In a pure fiat system, governments invariably print too much money. That causes prices to rise. The people, feeling pinched, turn to socialist governments who promise to give them free healthcare, tuition, jobs, you name it.
But, in order to pay for all these new social programs, the government has to print even more money. This causes inflation to climb even higher. And the vicious cycle repeats, ad infinitum, until a crisis puts a stop to it.
An example of how this plays out is Venezuela. With its vast oil reserves, the country was once the richest country in South America. But then, in 1999, led by Hugo Chávez, the socialist Bolivarian government took charge.
The Venezuelan currency – the bolívar – is now worthless. A cup of coffee now costs around 1,000,000 bolívars. Venezuela’s inflation rate is likely to top 1,000,000 % in 2018, according to the International Monetary Fund.
