Idiom of the Day: Vicious Circle

450px-Vicious_circle_in_macroeconomics.svg“vicious circle” is a situation in which the apparent solution of one problem in a chain of circumstances creates a new problem and increases the difficulty of solving the original problem. Also called vicious cycle.

Example from : Hyperinflation is a spiral of inflation which causes even higher inflation. The initial exogenous event might be a sudden large increase in international interest rates or a massive increase in government debt due to excessive spending. Whatever the cause, the government could pay down some of its debt by printing more money (called monetizing the debt). This increase in the money supply could increase the level of inflation. In an inflationary environment, people tend to spend their money quickly because they expect its value to decrease further in the future. They convert their financial assets into physical assets while their money still has some purchasing power. Often they will purchase on credit. Eventually, the currency loses all of its value. Because of this, the level of savings in the country is very low and the government could have problems refinancing its debt. Its solution could be to print still more money starting another iteration of the vicious cycle.

Related idiom:  “Circular argument”  — click here for more on logical fallacies.