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Wednesday, February 07, 2007
Hyperinflation in Zimbabwe
I talked about hyperinflation in my Ec 10 lecture last week. In today's NY Times, we can read about a modern example in Zimbabwe:
The trigger of this crisis hyperinflation reached an annual rate of 1,281 percent this month, and has been near or over 1,000 percent since last April. Hyperinflation has bankrupted the government, left 8 in 10 citizens destitute and decimated the countrys factories and farms.
The reaction of political leaders is tragicomic:
Mr. Mugabe, who blames a Western plot against him for Zimbabwes problems, has rejected all calls for economic reform....The central banks latest response to these problems, announced this week, was to declare inflation illegal. From March 1 to June 30, anyone who raises prices or wages will be arrested and punished. Only a firm social contract to end corruption and restructure the economy will bring an end to the crisis, said the reserve bank governor, Gideon Gono.
Surprisingly, the Times makes little mention of the money supply, but another article points out the obvious link:
"The urgency of the need to reduce inflation impels that 2007 be the year for unprecedented fiscal and monetary policy restraint," Gono said in a monetary policy statement. "To this end, the Reserve Bank will reduce broad money supply growth from the current levels of over 1,000 percent to between 415 and 500 percent by December 2007."
It all comes back to Principle Number 9.
Do you have specific questions or are you just seeking general commentary?I try, but econ was always my shortfall, probably related to math problems. Links at site:
http://gregmankiw.blogspot.com/2007/02/hyperinflation-in-zimbabwe.html
Do you have specific questions or are you just seeking general commentary?
Some comments ...
Yes, this certainly captures the horrors of hyperinflation. Although, this is not yet nearly as bad as what the Weimar Republic experienced after Germany lost World War I and was forced to pay heavy reparations to the winning side.
"Mr. Mugabe, who blames a Western plot against him for Zimbabwes problems, has rejected all calls for economic reform....The central banks latest response to these problems, announced this week, was to declare inflation illegal."
I about fell out of my chair laughing when I read this. And Mugabe is not the first leader to elicit such absurdity. A Central Bank declaring inflation illegal ... who does he think causes inflation in the first place? What he is really saying is that he wants "price inflation" to be illegal while the government can inflate as it sees fit. Hence, he wants price controls. Price controls do not work and will never work. Yet politicians try them time and again.
Now as far as a Western plot against him ... I do not know the specific case here ... but the Western powers and banks do lure poor developing countries into debts they cannot repay (not totally unlike the unsound lending in today's housing market). The elite financial institutions keep rolling over the debt into new debt, in an attempt to keep the interest payment streams coming.
"From March 1 to June 30, anyone who raises prices or wages will be arrested and punished. Only a firm social contract to end corruption and restructure the economy will bring an end to the crisis, said the reserve bank governor, Gideon Gono."
Uhhh, no ... this is just part of the problem. You need sound monetary policy that cannot be manipulated by the Central Bank (get rid of the Central Bank's powers). In other words, you are fired Gono. And oh yes ... price controls do not work.
"The urgency of the need to reduce inflation impels that 2007 be the year for unprecedented fiscal and monetary policy restraint," Gono said in a monetary policy statement. "To this end, the Reserve Bank will reduce broad money supply growth from the current levels of over 1,000 percent to between 415 and 500 percent by December 2007."
Wow. If money supply growth between 415 and 500 percent is unprecendented fiscal and monetary policy restraint, these guys just do not get it. There will undoubtedly be tremendous pain with even a cutback in inflation to these levels. But they are still compounding the problem.
This place is going to have hyperinflation for a while ... until the currency ceases to be transactable for goods and services. At this point the currency is worthless and it is game over ... here comes deflation (revaluation of the currency) with a new currency.
Watch the IMF (or a group of Banks) step in to provide even more loans to guarantee future interest payment streams.
Brian
Well, Economics was not my major (I was a Computer Science major). Although, I will say that there are a number of interesting areas in which a PhD thesis could be established given the problems in this day and age.Thank you! I managed to get through 3 sections of econ in college, C's and B's though I don't think any of them were deserved, based on my ability to apply.
Is their an 'econ for dummies?'
I try, but econ was always my shortfall, probably related to math problems.
I watched the 15 minute trailer before the original release last September. I must say I was expecting a lot more. With respect to the Fed and our monetary system, Russo knows there is a problem, but is not deep enough on the subject to really explain it well to the audience. After the trailer, I did not bother. A friend watched the film and his opinion was that while G. Edward Griffin appears in the film, they really needed to give him a larger spot in the film....
America Freedom to Fascism Authorized version - Google VideoPlease visit http://www.freedomtofascism.com to This is the "Director's Final Cut" authorized version of Aaron Russ.
video.google.com/videoplay?docid=-4312730277175242198 - 94k -
YouTube - Official Trailer for AMERICA: FREEDOM TO FASCISMOfficial Trailer for AMERICA: FREEDOM TO FASCISM ... Part 2 of reply to America: From Freedom to Fascism 05:10. From: mreweaver Views: 1641 ...
www.youtube.com/watch?v=N331kGvh0U0 - 96k - 9 Feb 2007
has anyone seen this film ? what is your opinion its free on google video
That's part of the reason why I like Austrian school economists, as opposed to Keynesians or Monetarists or what have you. They are a throwback to a time when economics was not riddled with arcane mathematical gobbledygook, and they do not use mathematics to make their points.
Zimbabwe is just the latest in a long string of examples of how you get inflation. The Roman empire, the American revolution, the French revolution, the US civil war, WWI, Weimar Germany, the post-Vietnam inflation of the 70's, and now Zimbabwe.
Basically, the government (or banks) create too much money. That's it, it's really just that simple. At most, you need enough money expansion to keep up with however fast the economy is growing (although even this is debateable).
I'd really like to believe that what happened to Zimbabwe won't happen to us, but I'm not optimistic. We broke the link to gold in 1971, and money supply skyrocketed, with only brief pauses in the early 80's and early 90's. The only way we've gotten away with it is due to the US dollar being the underlying foundation of all other currencies. We export our inflation, basically. The president of France in the 60's called it an "exhorbitant priviledge". It's like we've been charging up a battery for 30 years, and when other countries decide to discharge it, we'll see the folly of reckless money expansion.
