08/01/2005

Hyperinflation!

The Economist has a fascinating little piece (by subscription) on the world's leading currency, which is threatened by hyperinflation.

But don't go on a bank run just yet, you Americans out there (it'll be the ? soon anyway if the $ decline continues)! The Economist is talking about airmiles outstanding world wide. Apparently, unredeemed airmiles amount to over $ 700'000'000'000, and that's more than the $ M0 (a subset of M1)!

It seems that miles are sold by carriers (mainly to credit card operators) for a little under $.02 and to the consumer, they are worth between $.01 and $.1 a mile. So, "printing" this currency is a highly attractive source of cash to cash strapped carriers, which is why the amount of outstanding miles has been growing by 20% p.a. over the last decade. Every monetarist on the planet will tell you that in that kind of environment hyperinflation is inevitable, especially since the $ value of a real airmile has been dropping drastically over the past decade with the arrival of discount carriers.

Apparently I have had a very acute sense of that hyperinflationary threat without even knowing, because I never let my airmiles account balance with Swiss get out of hand. Just like the folks in the 1930s who were running to the bakery to buy a loaf of bread with their bags full of millions "worth" of their cash salary payment ...

2 comments:

Joel said...

Indeed, a clever source of income, especially as the airlines control the market. They may increase the supply of frequent flyer miles but available inventory remains the same (or actually falls) thereby devaluing the miles themselves. A popular piece of scaremongering is to say that the airline industry will collapse if everyone spent their miles at the same time; but as we know, that would be impossible.

If they were Swiss miles I'd spend them as quickly as possible!

Martin said...

If miles were alienable anyone could auction them off over the internet and put a (market) price tag on them.
One of the biggest supermarket chains in Switerland allows people to trade in its collectors' points which in turn can be exchanged for frequent-flyer miles with Swiss. This allows the miles to be traded to some extent. People seeking free miles can bid for Superpunkte as they points are referred to on ricardo.ch and trade them in later for free flights or upgrades with Swiss. But caution: don't bid too high given the increasingly inflationary exchange rates for miles
check my post: http://cavallino.blogs.com/