Zimbabwe's Inflation

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The fiasco
underway in Robert Mugabe’s Zimbabwe is merely the latest in a long
history of collapsing fiat currencies. As the currency loses value
the authorities respond by issuing more of it, thereby ensuring
that it will lose even more value necessitating the printing of
even more money and so on.

The extent
of the currency collapse in Zimbabwe is almost beyond belief, and
certainly beyond the understanding of the average citizen. At one
time the Zimbabwean dollar was more or less on a par with the U.S.
dollar. Not any more. As of this writing one U.S. dollar costs 50
billion Zimbabwe dollars (and this after knocking three zeros
off the numbers in 2006). Earlier this month in Zimbabwe a newspaper
cost $200,000. Today it costs $25 billion. A beer costs $150 billion.
By the time you read this it might cost $500 billion.

The chaos spreads
through everything. ATMs and computers cannot handle all the additional
zeros. Suitcases full of paper are needed to buy things – what few
things are available. The inflation is so rapid that wages cannot
keep pace. A worker might find that his bus fare today is more than
his weekly wage. Life becomes intolerable for almost everyone. Only
Mugabe and his cronies continue to live semi-normal lives. For the
rest, the only thing that has helped everyday life to retain a semblance
of functionality is the foreign currency sent to help their families
by the four million or so people who have fled the country.

Why does the
state persist in continuing with such an obviously losing game?
There are a number of possible explanations and the answer is some
combination of these.

  1. Those in
    control are shielded from the effects.
  2. Protests
    are stamped out by a well-paid police and military.
  3. The government
    dare not admit that it’s not in control of the situation and hopes
    that things will eventually “turn around."

While the above
are undoubtedly true, the underlying cause of all inflationary situations
throughout history is economic ignorance.

A
Los Angeles Times article
quotes an anonymous staff member
in the Zimbabwe plant that prints the multi-billion dollar bank
notes: “People are aware that printing money is also one of the
causes of inflation.” Right there you have the problem. The fact
is that printing excess money is not “one of the causes." It
is inflation, as any dictionary will display to anyone who
consults it. Rising prices are then the result.

Zimbabwe is
not the first and it won’t be the last country to take leave of
its senses. As America’s Founding Fathers well knew, the only thing
that will prevent debasement of a currency is to base it on gold
and/or silver which are incapable of being produced at a politician’s
whim. However politicians and bankers love to substitute paper promises
for these metals so that they and not the citizens will control
the currency.

Every paper
currency ends the same way. When we look at Zimbabwe we see a fast-forward
version of what is happening to our dollar which has lost about
95% of its value since 1900. Will we, too, see runaway inflation?
Unless we return to a gold standard, or men become saints, the answer
is almost certainly “yes."

July
17, 2008

Bill
Trench [send him mail]
is a writer and cogitator who enjoys watching and commenting on
the passing show.

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