Zimbabwe’s hyperinflation is legendary. To the right is a 100,000,000 note (currency). Their problem was unsustainable debt that the government tried to depreciate via the printing presses. That is the exact problem we have. It is also the exact strategy that our government has chosen.
Most references to hyperinflation are to Weimar Germany. However, as the table shows below, hyperinflations are not uncommon in modern history and the Weimar episode was hardly the worst.
|Country||Month with highest inflation rate||Highest monthly inflation rate||Equivalent daily inflation rate||Time required for prices to double|
|Hungary||July 1946||1.30 x 1016%||195%||15.6 hours|
|Zimbabwe||Mid-November 2008 (latest measurable)||79,600,000,000%||98.0%||24.7 hours|
|Yugoslavia||January 1994||313,000,000%||64.6%||1.4 days|
|Germany||October 1923||29,500%||20.9%||3.7 days|
|Greece||November 1944||11,300%||17.1%||4.5 days|
|China||May 1949||4,210%||13.4%||5.6 days|
Source: Prof. Steve H. Hanke, February 5, 2009.
An updated table would show Zimbabwe surpassing Hungary based on Steve Hanke of the Cato Institute. He estimated: “As of 14 November 2008, Zimbabwe’s annual inflation rate was 89.7 Sextillion (1021) percent.” To see this research go here.
Eventually, the US must stop printing money or end up in similar hyperinflation. But stopping means defaulting on certain obligations. Politically, it is improbable that default on debt and social commitments (social security, medicare, etc.) will be made willingly. More likely is the typical “kick the can” routine that will result in a run-up to (or run beyond) hyperinflation (arbitrarily defined as 50% per month). Regardless of what route is chosen, defaults on debt and social obligations are inevitable.
After horrendous inflation, Zimbabwe is now on the road to recovery. How did this happen? Will we choose the same remedy? My guess is that we will continue to inflate until we approach or hit hyperinflation and then follow a Zimbabwe-type remedy by defaulting.
A highly informative piece by Alf Field, a must read really:
“In February 2009 Zimbabwe was the only country in the world without debt. Nobody owed anyone anything. Following the abandonment of the Zimbabwe Dollar as the local currency all local debt was wiped out and the country started with a clean slate.It is now a country without a functioning Central Bank and without a local currency that can be produced at will at the behest of politicians. Since February 2009 there has been no lender of last resort in Zimbabwe, causing banks to be ultra cautious in their lending policies. The US Dollar is the de facto currency in use although the Euro, GB Pound and South African Rand are accepted in local transactions.
Price controls and foreign exchange regulations have been abandoned. Zimbabwe literally joined the real world at the stroke of a pen. Money now flows in and out of the country without restriction. Super market shelves, bare in January, are now bursting with products.”