Tuesday, May 02, 2006

Present Day HyperInflation

An article in NY Times today highlights the pain caused by printing a lot of money. And I'll give the journalist (Michael Wines) some credit as he sees the tie between printing a lot of money (more than $21,000,000,000) and toilet paper priced at $145,000 per roll.

Will their be a revolution? The last time there was inflation this bad (and worse) created the rise of Hitler and launched WWII. Will the government realize the errors of their ways? Doubtful if this is any indication:

"On Friday, the government said it would triple the salaries of 190,000 soldiers and teachers. But even those government workers still badly trail inflation; the best of the raises, to as much as $33 million a month, already are slightly below the latest poverty line for the average family of five.

This will only worsen inflation, for printing too many worthless dollars is in part what got Zimbabwe into this mess to begin with. Zimbabwe fell into hyperinflation after the government began seizing commercial farms in about 2000. Foreign investors fled, manufacturing ground to a halt, goods and foreign currency needed to buy imports fell into short supply and prices shot up."

Or this:

"But the government says it has a plan to revive the economy. That plan, the latest of perhaps seven in 10 years, would quickly raise billions of American dollars to end a chronic foreign currency shortage, cut the inflation rate to double digits by year's end and an end to the recession that has gripped Zimbabwe, halving its economic output, since 1999.

Mr. Robertson, the economist, says that is unlikely. Zimbabweans can and probably will endure greater hardship, he says. As a whole, the nation has only now sunk to standards common elsewhere in Africa. But the government may have reached the limit of its ability to do anything about it. Cutting spending seems impossible, and raising taxes further is unthinkable.

That leaves one option: "much more inflation," he said. "Because this government is always going to be printing its way out of its current difficulty."


My prediction? The USSA will come to the rescue with money from my wallet (and yours). And it will only make it worse.

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