February 19, 2009
U.S. following the path of Zimbabwe
The Zimbabwe government announced this month that it has now slashed 12 zeros from its currency and therefore 1 trillion in Zimbabwe dollars is now equivalent to 1 Zimbabwe dollar. The old notes, 100 trillion being the highest (not enough to buy a loaf of bread), will remain valid until June 30th and then cease to be legal tender.
Zimbabwe's hyperinflationary crisis started in early 2006 when Gideon Gono announced the government had printed ZW$20.5 trillion to pay off IMF arrears and by mid-2006 they announced they would print another ZW$60 trillion to pay for a 300% increase in salary for soldiers and policemen.
In August of 2006, Zimbabwe slashed 3 zeros from its currency and 1 Zimbabwe dollar became equal to 1,000 of the prior Zimbabwean.
In June of 2007, Gideon Gono was ordered by President Robert Mugabe to print an additional 1 trillion of the new currency for civil servants' and soldiers' salaries that were hiked by 600% and 900% respectively.
In November of 2007, it was reported that the money supply of the revalued Zimbabwe dollars reached ZWD$58 trillion and by the end of 2007 the money supply reached ZWD$100 trillion,
On January 20th, 2008, Gideon Gono reported a money supply of ZWD$170 trillion and said it would reach ZWD$800 trillion by the end of the month.
Banknote supplier Giesecke & Devrient reported in March of 2008 that they were printing an astonishing ZWD$170 trillion a week and in July the company bowed to political pressure from the German government and stopped printing money for the Zimbabwe government.
In July of 2008 it cost ZWD$100 billion just to buy three eggs and some businesses were demanding that customers write a check for double the amount of a purchase because costs would go up by the time the check cleared.
Inflation rose from an annual rate of 32% in 1998 to an official estimated high of 231,000,000% in July of 2008 according to the country's Central Statistical Office,
It is amazing how quickly Zimbabwe's hyperinflationary crisis spiraled out of control and the same thing could happen in the U.S.
Over the last five months the U.S. Federal Reserve has printed over $1 trillion to acquire bad mortgage assets from private enterprises. To legitimize the process the Federal Reserve puts the toxic mortgage notes on their balance sheet as an asset and the money they deposit in the accounts of bailed out banks as a liability, but it is our belief these assets are worthless and the Federal Reserve is doing nothing more than printing the money out of thin air.
With Obama's $787 billion stimulus now passed, where will this money come from? None of it is budgeted for in the current fiscal year. Either the money will have to be borrowed from the rest of the world and our $11 trillion national debt will increase, or it will just be printed like in Zimbabwe.
When Federal Reserve Chairman Ben Bernanke speaks of "unconventional measures" to fund our stimulus plans and bailouts, you should think of it as nothing more than printing money and inflation.
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