Monday, January 12, 2009

$25 Billion For A Loaf Of Bread

That's what is going on in Zimbabwe.
It can happen here too.

CNN Money reports this:
Zimbabwe is grappling with hyperinflation now officially estimated at 231 million percent, and its currency is fast losing its value. As of Friday, one U.S. dollar was trading at around ZW$25 billion.

When the government issued a $10 billion note just three weeks ago, it bought 20 loaves of bread. That note now can purchase less than half of one loaf.

Realizing the worthlessness of the currency, the RBZ has allowed most goods and services to be charged in foreign currency. As a result, grocery purchases, government hospital bills, property sales, rent, vegetables and even mobile phone recharge cards are now paid for in foreign currency, as the worthless Zimbabwe dollar virtually ceases to be legal tender.

Once a regional economic model, Zimbabwe is in the throes of an economic crisis, with unemployment running at more than 80 percent and many families unable to afford a square meal. President Robert Mugabe's critics blame his policies for the economic meltdown, but he says the West is sabotaging his efforts.

What caused this crisis? The Zimbabwe crisis started in 2000 when the Zimbabwean government effectively destroyed their agricultural industry by displacing farmers from their lands.

Zimbabwe’s economy immediately went into recession and inflation began to rise.

Do you know what they did to "fix the problem"?
They printed more money.

They did that because they had salaries to pay, projects to finance, things to buy. Just like everyone else they were suddenly faced with the crisis of having to pay much more for things, and they didn’t have enough, so they printed more money to cover it.

Does that sound familiar?
Our US government has been printing money non-stop to pay for the bailouts which was caused by the problems in our financial markets stemming from universal housing (i.e. lending money to people who could not afford to pay the loans back in order to give them easier access to housing) Industry after industry has been affected and the government keep s meddling instead of allowing the markets to correct the problems. Money spent for bailouts are unchecked and untracked. No one really knows what is being done with it.

We are also now in a recession and our unemployment rates are rising.

How is Mr. Obama planning on "fixing thing"? More government spending - More debt - Printing more money.

It looks like we aren't alone - Britain is also printing more money to solve their financial problems. They think that:
"if the Government prints more money and stuffs it into our pockets, we will all feel richer. So we will go out and spend. We might by clothes, or cars, or houses again. And that might just save some of those retailers and carmakers who are in such a bad way right now."

We need to take a lesson not only from our own Great Depression, but from Zimbabwe as well.

We cannot simply spend our way, and print our way out of these economic problems.
It just doesn't work.

This is why we need money backed by gold.

Money backed by nothing is essentially worthless.