This page has been archived and commenting is disabled.

QE, Zimbabwe, And The Surreptitious 30% Haircut Every Decade

testosteronepit's picture





 

Wolf Richter   www.testosteronepit.com

Dizzying QE gobbledygook is upon us once again. It would restart its big 480-volt money printer, in addition to the desktop machine it had been using recently, the Fed said, in order “to help ensure that inflation, over time, is at the rate most consistent with its dual mandate,” namely “maximum employment and price stability.” Thus, more inflation magically creates more jobs, and “price stability” requires more inflation in order to become more ... stable maybe?

The Dallas Fed shed some light on this conundrum. Inflation hounded the Zimbabwean dollar ever since its creation in 1980, when it was worth US$ 1.54. By 1997, when I was in Zimbabwe, the Zim dollar had plummeted to about 10 cents. I’d been traveling solo through Africa by whatever “public transportation” was available. There were days on dirt roads with washed out bridges or no bridges, dry river beds, expressways, rickety railroads, or the sand of the Sahara—and some remaining landmines. By comparison, Zimbabwe was still in decent shape. [That life-changing journey through 24 countries in Africa is subject of a forthcoming book, the third in the series. The first one, Big Like: Cascade into an Odyssey—a “funny-as-hell nonfiction book about wanderlust and traveling abroad,” a reader tweeted—is available now at Amazon.]

But inflation steepened. In 2006, the Reserve Bank of Zimbabwe created the new (second) Zimbabwean dollar by chopping off three zeros. It still wasn’t hyperinflation. Just plain inflation. In March 2007, the Z$ 500,000-note was issued, signaling the official arrival of hyperinflation (more than 50% inflation per month). By 2008, the Zim dollar had become useless for transactions. To keep the country from total collapse, authorities finally allowed transactions to be made in dollars.

In January, 2009, Zimbabwe issued the one-hundred-trillion Zim dollar note, the largest denomination banknote ever. It marked the end of the currency. In February, the Reserve Bank of Zimbabwe—which was still around despite the mayhem it had caused—introduced the fourth Zim dollar, which chopped off 12 zeros. Forget it, the people said, and the currency was abandoned. An ignominious end.

The US greenback, the South African rand, and the Botswana pula were given official status, prices “stabilized,” and real GDP per capita turned significantly positive in 2009, the first such reading since 1998. Decades of inflation and two years of hyperinflation left desperation and destitution in their wake; they’d destroyed wealth and the economy, and knocked real per capita GDP down by nearly 50% to a level not seen since the early 1950s.

Does the Fed want to create this kind of scenario in the US? Its stated inflation objective is 2% per year, as measured by PCE (Personal Consumption Expenditure), which understates the already questionable CPI numbers. So perhaps their goal is just under 3% per year as measured by CPI, or just under 30% per decade.

They succeeded: 27.5% from 1990 to 1999 and 24.6% from 2000 to 2009. But that isn’t enough anymore: inflation must be higher, the Fed said. 30% per decade perhaps. That’s the surreptitious haircut they impose on all assets every decade. If you live long enough—knock on wood—pretty soon it’ll add up to real money.

Make it up with yield? You bet. I mean, forget it. Its Zero Interest Rate Policy will stay in place indefinitely, the Fed reassured us, as it pushed its ZIRP horizon from mid-2014 to mid-2015, to be extended ad infinitum. Make it up with higher wages? Um, no. Wage increases must lag behind inflation ... to make wages competitive with those in China or Mexico. And that’s been happening since 2000 [read.... The Pauperization of America].

That’s the kind of inflation modern central banks collude to create. When it gets out of hand, they know how to slow it down. These folks are smart and powerful, and unlike the guys in Zimbabwe, they know what they’re doing. Governments, the financial industry, and large corporations benefit from “contained” inflation as it pays off part of their massive debts. They’re the constituents of central banks. Others benefit as well, such as homeowners, but they’re just bystanders. And anyone who owns that crappy debt gets a haircut.

Once inflation edges towards 10% per year, even the Fed’s constituents no longer benefit from it, but are threatened by it. And a consensus forms among central bankers to act, however painful it will be for everyone else—and suddenly, the “maximum employment” mandate is out the window.

So here’s a thought: Gold! “Its pullback a year ago shook out a lot of nervous buyers,” writes Jeff Clark, “but there are signs to watch for.” Read.... When Will Gold Finally Take Off Again?

And here are Aussie Comedians Clarke and Dawe who explain once and for all how QE works, in just two-and-a-half minutes ... a hilarious video even if you’ve already seen it.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 09/14/2012 - 12:34 | Link to Comment Thamesford
Thamesford's picture

So the lesson is: A bunch of Zero's as central planners generate a lot of zeros!

Fri, 09/14/2012 - 11:43 | Link to Comment Racer
Racer's picture

And then they tax you on the 'gain'!

Fri, 09/14/2012 - 07:44 | Link to Comment grunk
grunk's picture

Einstein's new definition of insanity: The Federal Reserve.

Fri, 09/14/2012 - 03:20 | Link to Comment AnAnonymous
AnAnonymous's picture

It would have been surprising that three articles in a row could serve well.

So back to propaganda and cheap one as 'american' propaganda is.

Despite having reality staring at them right in the face, 'Americans' prefer to fail renewing their propaganda: emission of money does not create hyper inflation. Refusal of trading that money against wealth does.

Zimbabwe hit hyperinflation because 'american' nations mainly refused to accept the 'zimbabwean' dollars against other type of wealth. It was a wealth embargo.

Is it happening for the USD? Nope. People around the world, contrary to the zimbabwean dollar, are compelled to use USD.

So kissing goodbye to zimbabwean hyperinflation scenario.

Inflation is happening but through depletion of resources, not emission of currency.

Again, the cultural shit served by 'americans'

It is going to be hard to make up for the lack of resources looming ahead, 'americans' do not know how to overcome the environment. They know how to steal it from a third party.

Selling the idea that healthy financial policy could save the day is much easier.

Fri, 09/14/2012 - 07:45 | Link to Comment johnQpublic
johnQpublic's picture

first of all, any more stability in prices and i wont be able to afford a cup of coffee

 

second, the author obviously doesnt understand the natural logarithm of 2

which mathematically would show him that 3% inflation per year is NOT 30% inflation per decade

3% per year means 100% inflation every 23.3 years, or roughly 40% per decade

Fri, 09/14/2012 - 06:57 | Link to Comment SAT 800
SAT 800's picture

Your failure to understand the world you live in is complete, and perfect. Congratualations, it's not that easy to be completely wrong about everything at once.

Fri, 09/14/2012 - 08:35 | Link to Comment AnAnonymous
AnAnonymous's picture

Nope. It is growingly easier to see through 'american' tricks and increasingly difficult for 'americans' to provide cover for their acts.

Fri, 09/14/2012 - 05:52 | Link to Comment LULZBank
LULZBank's picture

AnAnonymous

+ Trillion

Your comments and explainations, often make more sense then some of the most crazy assed analysis with charts and percentages and all the deltas in between!

Thank you.

Fri, 09/14/2012 - 09:01 | Link to Comment LULZBank
LULZBank's picture

2 downticks without any comments? MORONS!

If FED was doing anything that would destroy Dollar... well, look what happened to saddam and Ghaddafi.

AnAnonymous is right, it wont be the emission of money but the depletion of resources that would bring the collapse of Dollar and global financial system.

Contrary to common belief, US Dollar is not backed by nothing (out of thin air) but has been backed by Oil and Commodities (just not Gold and Silver as many would expect).

As I have said before, its all about "confidence" and when confidence will be gone then only this house of cards will collapse which would be brought about by lack of Oil and Commodities to back it.

The hockey stick curve of the exponential charts can always be adjusted by tweaking the X axis, in a way and this is what FED will be attempting to do and this will take a lot longer, or even lot shorter, than most people think to collapse, depending on confidence or panic.

There are people who are the "winners" of this system and think they benefit from this system, even if they are getting miserable by day and are on food stamps. They believe they would be worse of in the absence of status quo.

Then there are people who are "losers" of this system. They believe they would be better of in the absence of this system and in a "free market" as they believe.

So far "winners" of this system far outnumber the "losers" of this system and this system will survive.... for now.

If Charles Ponzi had big guns to back him and force new entrants to his "Ponzi scheme," he could have grown for a lot longer. Maybe indefinitely with a exponentially growing population.

But his scheme was hijacked by the Bankers... LOL

Fri, 09/14/2012 - 10:46 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

Where to begin? Ahh, with your reading comprehension. Hop Sing the PRC Autobot said:

emission of money does not create hyper inflation. Refusal of trading that money against wealth does.

Bullshit. The two are so connected as to make it a distinction without a difference. You said:

AnAnonymous is right, it wont be the emission of money but the depletion of resources that would bring the collapse of Dollar and global financial system.

Huh. That doesn't look like the QUOTE I pulled at all. But then you double down with this:

Contrary to common belief, US Dollar is not backed by nothing (out of thin air) but has been backed by Oil and Commodities (just not Gold and Silver as many would expect). As I have said before, its all about "confidence" and when confidence will be gone then only this house of cards will collapse which would be brought about by lack of Oil and Commodities to back it.

The term "petrodollar", it does not mean what you think it means, read up a bit more. Also, to back a currency with hard assets is to provide payment in full, vice the confidence that someone, somewhere is good for it. We back our currency with guns, nothing more - nothing less.

Fri, 09/14/2012 - 11:13 | Link to Comment LULZBank
LULZBank's picture

You make no sense, apart from subjective opinion and bullshit advise.

You can print more "money" as long as there is more goods (commodities) being produced/extracted and demand is growing. It only causes inflation when supply dwindles i.e. more money than goods it can buy.

Your submissionzz are dismissed.

Fri, 09/14/2012 - 09:32 | Link to Comment SubjectivObject
SubjectivObject's picture

I love the smell of rejection in the morning.

Smells like ......

Victory.

Fri, 09/14/2012 - 10:45 | Link to Comment LULZBank
LULZBank's picture

For teh LULZ...

Fri, 09/14/2012 - 04:40 | Link to Comment EverythingFubar
EverythingFubar's picture

Bob, is that you?

"Zimbabwe hit hyperinflation because 'american' nations mainly refused to accept the 'zimbabwean' dollars against other type of wealth. It was a wealth embargo."

That's hilarious. What incredible logic. Let's see, no-one wants my money so I'll print lots more of it.. uh no Einstein.. it's the other way round. Mugabe and his cronies destroyed Zimbabwe. Fact. No discussion required. Move along.

Fri, 09/14/2012 - 05:25 | Link to Comment AnAnonymous
AnAnonymous's picture

If that was the case, it would happen elsewhere, as shown currently.

Whether or not a currency is expanded, turning down the currency forces a sudden contraction.

And 'Americans' cannot discuss 'Americanism'

Fri, 09/14/2012 - 06:59 | Link to Comment SAT 800
SAT 800's picture

You're a fool.

Fri, 09/14/2012 - 08:38 | Link to Comment AnAnonymous
AnAnonymous's picture

You're a fool.

_____________________________

If so, it only means that even a fool can see the 'american' world as it is.

Fri, 09/14/2012 - 03:18 | Link to Comment bigmikeO
bigmikeO's picture

Cool! My underwater house should be back at 90% value after 2 decades of 30% inflation. What a silver lining.

Fri, 09/14/2012 - 08:01 | Link to Comment johnQpublic
johnQpublic's picture

your house wouldnt be underwater if you hadnt taken it out in that damn canoe

Fri, 09/14/2012 - 05:16 | Link to Comment Zero Govt
Zero Govt's picture

and good to know the Fed will soon own your mortgage and Benny has got your back

Fri, 09/14/2012 - 02:57 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

The Zimbabwe dollar really goes back to 1970 during the Ian Smith white-rule era, not 1980, though called the Rhodesian dollar at first till the country changed its name under black-majority rule as the Mugabe era began.

Initially it was a quite stable currency. And even in the Mugabe era, the deterioration in the currency was rather slow, until the late 1990s.

But then two things caused the economy and currency to crash - both connected with Mugabe's long-standing, but un-fulfilled promises, to his 'revolutionary war veterans' from the anti-white-rule guerrilla combat era.

Zimbabwe had long been a rich agricultural nation which used to export food. But Mugabe eventually began seizing the large and successful plantation farms owned by whites, and divvying up the land to give to his political cronies and 'war veterans', who often knew nothing about farming. These people became 'telephone farmers', screaming at their hired hands to work harder while the farming system collapsed.

The seizure of the farms - operating on ongoing credit lines from Zimbabwe's banks - collapsed the Zimbabwe banking system.

And both to compensate for the bank failures, and to issue direct payments to the 'war veterans' of the millions in 'bonuses' they wanted to be paid, the central bank of Zimbabwe began printing money, Weimar-style.

The war veterans got what they wanted - land and 'millions' - but the farms did not produce without good management and available credit, and the 'millions' in cash turned out to be worth ... just a few of the old Rhodesian dollars.

Fri, 09/14/2012 - 03:13 | Link to Comment AnAnonymous
AnAnonymous's picture

Zimbabwe had long been a rich agricultural nation which used to export food.

_______________________________

How many rich agricultural nations are used to being on food aid programs?

Zimbabwe was not a rich agricultural nation. It was a nation that was shaped by 'american' economics.

Produced food was looking for the best price that be on the world market (free market), and such exported (not many locals could afford the exotic food that was produced in order to appeal to 'american' customers)
To make up for the lack of food directed to the local populace, the nation was put on food aid programs (aka debt against food)

Zimbabwe never was a rich agricultural country. It was run a country run by 'american' economics, like to an extractive process.

Only in 'american' minds are rich agricultural nations on food aid programs.

Fri, 09/14/2012 - 07:52 | Link to Comment johnQpublic
johnQpublic's picture

horse--->cart

 

 

notice how i've put the horse before the cart....

Fri, 09/14/2012 - 07:13 | Link to Comment SAT 800
SAT 800's picture

The new peoples revolutionary government kicked out the white farm managers and gave the productive acerage away to local spear chuckers, who squatted on it, shit on it, and sat around and picked their noses on it; surprisingly this did not produce really good agricultural yields.

Fri, 09/14/2012 - 08:40 | Link to Comment AnAnonymous
AnAnonymous's picture

How does this relate to Zimbabwe being a rich agricultural country?

Zimbabwe never was that.

Fri, 09/14/2012 - 10:54 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

So now you lie like an oriental rug? How about Rhodesia, was it ever a rich agricultural country? Those farms had poor soil, did they? Also, I would like to call you out for another egregious statement:

It is going to be hard to make up for the lack of resources looming ahead, 'americans' do not know how to overcome the environment. They know how to steal it from a third party.

That is rich coming from a PRC Autobot.

http://www.chinahush.com/2009/10/21/amazing-pictures-pollution-in-china/

http://rt.com/news/nitol-microsoft-malware-pre-installed-laptops-054/

Fri, 09/14/2012 - 12:34 | Link to Comment AnAnonymous
AnAnonymous's picture

That area of Africa has probably the best soil in the whole continent.

'Americans', when they rob, they do not rob valueless stuff...

Sat, 09/15/2012 - 03:28 | Link to Comment akak
akak's picture

 

That area of Africa has probably the best soil in the whole continent.

But it still cannot rival the agricultural enhancement provided by good ol' Chinese Citizenism human-derived roadside nightsoil.

Fri, 09/14/2012 - 02:42 | Link to Comment Uber Vandal
Uber Vandal's picture

 

http://ycharts.com/indicators/producer_price_index

US Producer Price Index represents a monthly annualized growth rate of 19.96%, compared to a long term average annualized growth rate of 3.11%.

 

http://ycharts.com/indicators/consumer_price_index

US Consumer Price Index represents a monthly annualized growth rate of 0.55%, compared to a long term average annualized growth rate of 3.62%.

 

Fri, 09/14/2012 - 01:41 | Link to Comment Colonel Klink
Colonel Klink's picture

Gold Bitchez!

Sorry the best I could come up with.  I'm all commented out.  Just tired of the shit.  Is there any way to make it stop, short of suicide?  Our politicians, judicial system, executive branch, and law enforcement are all essentially worthless!

Fri, 09/14/2012 - 14:40 | Link to Comment rustymason
rustymason's picture

Don't punch out yet, there's more fun to come. The Zombie Apocalypse will be starting soon!

Here, this ought to cheer you up:

Bracken: What I Saw At The Coup

http://westernrifleshooters.wordpress.com/2012/09/11/what-i-saw-at-the-coup/

 

Fri, 09/14/2012 - 07:01 | Link to Comment SAT 800
SAT 800's picture

Well, Colonel, with all due respect, Sir; I reccomend Silver, Bitchaez!

Fri, 09/14/2012 - 05:18 | Link to Comment Zero Govt
Zero Govt's picture

Bad news, there's a long way to go yet!

Bubble Ben has only just started on propping up bwankers, politicians and the f'n mess they've made of the property/mortgage market

We've got student debt, sub-prime car loans, credit card debt, consumer deposits at banks, corporate debt and segregated funds at stockborkers to bailout yet, from 2013 onward

Then the Fed really gets started on bailing out what's left of the economy, everything from propping up utility companies to fast food, agriculture to subsidising GE to keep their bankrupt nuclear plants from meltdown

And believe it or not bubbles Ben learnt all this from his 'study' of the 1929 Great Depression... academics (village idiots) running the economy, well that's brilliant news!!!

Fri, 09/14/2012 - 05:21 | Link to Comment Colonel Klink
Colonel Klink's picture

Thanks ZG, it's not like I'm gonna eat my gun barrel but man it just pisses me off to no end.

Upswing is at least I have some more time to get a few more things prepared.  Already have a bugout local, great community, and everything we need. Howver I still have a few more things to do while I live in the meantime.  Hoping to enjoy the beach a couple years while I'm at it.

Too bad we can't just establish a ZH community somewhere, but then again it would just make it easier to try to round us up for the FEMA camps for re-edumacation.

Fri, 09/14/2012 - 01:20 | Link to Comment SafelyGraze
SafelyGraze's picture

" how QE works, in just two-and-a-half minutes ... a hilarious video even if you’ve already seen it."

and yet somehow never quite hilarious enough

I just watched the Nank explain how the chief tool of a central banker is to appear to be trustworthy

reminds me of my car. the emergency brake doesn't work; the seat belt doesn't stay attached; the airbag won't deploy. plus, the wipers don't work and the horn don't blow 

Fri, 09/14/2012 - 07:58 | Link to Comment johnQpublic
johnQpublic's picture

" how QE works, in just two-and-a-half minutes ... a hilarious video even if you’ve already seen it."

 

so simple we all can do it

Fri, 09/14/2012 - 10:56 | Link to Comment NewWorldOrange
NewWorldOrange's picture

I'll tell you what's so simple we all can do it:

The criminals and traitors have taken control of America and are hellbent on destroying it, wittingly or not, and we MUST STOP THEM SOON.

On March 15, 2013, march on your city councils, state capitals, DC. Whatever you can manage. At 8am your time, just grab your family and walk into the streets. Refuse to disband or go home until the city councils oblige, the local police oblige, the state capitals oblige, the national guardsmen and armed forces oblige and follow their oaths, and TPTB in DC, including every Congressman, top administration officials, the DOJ heirarchy, have all been arrested and are awaiting trial. Been stocking up on food, water, etc? Stock up more. You'll need it in the streets. Did you think all that preparation was for survival in the woods? Really?

Let the revolution begin. Demands: TPTB are tried for treason against their Oaths to support and defend the Constitution, for cronyism, rampant bribery and corruption, lies, crimes against humanity, malfeasance, and plenty of other charges that not only makes them unfit to serve, but TRAITORS and CRIMINALS and THUGS.

America marches on the Ides of March. 8am local (your) time -- get in the streets. It's our last, best hope. Make this go viral. American Spring.

Stop! Tweet this. Email it to everyone you know. Post in on Youtube, your Facebook page, anywhere. LET'S MAKE THIS GO VIRAL. It's been done and has toppled governments in just the past few years.

IT'S OUR TURN. HELP IT GO VIRAL. If you're not doing it, you're just another Ikea Boy sheeple all talk pussy. So get busy or STFU and bend over bitch. I'm not "the One", you're not "the One", and Will Smith isn't going to come along and save us. If you want to bring on revolution in America, get to work. The pen is mightier than the sword. Get busy using it. All day. Every day. Spread the world.

American marches on the Ides of March.

Fri, 09/14/2012 - 07:14 | Link to Comment i-dog
i-dog's picture

Hmmm ... what possessed you to buy a Jaguar?

Fri, 09/14/2012 - 07:05 | Link to Comment SAT 800
SAT 800's picture

I'm an "old school" car owner; if it has "some air" in all four tires and I can get the engine started; I'm good with it. Fuck the seat belt.

Fri, 09/14/2012 - 02:31 | Link to Comment Michael
Fri, 09/14/2012 - 03:14 | Link to Comment Michael
Michael's picture

Tony Blair Appointed Senior Advisor to JPMorgan Chase

Tony Blair Confronted At Leveson Inquiry

http://www.youtube.com/watch?v=hmKHUjYDqCI&feature=relmfu

Fri, 09/14/2012 - 07:06 | Link to Comment SAT 800
SAT 800's picture

tony Blair? that's some sick shit. that dude should be euthanized.

Fri, 09/14/2012 - 06:20 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Please drive a large bolt through your temple!

How many threads do you have to post the same shit on anyway?

Fri, 09/14/2012 - 12:54 | Link to Comment Ratscam
Ratscam's picture

... financial industry .....
when do people realize that finance is NOT an industry at all?
when do people realize that the defense industry is a war industry?
when do people realize that the medical industry is a drug industry?

i,m so sick of people not calling a spade a spade!

Do NOT follow this link or you will be banned from the site!