Hyperinflation in Zimbabwe hits 4 million percent

The Germans have halted shipments of the paper that Zimbabwe was using to print their 250 million dollar notes with. A billion Zimbabwe dollars = 10 U.S. cents.

Do we here in the U.S. need to worry about hyperinflation?

There is a big debate on economics blogs about whether the U.S. is experiencing inflation or deflation. Perhaps it is some hybrid of both. Credit card and mortgage defaults should be deflationary, the money that is lost in foreclosure instead of being profit just goes poof (currently at ~$500 billion).

But prices are going up, everyone can see that. However, this is mostly due to the weakness of the dollar in buying all of these globalized goods, as the Fed is not actually printing more Federal Reserve Notes (dollars). What they are doing is loaning out their Treasury bonds (about half of what they hold so far) for toxic mortgage backed securites so the banks can stay in business. They are staying in business by buying the only thing making money right now, which is commodities, exacerbating the price rise.

Some have said that this is a de facto partial nationalization of the banks, because the Fed as lender cannot recall it’s loans when it wants, but instead has to wait for when the banks feel that they can pay the loans back. When you give $$$ to a business and can’t get it back until there is profit looks a lot like buying a stake in a business, no? We will see if the banks become ‘zombified’ ala Japan.

So, the U.S. faces a $52 (projected by GAO as of Nov ’07 / [See .pdf Presentation Here] trillion deficit due to Medicare and Social Security in the next 30-40 years. The nation’s current household total net worth is $58 trillion, which means a burden to net worth ration of ~90%. How many times would our money supply have to double to print our way out of that, as we certainly shouldn’t just tax everything at 100%! (though I wouldn’t be surprised if they tried)

This San Jose University faculty website offers a fairly simple explanation of how a doubling of money supply leads to price increases of not only double, but 6 times previous prices.

Soooo, let’s see here, $4/gal gas *6 = $24/gal gas. Great.

If/When Helicopter Ben fires up the printing presses, watch out!

Dave Powell
Chairman, LP-PGH

P.S. There is an interesting list of Hyperinflation events here going from Roman times to interestingly, CIA induced inflation in the Kurdish areas of Iraq ( http://www.sjsu.edu/faculty/watkins/CIAinfl.htm ) Here’s government ‘logic’ for you, and a great example of how our meddling foreign policy screws things up for other people and pisses them off: the US government wanted to buy off cooperation of the Kurdish leadership with a million dollars. So what does it do? Sends in a CIA spook with 44 pounds worth of hundred dollar bills, problem (for the govt anyway) solved. However, since nobody in the Kurdish zone had any $10’s or $5’s, the price of everything rose to $100, even a cup of coffee.

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