Although, the dollar is backed by the MIC and the nation building foreign policy we have. As long as we create demand and use for the fiat dollar then it retains purpose. $#@!, what a sick scheme it is.

[Pauls' Revere]

With the current House , we'll find out a lot about tax tolerance if biden were to win and there is not a couple seat GOP majority in the senate

Now think about the 2.2 trillion they just passed for the Covid assistance. Now you know how much your taxes (plus interest) will be.

[r3volution 3.0]

Demand for a currency is determined by what can be bought with it.

GDP for the issuing country is probably the most important factor by a large margin for most currencies.

For an international currency like the dollar, it gets a whole lot more complicated, since dollars are used to do lots more than buy widgets in Ohio.

A very very crude model might take the ratio of M2 to US GDP + the volume of world trade transacted in dollars.

Then you can try to make adjustment for things like relative real interest rates, political stability, and a bunch of other factors.

P.S. I doubt there's any way to predict "inflation capacity" exactly, but you can see trends.

How many times can I hit myself in the head with a hammer before my skull reaches hammer capacity?

Hard to say, but the more I do it, presumably the closer I get.