Zimbabwe-Style Inflation in America?


In Zimbabwe, inflation is measured by the hour, not month-over-month as in America and the rest of the developed world.

Zimbabwe’s few remaining merchants update their price tags four, five or more times a day—that is, when shipments haven’t been hijacked. For many people, life is a struggle just to get their paycheck to the store quickly enough so that it doesn’t lose value before it can be spent. Life is even harder for the millions who no longer have jobs at all—destroyed by an economy in meltdown.

Official statistics put monthly inflation at over 100,000 percent; independent observers believe the true figures are even higher. A single cigarette costs more than z$500,000. Many bill denominations are literally not worth the paper they are printed on—single-ply squares of toilet paper are often worth more. For most Zimbabweans, paper money, at least Zimbabwe dollars, is out of vogue. All that really matters anymore is the ability to find something to barter for food.

Although President Robert Mugabe blames foreigners and Western plotting for his country’s economic problems, the basic reason the inflation rate has zoomed out of control is quite simple.

You can’t print your way to prosperity.

When Mugabe inherited Rhodesia from former Prime Minister Ian Smith, the country was one of the most prosperous in all Africa. The Rhodesian dollar was worth more than the U.S. dollar.

Then Mugabe embarked on his program of confiscating white-owned farms in the name of land redistribution. Zimbabwe, once the breadbasket of Africa, saw farm production wither away as the new, untrained and unfinanced landowners failed to produce crops. Next he began to confiscate white-owned businesses, with similarly disastrous results. The upshot was massive unemployment and skyrocketing national debt levels.

To deal with his economic problems, Mugabe decided to crank up the printing presses and create the money needed to pay the bills. As his economy collapsed, the massive money-printing scheme only helped to speed the descent. When you print money by the boatload and dump it willy-nilly into the economy, there is only one probable result: hyperinflation. All existing money in circulation rapidly became worthless. People’s life savings were destroyed, the cost of bananas and toothpaste soared into the thousands, and businesses could no longer function. Zimbabwe, once the crown jewel of Africa, became a basket case.

The lesson for America is that we are traveling a similarly precarious course.

America also has skyrocketing national debt levels. The same goes for state and municipal debt, and corporate debt too has ballooned due to leveraged corporate takeovers. Personal debt on credit cards, car loans and mortgages is near record levels. Meanwhile, Americans continue with life as if it is business as usual.

But business is not as usual. Look at the inflationary program the current U.S. administration has embarked on to “stimulate” the economy. Handing out $600 in crisp, freshly minted paper dollars to each taxpayer in the country is certainly inflationary, as is the Federal Reserve Bank’s decision to drastically slash interest rates and loan hundreds of billions of dollars to troubled banks at below-market rates. Then there is the government’s decision to allow government-sponsored housing agencies like Freddie Mac, Fannie Mae and others to expand their mortgage portfolios by providing loans to below-prime borrowers and take risky mortgages off the banking industries’ books.

“A word to the wise: You can’t really make people wealthy by resorting to ‘Zimbabwe economics,’” says Daily Reckoning analyst and bestselling author Bill Bonner. “A society grows rich by producing things … and saving money. There is no other way. Cheaper credit won’t do it. More consumption won’t help. Printing money—and dumping it from helicopters—is a losing proposition” (January 29).

But America has already embarked on a money-printing scheme of historic proportions. U.S. money supply, as measured by m3, is expanding at a yearly rate of almost 18 percent. That is a rate probably not seen since the war years.

America’s economy is in a tough spot. But instead of dealing with the underlying causes, America has chosen to try and cheat the market by printing its way out of its economic problems. Creating money out of thin air may temporarily stimulate an economy, but as history clearly shows, the medicine is eventually worse than the disease. The end is always the same: a worthless currency, a destroyed economy and a bankrupt nation.