Inflation, Zimbabwe Style – Spring 2009
Zimbabwe is the first country in the 21st century to hyper-inflate their currency. The country recently had an annual inflation rate of 80 billion percent, which means that prices there are doubling every 12 hours. Needless to say, the economy is now on a barter system. “I’ll give you my pet crocodile and this Game Boy if you will fix my surfboard and fill my moped with gas.”
Let’s say that you own a bicycle worth $100 dollars. With Zimbabwe’s rate of inflation, in one week the bike would cost $1.6 million, and in one month it would cost $115 million trillion dollars, far greater than all of the dollars now in existence.
And that is precisely the point: if we really had the same inflation rate as Zimbabwe, the money supply would be expanding at such an extreme rate that in one month’s time there would be $115 million trillion dollars in circulation for every $100 now in existence.
The U.S. inflation rate (as measured by the CPI) for the last twelve months is actually negative. In other words, we have experienced deflation. The deleveraging of debt securities along with the cheap goods and labor coming online from the developing world have contributed to this deflation, the likes of which we have not seen in America since the 1930s.
Our central bank is uncomfortable with deflation. To combat it and to stimulate the economy they are increasing the money supply at a large rate. The results are predictable.