Global Economic Collapse: Part 2 Can It Really Happen?

If you haven't read part 1 I encourage you to do so, it will help you understand where we are now.

The US as a Global Economic Power

How has the US had it so good for so long?

The US prior to world war two had some severe ups and downs economically. Since world war two we have had it pretty good. Yes we have had some hard times and a few recessions, but nothing that could compare with the great depression.

Have we just been lucky? Have our leaders done that much better a job than other countries? Is it just because the American spirit is so strong? Nope, nope, and nope.

The Gold Standard

After world war two the world's economy was pretty much in shambles. Out of all of the countries involved in World War II the United States came out the best. The US had very little damage to infrastructure, the US had been in overdrive producing everything they could to support the war effort, so profits were high. Plus when all of the men came back there were fewer of them so the labor pool was smaller. I know that sounds cruel, but it is true. You cannot give a job to someone who died on the battlefield.

In July 1944 delegates of the United Nations and what would become the IMF (International Monetary Fund) met in New Hampshire to try and restore stability to the global economy. At the time the United States controlled 2/3 of the world's gold. An agreement made the US dollar the anchor of all of the other world currencies. This agreement insured that every country could convert US dollars to gold at a set rate $35.00 per ounce. The US would support other nations and their central banks within set regulations.

The Bretton Woods Conference thrust the Untied States into the lead role of the world economy. What did that do for the US? It guaranteed that the US and its citizens could borrow money at a lower interest rate than really anyone else in the world.  Since the US dollar was guaranteed to be convertible to gold at a rate of $35.00 per ounce the demand for the US dollar increased which strengthened the dollar. This hurt US exports, but benefited everyone else in the country. This agreement is what ushered in the prosperity that was seen during the 1950's.

This system didn't last very long.

The Nixon Shock

President Richard Nixon took the United States off of the gold standard. This action basically nullified the Bretton Woods agreement. However Nixon had another idea in mind. This is when the US went to a fiat/debt backed system. Nixon negotiated Saudi Arabia a deal where anyone who wanted to purchase oil from their country would have to do so in US dollars (petrodollar). Within just a few years all of the OPEC nations agreed to the same terms. This thrust the US dollar into reserve currency status. 

'Reserve Currency' A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate.

Every time any country wanted to buy oil they would have to purchase US dollars to do so. In fact it actually went farther than that. If two countries wanted to to business with each other and they did not have a direct exchange rate, country one would have to buy US dollars to pay for the goods they wished to purchase from country two. After the transaction was completed country two would then have to sell the US dollars back to the US for their own currency. Each time a transaction like this took place the US got a small cut, a transaction fee if you wish.

Why would the OPEC nations agree to this? Well, Nixon promised that the US would protect their oil fields and that we would sell them weapons. Most wars really are about money.

So What Is the Problem Here? 

I know this all sounds great, but there is one massive problem. The US is losing its place as the reserve world currency. Iran, Venezuela, and Russia are all large oil producing nations, they do not use the US dollar as the Petrodollar. They negotiate a direct exchange rate. China is working to circumvent the US as a reserve currency, even our close ally Australia has entered an agreement with China for a direct exchange rate, leaving the US dollar out of the loop. Then we get to our debt, holy cow does the United States have debt.

Could The US Experience a Collapse?

I really wish I could tell you not to worry, this will never happen here, but I can't. The truth of the matter is that something will happen along these lines. What an economic restructuring or collapse will look like in the US is anyone's guess. If someone tells you they know exactly what it will look like they are either lying to you, themselves, selling something or a combination of all of the above.

The current official inflation rate in the US is right around 2.5%. This would have been considered really high throughout most of history with a gold back currency, but on our fiat/debt based system this is about average. Every year the dollars buying power is eroding.

The current US national debt is 18.2 trillion ($18,200,000,000,000). Current personal debt in the US is 16.8 trillion. The US current unfunded liabilities is 95.8 trillion. Our gross debt to GDP ration is 102.67%. All of these numbers are going up and the economy is supposed to be doing so much better. At our current spending and revenue levels we will eventually not be able to service our debt. You can see a running total of all of these at www.usdebtclock.org.

If the US has an economic collapse the whole world will go down with us. Why do I say that? Because the world is so interconnected.  Over 6 trillion of our debt is help by other countries. If foreign countries  only hold 6 trillion, who do we owe the other 12 trillion to? Truth is it is a mixture nearly half of the 18.2 trillion dollar debt is owed to ourselves.

If we owe most of the debt to ourselves why not just cancel it out? Well it is not that easy. First the Social security trust fund really doesn't exist. There is no money that has been set aside with your name on it. In fact there isn't even an account somewhere with all the contributions in it. All of that money has been spent, there is nothing there but an IOU. So you see if we just forgave all of the debt held by US citizens, a lot of those citizens who have paid in the longest would starve to death. The balance is held by corporations and foreign investors. 

How can we be so in debt and still give away so much money? That one is tricky. We actually take part of the money that we borrow and give it to foreign countries. Why on earth would be do that? Well, there are a couple of reasons, one is simple and one is just sad.

(1) We give money to our friends to help them out. I have known people who have done this. They have taken out a loan to be able to help a friend. I can see how this would appear to be an honorable act, but it most cases it is not very smart. If a friend is in serious trouble taking out a loan to help them, could give them some temporary relief. If they are a good friend that will at a minimum show thanks and hopefully pay you back at some point. However if the root of the financial problems of your friend are not addressed it will not be long before they are in the same situation if not worse. The same thing is true of nations. If there was a massive natural disaster I am all for financially helping an ally. If however, the hard times are caused by the authorities using the national coffers to enrich themselves or their friends, or they are used to garner favor with their people I am opposed. Just look at Greece above. Austerity had to be put in place in order to start fixing their problems. Greece is not out of danger even today.

(2) We give money to groups and countries hoping they will become our friends. This one is just sad and most of the time it doesn't work. Maybe you will remember when we were helping the "insurgents" all throughout the Middle East. Most of these groups have turned into the bane of our existence today. The Islamic State was actually once supported by our government. Look at what they have turned into now.

Not only are we giving money away to other countries, we are spending money here like there is no tomorrow. I cannot even begin to tell you all of the stuff we spend money on that should be done by private enterprise. Bottom line is we spend too much money.

If we fail there is no one big enough to bail us out. Not to mention there are a lot of countries that are in as bad if not worse shape when it comes to their budgets.

I know it is difficult to see but trust me its not good.

Of our allies Australia's external debt is 97% of GDP (gross domestic product), England 318% but going down due to austerity measures, France 200% and rising, Germany 159% and rising, Greece 218% and falling due to austerity measures, Ireland 822% and falling due to austerity measures, well anyway you get the picture. Most of the nations of the world are either getting deeper in debt or are having to get their budgets inline with what they actually bring in. Which countries are doing best? It is not good news for the US. China, Brazil, Russia, India, and Saudi Arabia are the best performers.

Gross Domestic Product - the total value of goods produced and services provided in a country during one year.

BRICS

Brazil, Russia, India, China, and South Africa are working hard to unseat the US dollar as the world reserve currency. Not only that they are attempting to set up a bank that would rival the IMF. They feel that the IMF has too much of a western influence.

When Will a Collapse Come?

At some point one of three things will happen that will force an economic event. 1) The interest on national debt will become so great that the US will no longer be able to make the payments or 2) People will loose trust in the United States and will require higher interest rates to buy bonds, 3) The US will have an administration that believes that it can print or even tax its way out of debt.  Any of these is bad news. 

You may remember in 2011 when the US credit rating was downgraded from AAA to AA+ by one of the credit ratings companies. There were people who thought that was the end of the world, does it cost the US a little more than it did to borrow money? Not yet, the other two of the big three reporting companies still have the US at a AAA. If the US were to go through something like Greece has where their rating has been reduced to a B rating or "junk" status, the US would have a hard time.

No one can really give you a date that a collapse will occur. Why not? Well because the collapse has already started. The world will not wake up one day and the global economy be on the rocks. To some it will look like it, but it will have been a slow downward spiral. We are already seeing the US dollar lose its place as the Petrodollar. This will continue to happen and it will erode the dollars buying power because the dollar will no longer be in as big a demand. We will continue to see the buying power of the dollar decrease as a result of inflation. We will continue to see the US government spending money on things they shouldn't and spending money they don't have. It is like putting an alcoholic in charge of a brewery, they cannot help themselves.

 Can This Be Prevented?

At one time I would have said yes without a second thought, now it is a very shaky maybe.  Politicians are doing everything they can to delay a major economic adjustment, that is short of addressing the actual problem. I have heard politician talk about cutting spending, but it has all been smoke and mirrors. Allow me to explain.

In the Untied States budget there is built into almost every category an automatic spending increase. When politicians talk about cutting spending, even when they say they are trying to cut spending all they are doing in decreasing the increase. If a program receives $1000 this year and it is supposed to have an annual increase of 10% next year that budget would be $1100. A politician will tell you they are cutting spending for this program by 10% that does not mean that next year the program will receive $900, what that means it the program will receive $1090. They have cut the increase by 10%. Research it you will find that to be true.

In order to fix the United States economic problem would require true cuts in spending or austerity. Austerity is not popular. Remember the riots in Greece? If you tell people they will not be receiving what they were promised or even worse what they believe they are entitled to, they get angry, very angry.

On tax increases. There are a lot of people who think tax increases are the way to go. You can hear their mantra "Tax the Rich". A tax increase only works for a short period of time. It doesn't take long for the mega rich to figure out a way around paying those taxes, they can afford the attorneys to do so. The ones that wind up getting hurt the most are the upper middle class and middle class. They cannot afford those attorneys and most of them have worked hard the get where they are.

A graduated tax system actually discourages people from trying their best. I remember one year, I received a raise at work and my paycheck actually went down. I went to HR and asked about it. I had gone up a tax bracket. Granted it didn't go down much but the fact is still I was making more money and getting to take home less.

Tax decreases have been talked about as a way to stimulate the economy as well. More economic growth means more people get jobs, which means a larger tax base, which means more money flowing into the government coffers. This can be true. If people have more money to spend they normally will. People spending more money means more people go to work, but if the jobs created are low end jobs the growth may not cover the tax loss. This has become increasingly the case as more and more manufacturing jobs have been moved overseas. Corporations have realized that it is cheaper to have something built in an emerging country and have it shipped to the industrialized nations than it is to build the items at home. There are some exceptions, but they are getting fewer: industrial machinery and a lot of the advanced medical equipment.

We might be able to produce ourselves out of this mess. The United States has become the number one exporter of natural gas in the world. This is one reason we have seen fuel prices decline in the past year. If (if is the biggest two letter word in the world, by the way) the government would take the additional revenues generated by the boon of natural gas sales and apply that to the national debt, we might escape.

The truth is that many politicians know that the system as it is set up is unsustainable and they do not care. All they are doing is putting it off as long as they can. Why would they not care? They are getting the goodies as long as they last. The ones who will benefit from a US restructuring are the banks that have bought and paid for these politicians. Now, I want you to notice I have not mentioned either of the dominant political parties. They are both owned by these same individuals and corporations.

Heck there are even some "experts" who claim that paying off the debt would be a bad thing.

The restructuring could be a reevaluation of the currency, issuance of a completely new currency, or an all out default.

What Can the Individual Do to Prepare?

 

Get out of Debt

I know this one is really tough for those of us who are working our tails off trying to make a better life for ourselves and our families. There are even those that say "If there is going to be hyperinflation, wouldn't it be better to be in debt that way you could pay it off in dollars that are worth less". This statement is true to some extent, but it only works if what the world winds up facing is hyperinflation and they are able to service the debt until a collapse comes. If the world faces deflation these people are in serious trouble.

My Paw Paw (my maternal grandfather) lived through the Great Depression. He said "During the Depression every store had things for sale, but no one had any money. The next Great Depression everyone will have money but there will be nothing to buy."

Learn Hard Skills

A hard skill is something that has value in and of itself, it must be teachable, and it must be able to be measured. Trades are hard skills. Carpentry, plumbing, farming, medical professions, computer programmers, things of that nature. Yup, I said computer programmers. Even after a major economic restructuring, the internet will be here. There are situations that could knock us back to the dark ages, but we are simply talking economics. Sales people would be hard pressed in a true economic collapse.
 

Start Your Own Business

A micro or cottage business  give an individual or family some stability in an unstable time. Not having to rely on a major corporation that has its fingers in all of the political mess is a very good thing. Something like selling firewood, making soap, teaching canning, anything that you have a large knowledge base in that is marketable. 

 For a good primer and an idea generator check out my first book. Micro and Cottage Businesses What You Need to Know and How to Get Started.

 Build Community

Having folks around you who are like minded can really help in a hard time. The old saying "Many hands make light work" is true. I know it means more mouths to feed, but it actually works to the favor of the community. If/when a economic restructuring or collapse occurs it will not be without pain and it will not be without violence, at least in some areas. No one can stay awake all the time for very long.

Hard Assets

The first thing that comes to mind for many when talking about economic collapse is gold and silver. It is true that historically gold and silver have never been worthless to what many would call civilization and that gold has kept its value in the face of inflation. But I am still torn on this one. If no one has anything you cannot eat precious metals, but as long as trade continues precious metals will be of value. I actually like silver more than gold. Why? Well for one it is more affordable to the average person, it is more likely to be in denominations that would be used. When gold was at $1600 per troy ounce a grain was worth $3.33. A grain is quite small. I wouldn't want to try to divide any smaller. Even if gold were to take over silver would still be needed for change.

Not just gold and silver though. Assets can be lumber, nails, seeds, really anything that people need.

Learn to Barter and Haggle

During harsh economic times people are going to try to get as much for what they have for sale as possible. At the same time people are also going to try to spend as little as possible for what they want. Enter haggling. Haggling is the art of price negotiations. If you don't know much about it you can read my post The Art of Haggling: An Introduction. I believe it will help you out even if something like this does not occur.

Barter is the art of trading something you have for something you need. It has been practiced for as long as there have been people. Here is a really old post called Barter is Back. It is not up to my current visual standards, but the information is still valid.

Conclusion

I believe a major economic shift will occur in the next 6 to 10 years. Why do I give it so long? There are several reasons. 

1. The politicians are going to prolong it as long as possible. We may even see some form of austerity and true cuts to spending, but I believe that like Greece it will be too little too late.
2. The United States will continue to leverage its natural gas production to keep other countries interested in our survival.
3. Until the BRICS nations have divested themselves of our debt to them or set themselves up in a way so they can take the financial hit they will continue to help the US.
4. Currently confidence in the US is still fairly strong. This will erode, but it will be a gradual decent.

I do not know if the economic shift will be a full on collapse, a revaluation of the currency, or an issuance of an entirely new currency, but I can tell you it will be painful and the ones who will benefit from this shift are the mega rich and those who are prepared.

I know this has been very long, but I hope you can tell I have put a lot of research into this topic and I have tried to be brutally honest.

One way or another we are

Bringing Rural Back

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Global Economic Collapse: Part 1 Can it Really Happen?

Of all of the doomsday scenarios that have been floating around I think the most feasible is a global economic collapse. Economic collapse is not a new idea, in fact there have been several collapses through out our history. We are going to cover a few of these crises and their causes as well as similarities to what we are seeing today. Some will think this post common knowledge, others may see this as a revelation, and yes I know there are some who will think all of this is nonsense, that is okay.

What is Money?

Money is really nothing more than a social contract, a means of exchange, and a store of value. Modern money gets its value from two sources: 1 we believe it has value. I am confident that if I wish to purchase something I can take the little pieces of linen with a number and some pictures and writing on it and get what I want. If everyone woke up tomorrow and decided that these little pieces of linen paper were in fact just that the financial system of the entire world would collapse instantly. Thankfully that is not going to occur because we are creatures of habit and we still believe. 2 our government says those pieces of linen hold value.

When a government wants to legitimize a currency all they have to do is make it acceptable to use it to pay taxes, but many governments go a step farther and enforce that it must be accepted for private debts as well. This forces you as the individual living in this country to accept the paper as having value. This does not mean that you have to accept that currency exclusively. If I want to I can build you a bookshelf and if we agree ahead of time you could pay me in tomatoes or really anything else that we agree upon as long as that item is not illegal. This is called a fiat currency. Fiat money has value just because the government says so, it is only based on the strength of the country that issues it. In a true fiat based system the government decides how much of the money is printed and released each year. This means that the government is in total control of inflation and deflation. This can be a very bad thing.

Germany broke the link between the mark and gold and funded their war effort almost exclusively by borrowing. After World War I Germany was required to pay retribution to several countries, these payments were to be paid in hard currencies.  With no link to gold existing these countries would not accept the mark as payment. What did Germany do? The turned up the printing presses and started printing marks like there was no tomorrow. They were taking these newly printed marks and were purchasing gold and gold backed currencies like the US dollar (no longer backed by anything), to pay the countries retribution. This caused hyperinflation. 

"Germany Hyperinflation" by Delphi234 - Own work. Licensed under CC0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:Germany_Hyperinflation.svg#/media/File:Germany_Hyperinflation.svg

Hyperinflation is when prices are increasing at an alarming rate. As you can see from the graphic above the value of the paper mark was nothing. Those that still had jobs were having to be paid daily and run out to purchase what they could in order to survive. The next day they would go into work to find out that their wage had been doubled, that sounds great but when a loaf of bread costs 200,000,000 marks, well you get the picture.

We Are Not a True Fiat Based System

Like I said above in a true fiat based system the monetary supply is determined by the government, the value of that currency is determined by the government, the only thing outside of the government that has any bearing on that currencies value is the perception of the governments stability by the public and other world economies.

We are not a true fiat based system, we are a debt backed system. Allow me to explain monetary creation briefly. The US monetary system is what is called a fractional reserve system. What most people think is that if I suddenly find a million dollars buried in the woods. I am extremely happy and I run to put this money in the bank. The first thing that will happen is I will get a visit from either the IRS or the department of treasury to make sure how I got this money. After I have proven that I am just lucky and not some criminal mastermind that has lost track of his senses, they will allow this money to go into the system. Now you would think that if we were on a 10% fractional reserve that when I deposit this million dollars that would give the bank the ability to lend out 10% or $100,000 thus keeping $900,000 in reserves. That is simply not the case. If I were to deposit a million dollar the bank would be able to loan 10 million. The million I deposited becomes the reserve. This is also monetary creation. With one sign of a pen and a journal entry the monetary supply has increased by 10 million dollars. This money did not exist until the deposit was recorded and even then only exists electronically. Every time a loan is made the monetary system expands, this is why inflation is higher during times that seem good, people are borrowing and spending money so prices go up.

Commodity Based Currency

Believe it or not prior to 1971 the US dollar was partially based on the nations gold reserves. At one time if you had a dollar, you could go to any bank and exchange that paper dollar for a dollars worth of gold. 

A commodity based currency can be based on anything that has real tangible value. There have been currencies based on tobacco, gold, silver, and even wool. These products have real value no matter what. But there can be problems with commodity based systems as well. Here is a goofy explanation.

Lets say there is a country called Rural Econostan and its currency the farthing is based on brussel sprouts. One Rural Econostanian farthing is equal to one pound of brussel sprouts and it is a fixed ratio. This year there is a record harvest, this causes the number of farthing to go up. Everything except brussel sprouts will go up in price because people will have more money and be trying to buy the same things. Demand will be high and supply will be constant, this causes inflation.

Okay so next year there is some weird fungus that cuts the average harvest of brussel sprouts by half. That would mean that there would be half as many farthing so prices on everything except for the sprouts would go down because people wouldn't have farthings to spend and companies would continue to produce at their normal rate. This causes deflation.  This is very watered down, but you get the idea.

A gold based system is more stable than one that is agriculture based, but it can still have its ups and downs. The Spanish Price Revolution of the 16th century is a good example. The Spanish conquistadors were importing gold and silver at an unprecedented rate. This caused pretty much everyone in Spain to have more money. These people with all of this new revenue tried to buy more and higher quality things, the problem was everyone had more money so prices went up. Even though the inflation rates they saw would be a blessing today, they placed a major hardship on the average citizen. Oh the difficult inflation rates were 1 - 1 1/2 % per year. So you can see a commodity based system does have some benefits but there are also some challenges.

Challenges of a Commodity Based System

So we are back in good old Rural Econostan. The currency is based on gold, not sprouts. There is a robust internal economy and the country is rich in resources. As long as gold prices are stable there shouldn't be any problems, but in recent years gold prices have soared. In Rural Econostan all of the imported items have gotten cheaper, a lot cheaper. Everything Rural Econostan exports has gotten a lot more expensive. People in other countries have stopped buying things from Rural Econostan. This has created a massive trade deficit. Manufacturing companies are leaving Rural Econostan so their prices will be more competitive world wide and unemployment has risen. There is no sign of gold prices moderating anytime soon. The only thing Rural Econostan can do is hope the prices stabilize, they are not large enough to have a major impact on global gold prices. Tough times are on the horizon. 

What Could Cause an Economic Collapse?

Okay so now we are to the point where we are talking about the things that could cause major trouble. What are the things that trigger national or global hardships. Why does one countries problems affect more than just themselves? Are there signs to look for as warning of economic collapse?

 Stock Market Crash

I honestly don't know anyone who personally remembers October 29, 1929 or as it is commonly referred to as Black Tuesday. If you were to ask a room of 10 economic geeks what caused The Great Depression all of them would agree on a few things, after that depending on how passionate about it they are there could be a fist fight. We are going to focus on the things that most would agree on.

Mass exodus to cities.

The time immediately following World War I was a time of prosperity and optimism for most. People were leaving rural communities in the hopes of a better future in the cities. This placed a strain on the infrastructure of many of the larger cities and also reduced the number of agricultural workers available.

Speculation

Speculation is simply betting on the continued increase in price or value of something. The stock market does not sell cucumbers or anything tangible for that matter. They sell little pieces of companies. If you owned a stock in "Rural Industries", you would be providing them with capital to help with development or expansion. In exchange for your money you would be sold a share in the companies future profits. The accepted price a share should bring involves a very complicated equation that one of my economics professors called  "The Equation from Hell". There are times that a share sells for more than it is worth, this is speculation that the company will do better than projections or that the company has enough goodwill capital to fetch an even higher price later. At some point speculation always causes grief. There may be people that make a great deal of money along the way, but someone will get hurt. Now imagine if all of the stocks were overvalued simply because everything was going so great. That is a big portion of what caused the Stock market crash.

Loss of Confidence

As people began to realize that the stock market might be in trouble, people began selling their stocks as a way to protect their value. The more people that sold stock the lower the price went. This scared even more people and like water goes down a drain in a spiral so did the stock market. The erosion of value continued for 3 years. Every industrial sector saw a decrease in demand so they all had to layoff people. Unemployment reached 25% in the United States.

Protective Tariffs

As the global economy was falling countries thought they would protect their citizens by stopping goods from coming from other countries and by extension increasing the likelihood that their citizens would buy things purchased in their own country. This didn't help it actually caused the flow of money to all but stop.

Natural Disaster 

A natural disaster shouldn't cause a global economic collapse, but it certainly could cause a regional one. Haiti after the earthquake in 2010 could have been a scene from an apocalyptic movie. Over 11% of the nations population was killed in a single event. Billions of dollar in damage to infrastructure and property. Production in the entire nation came to a halt.

Debt

We have already talked about Germany after World War I, so we won't discuss that one again here. There are plenty of other examples of national debt causing major problems. When a nation runs into debt there is normally not a major problem, the country is able to service the debt aka make the payments. Maybe the nation will run budget surpluses and be able to cut down or possibly even eliminate the national debt. The US has been debt free one time in its history and that was all thanks to President Andrew Jackson. It didn't last long, but it does prove that it can be done.

When an entity loans money, they really do not care if the borrower will ever be able to pay off the debt. All they care about is that you are able to service the debt. Servicing the debt simply means make the payments. In fact most lenders really do not want you to ever pay them off. They want you to make payments for a while then go back and refinance the debt and hopefully take a little money home with you after the deal is done. By allowing and even encouraging refinancing many companies are making sure that you are in debt to them for longer than you had originally intended. By doing so they are basically making you an indentured servant by your own choosing. Not only that, we have been convinced that this is normal.

The United States and most other industrialized nations have decided they do not like this whole budget thing. Living within our means is so passe. Most countries so far have done pretty well even with massive debt, but can it go on forever? Some think it can, but history has another story to tell.

Argentina 1998 - 2002 

Argentina was in trouble in 1983 when its national debt reached  45 billion. The interest on the debt alone was greater than all of the trade profits for the entire country. What did the government do? They scrapped the old currency and introduced a new one with a whole new set of loans. This helped for a while until commodity prices dropped dramatically. When the commodity prices fell Argentina again lost its ability to service the debt. During all of this mess the inflation rate averaged 220% per year. Yup, you read that right something that costs $10.00 today would cost $32.00 in one year. This average lasted for 13 years. Something that started out costing $10.00 in 13 years would cost  $36,893,488.15. 

As if that wasn't bad enough in July of 1989 inflation reached 200% for the month. In one month the item that cost $10.00 would be $30.00. The highest annual inflation Argentina saw during this period was 5000%  that same item would cost $510.00 in a year. Needless to say riots broke out and the president resigned.

How did they stabilize their economy? First the scrapped the new money and reestablished the old money. Second they set a fixed exchange rate with the US dollar, this gave their money value because it could be exchanged for US dollars. The International Monetary Fund also provided loans, extensions of loans, and even reduced interest rates to Argentina. Slowly ever so slowly their economy improved. Not without a lot of bumps in the road I might add. These problems really started as early as 1973 and the effects are still felt in Argentina today.

The Economic Collapse of the USSR

This one I will add to what many of the textbooks say. The Soviet Union had a strictly "planned economy". Everything didn't go as planned. The Soviet Union went through a period of what is called stagflation.

Stagflation is a period of time where the economy doesn't grow or contract. It kinda just limps along at the same level. But during the same time there is a high level of inflation and unemployment. Stagflation is equally as bad as high inflation and deflation, but does not compare to hyperinflation.

If stagflation had been the only thing the Soviet Union would have had to deal with, they could have probably made it through, but it wasn't. The United States president Ronald Reagen decided that the past nuclear defense strategy wasn't really a strategy at all. It was called MAD Mutually Assured Destruction. Doesn't just the name make you feel safer. The rational was that if either country launched an attack they wanted to make sure that everyone on both sides died.

Reagan decided that defense needed to actually be defense. He pushed for what eventually was called the Star Wars Defense Initiative. This focus was on detection of nuclear launches and destruction of nuclear missiles before they reached American soil. There is still some debate as to whether this would even work at all, but that really isn't the point right now. The Soviet Union in an effort to keep us with US military spending, spent themselves into oblivion. When the Soviet Union fell apart it wasn't because of some massive civil war, it was because the centralized government couldn't afford to take care of or even attempt to control these breakaway republics. They really did just fall apart.

Greece 2009

Everyone who halfway pays attention should remember at least part of this one. Investors started getting nervous about the Greek ability to service their national debt. The reasons for this fear are deficit spending (spending more money than they make) and debt to GDP(gross domestic product or everything the nation produces in a year) ratio. These two factors spurred a fear sovereign default. Sovereign default is when a sovereign nation refuses to pay its debt obligations in full or fully servicing the debt.

The IMF and the Eurozone took action and provided a two bailouts to the Greek government totaling more than 240 billion euro. Part of the requirements to receive the bailout was the implementation of austerity measures (tax increases, spending cuts, or both), structural reforms, and the privatization of governmental assets. Things didn't happen as planned. The government that agreed to these terms was unseated in the last election and negotiations are ongoing as to how to handle the continued crisis.

There are more examples, but you get the picture.

This has turned into a multi post series just due to length. Please see Part 2. It will be live 5/16/2015

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