What is the Hyper inflation in economics and its treatment with regards to IAS?
Answer:
Hyperinflation differs from normal inflation in that it is much faster. If your country has 100% a year inflation, that is hyper. But there is no clear line. When we had 25% inflation in 1975 in Britain we didn't call it hyper. I'd say the difference is that hyper inflation is always unstable as well as large, you do not know what your wages will be worth by the time they are paid into your bank account, and you do not know on Jan1 how to budget so you can still eat and turn on the light on Jan 31.
I figure IAS allows the company to inflation adjust its accounts when operating under hyperinflation, so that they present a non-distorted picture of the business. Otherwise a deal done in the last week of a 6 month accounting period will appear much more valuable than a really similar deal done in the first week, just because the numbers are higher due to inflation.
Hyperinflation is rapid deflation of the currency (money) value, caused by government doing defecit spending. The government does things, and these things consume society's resources. When the government pays the companies or individuals it buys goods or services from, it creates money. In doing so, they have 1. Decreased the amount of goods and services available for purchase by the money-holders; 2. Increased the total amount of money in the market. The result is, the price of goods and services goes up.
The government (or "Fed" in the USA) then creates more money by loaning money that doesn't exist to companies. The government gets to keep the interest payments. This 1. Helps pay down the defecit; 2. Lowers the demand for loans, thereby decreasing the interest rate expected to borrow money
If it sounds like smoke and mirrors, that's because it is. This neo-socialist process was invented by the economist Keynes. It was all debunked by Milton Friedman; though since it allows politicians to expand their power by spending more money than they bring in in taxes and hide it, they prefer to continue this practice anyway.
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