Large fiscal deficits, and increases in the monetary supply of an economic system, often presage an inflationary spiral. As prices absorb excess monetary supply, inflationary expectations increase, fueling more price increases. Inflation can get out of control as it did in Germany in the 1920s. At its worst in 1923–24, German hyperinflation reached one trillion marks for one U.S. dollar, and prices were doubling every two days. The currency became worthless.
More recently, Argentina endured hyperinflation during its crisis of 1989–92. During hyperinflation, price levels are difficult to measure, but economists say that Argentine price levels increased at an annual rate above 10,000 percent per year. One peso in 1992 equaled 100,000,000,000 pesos from a decade earlier. A deep recession ensued, followed by collapse of the government.
Inflation nearly got out of control in the U.S. during the Carter Administration, climbing from 5.2 percent when he took office in 1979 to more than 14 percent in 1980. Fed Chairman Paul Volcker slammed on the monetary brakes by raising the Federal Funds Rate to 20 percent, and the prime rate of interest that banks charge leapt to 21.5 percent in 1981! But inflation subsided and the U.S. economy returned to growth in the 1980s. The U.S. economy was at a tipping point with inflation, and Fed Chairman Volcker pulled the economy back from it in the nick of time.