It occurs when a currency loses its ability to store value, encouraging long-term savings to pour into circulation where they swamp the much narrower supply of consumer money, and cause the whole lot to lose purchasing power.
There is no specific recipe, but the pattern we risk repeating today would be typical.
Step #1:Savers, already aware of very real inflation in the cost of living, find it applies more and more to their non-discretionary purchases, such as food and energy;
Step #2:They become increasingly irritated that their currency assets earn interest at the very low official rates – typically less than 1% in the West. To beat this, they need to take big risks by lending to minor institutions. These are the smaller banks which are insignificant enough to be allowed to fail, and therefore do not get access to cheap central-bank money. They are the institutions which have to bid market rate to get depositors' money. And of course, they will eventually fail, because they are competing in the loans market against megabanks with unfairly cheap money and a government guarantee to protect them;
Step #3:Savers also begin to understand that the government cannot adjust to higher rates because its own enormous borrowing costs forbid it;
Step #4:Savers then cash in their deposits and
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