Seeing the dollar lose its value reminds me of growing up in Perú during the heavily inflationary 80s and early 90s. I witnessed the collapse of the currency not once but twice during that period.
Though inflation had been part of life for decades, it was not until the 1980s that the severe problems started.Back then, I thought it was fun to see new paper money appear every few months. What began with bills in denominations of 500 and 1000 soon became 50 thousand.
Over the course of just a few years, the Peruvian Sol was destroyed and in 1985 replaced with the Inti.
The lesson, sadly, was not learned. Inflation had become a part of life. Prices would rise very quickly and money had to be spent as soon as possible. Just a few years later the paper money (now called the Inti) was becoming worthless.
“By 1990, the inti had itself suffered from high inflation. As an interim measure, from January to July 1991, the “inti en millones” (I/m.) was used as a unit of account. One inti en millones was equal to 1,000,000 intis and hence to one new sol. The nuevo sol (“new sol”) was adopted on 1 July 1991, replacing the inti at an exchange rate of a million to one. Thus: 1 new sol = 1,000,000 inti = 1,000,000,000 old soles.”
Inflation left the economy in shambles, not to mention the social cost in terms of terrorism and crime. When will humanity learn?
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In 1993 I was living in Yugoslavia and there was one of the highest hyperinflation in world history (the other two was in Germany 1923 and in Hungary 1946), the largest banknote was 500 billion dinars http://en.wikipedia.org/wiki/Image:500000000000_dinars.jpg and the worse thing was that actually it was worthless, one can’t buy a a bus ticket, so people used German Marks (DM) on the black market or write checks for government payments. I remember the last two (2) checks I filled was for 10.000 billion the first one (that was the legal limit at the time on one check) and 5000 billion the second one (equivalent of 30 largest banknotes), and I was buying a 6 pound carp (fish) because that was the only available good in the supermarket at the moment.
This is funny now, but it wasn’t funny back then.
Here are my questions for the site’s economists:
Even when the currency crisis becomes too obvious to ignore, as in the situations described by Messrs. Lora and Ludanyi, what keeps the scheme going? Why do the citizens of Peru and the Balkan nations continue to accept the government’s funny money? Why do their creditors?
Actually in Yugoslavia people stop accepting money, the fact is that back then most of the economy (businesses) was state owned (socialism) and it would be funny to not accept the money by the government. Anyway there was basically no economic activity except the basic food production, all other business activity was in the black market and the money was foreign currency (usually German Mark), and some barter. But no people doesn’t accept the regular currency in business, but you accept it as a salary in state owned factories, because you had no choice. Most people worked for months and months for that salary or many of them without any salary at all, just because they didn’t want to risk to lose a job, so they worked for nothing (actually many of them was on prolonged vacation) because there was the hope that all of that madness will stop soon and that the things will get back to normal. Hundreds of thousands (mostly the educated) left the country for the US, Australia, Canada, EU…
Here’s the Zimbabwean perspective on inflation.
Amid all the rhetoric about the Zimbabwean economy, and the gobsmacked wonder at all those zeroes, there is a curious silence in the popular press over what, exactly, causes Zimbabwe’s spectacularly exponential inflation rate. This detail deserves particular attention. Inflation is not some extra complication that mysteriously fell from the sky to further bedevil Zimbabweans’ already oppressed lives. Far from it – the inflation rate is in fact the very engine of the Zanu-PF regime’s oppression, for it takes the form of an ever-increasing tax on the entire population.
It works like this. The rot really sets in when runaway government gives up all pretence at fiscal budgeting, and starts counterfeiting wholesale: Shamelessly printing money to meet its payroll, rather than using the more orthodox ways of funding expenditure, like ordinary tax collections and borrowings, both arguably less dishonest. By calling money into existence as fast as the presses can roll, government places new money in the hands of the privileged, namely all its employees. These people rush out with today’s new-money wages to buy up lots of the stuff available for sale at yesterday’s old-money prices, bidding up those prices in the process, while everybody else has to use yesterday’s old-money wages to buy what’s left at today’s new-money prices. Tomorrow it happens all over again, with yet more new money chasing the population’s ever-smaller productive output.
Nationally, this process simply sucks up the citizenry’s entire life savings, and the ongoing fruits of all its labour, pumping real wealth from the hands of the governed into to the mouths of those who govern. To make matters worse, government then wheels out the propaganda machine to blame greed and gouging in the private sector, and imposes price freezes in a vain attempt to stop the inevitable. This further sabotages and constrains whatever productivity remains. All of this won’t stop until there is no more wealth in private hands to suck up. When the effective tax rate breaches 100% and domestic productivity ceases altogether. When the strings of zeroes on the banknotes are beyond the counting, and no amount of money is enough to buy anything.
This systemic crime against humanity passes largely unremarked in the popular media, because its very pervasiveness is diffused to the point of invisibility, and it needs more than a catchy soundbite to explain coherently. But the swathe of starvation, disease, and sheer suffering it causes is genocidal, holocaust-like in scale, far and away outgrossing more tangible images of despotism, the murders, beatings and imprisonment that make such meaty news copy.
The lack of specific comment is not only a media shortcoming – Zimbabwe’s suffering at the hands of State-driven inflation draws a strange silence, from even those governments which denounce Zanu-PF’s more obviously brutal excesses most loudly. Indeed, oppression by monetary inflation is likely to be the only crime not on the charge sheet when (if there is any justice at all) Mr Mugabe and his inner circle are brought before The Hague. The world’s governments, and Europe’s in particular, have a long tradition of currency debasement by bankrupt monarchs, so the embarrassed silence from the world’s statesmen on the detail of Zimbabwe’s chronic inflation-abuse is perhaps not surprising. Even today, many otherwise quite respectable governments are rather too fond of the same sort of wealth-tapping by stealth. They just do it with a little more restraint, a bit more subtlety, and a lot more macroeconomic jargon. Doing it in a more roundabout way, and calling it ‘inflation targeting’, doesn’t make it any less wrong.
More joy from Zimbabwe today… maybe the brakes have been found? http://www.nostate.com/207/how-ya-gonna-hyperinflate-with-no-fancy-paper-mugabe/
The resignation in disgrace by Bernanke and Paulson will be like the conversion to a new denomination of the dollar. It will be just a transition point to the next wave of hyperinflation followed by another exponential denomination of the dollar.
This is what will happen if the two court jesters (Bernanke and Paulson) are perceived as unconnected to the unConstitutional coup. All the clowns (the ego-driven interventionists and their Keynesian advisors) need to be completely and undeniably connected to all of the symptoms of the unConstitutional coup. The symptoms are war, inflation, counterfeiting, money laundering, secrecy, and the list goes on and on.
One of our jobs is to link the Fed and treasury to the unConstitutional coup so that the power elite cannot simply scapegoat their minions.
Despite repeated enlightening lectures from Ron Paul at Congressional Banking Committee Hearings, the Federal Reserve Chairman, Mr. Bernanke mentioned in the news today that the rise in the price of oil may become inflationary!
As if he doesn’t realize that it is he who causes inflation by increasing the amount of currency in circulation. In fact, Ron Paul recently asked Bernanke and I paraphrase, “Please explain how you propose to solve the problems caused by inflation, by inflating the currency even more?”
I think you can still find the encounters on youtube.com by entering the names of Ron Paul and Chairman Bernanke.
Another source would be at http://www.whoisronpaul.name where there are many interview links. My favorite is the John Stossel interviews in six parts where Ron Paul is given plenty of soft ball questions and time to answer without interruption.
I am particularly disturbed that the choices of investments through my 401K do not include an inflation hedge fund at all. I have pleaded with my company to change this with no luck so far.
Pass the torch.
Have you looked at the neuvo/US $ ratio lately. The past few years are interesting. Then if you want a real awakening look at the Colombian peso/US $.
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