1. 3 Thoughts and Questions Day 15
Dr. Andrew L. H. Parkes
“Practical Understanding for use in Business”
卜安吉

2. Thoughts and Questions, Day 15
#1. Hyperinflation
The definition: over 50% inflation PER MONTH
An example of a country exhibiting hyperinflation and the approximate rate.
Where does it come from?
Using money to pay for Government Spending
(Called “Monetizing the Debt”)
May 18, 2010
Thoughts and Questions, Day 15

3. Thoughts and Questions, Day 15
Hyperinflation
Yugoslavia – last decade’s example
Zimbabwe – the current example (NY Times)
May 18, 2010
Thoughts and Questions, Day 15

4. Thoughts and Questions, Day 15
Hyperinflation
How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417.
No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 — in American currency, about 69 cents.
The price of toilet paper, like everything else here, soars almost daily, spawning jokes about an impending better use for Zimbabwe's $500 bill, now the smallest in circulation.
May 18, 2010
Thoughts and Questions, Day 15

5. Thoughts and Questions, Day 15
Hyperinflation
From Greg Mankiw’s Blog:
“The trigger of this crisis — hyperinflation — reached an annual rate of 1,281 percent this month, and has been near or over 1,000 percent since last April. Hyperinflation has bankrupted the government, left 8 in 10 citizens destitute and decimated the country’s factories and farms.”
May 18, 2010
Thoughts and Questions, Day 15

6. Thoughts and Questions, Day 15
#2. What are Fed Funds?
Federal Funds are “excess reserves” at the Federal Reserve Banks. NOT the Fed’s money but a bank’s money (Citigroup, HSBC, for example) on deposit at the Fed.
Each bank is required to hold reserves of 10% of demand deposits at the Fed.
Sometimes the banks have extra (excess)
They loan out these excess reserves
May 18, 2010
Thoughts and Questions, Day 15

7. Thoughts and Questions, Day 15
#2. What are Fed Funds?
Usually loaned out overnight – these excess reserves often stay at the Fed.
Page 262 in our text So
Fed Funds are excess reserves loaned out by banks to other banks, overnight
The Fed does not control the FF rate, they set a “Target” and use OMO to “hit” this.
May 18, 2010
Thoughts and Questions, Day 15

8. Thoughts and Questions, Day 15
#3. AIG
AIG’s Troubles and why it matters
A graphic
May 18, 2010
Thoughts and Questions, Day 15

9. Thoughts and Questions, Day 15
May 18, 2010
Thoughts and Questions, Day 15