Wednesday, October 5, 2011

Our Economic Trajectory...

ZW$100,000,000,000,000.00 -- A single, legal tender bank note, that is numerically 5x our current national debt. In Zimbabwe, it is much more valuable as insulation or toilet paper, since you can't buy insulation or toilet paper with it.

(From Wikipedia) In 1980, ZW$ 1.00 was equal to US$ 1.47. The currency's value eroded rapidly over the years, and in 2006 was "redenominated" to a value of (new)ZW$1.00 = (old)ZW$1000.00.

On 27 June 2007, it was announced that central bank governor Gideon Gono had been ordered by President Robert Mugabe to print an additional ZW$1 trillion to cater for civil servants' and soldiers' salaries that were hiked by 600% and 900% respectively.
On 28 July 2007, it was reported that Mugabe has said that Zimbabwe will go on printing money if there is not enough for underfunded municipal projects.

Rampant hyperinflation continued, and the currency was again "redenominated" in 2007 and 2008. Ten zeroes have already been knocked off the denomination. As predicted by the quantity theory of money, this hyperinflation has been caused primarily by the Reserve Bank of Zimbabwe's choice to mushroom the money supply.

In Federal Reserve terms, it's called "Quantitative Easing (QE)"...we have already gone through 2 "known", or publicly-announced rounds of this EXACT SAME POLICY. Too many dollars chasing too few goods makes each dollar--read the next very carefully--worth less. Even more of this Keynesian policy removes the space, and it becomes WORTHLESS.

History repeating itself? The 1919-1933 Weimar Republic is another example of this. It seems that we refuse to learn from the mistakes of the past...unless, of course, it is the plan.

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