Hyperinflation in Zimbabwe

[danberkeley]

So am I right to be hedging against both? I believe that a pronounced deflation will make dollars worth more and gold worth considerably less (when indexed in dollars, of course), while inflation will make the gold worth quite a lot (of dollars).

Yes. Gold is a hedge against inflation. That means that it is NOT a hedge against deflation. So, sell your gold as soon as begin deflation. But, when will deflation come? Not any time soon.

The trick with thinking of money units is that it's relative to a given good. I can think of dollars versus gold, sure. Ultimately though, Dr. 3D is right: you can't eat dollars or gold. Non-perishable food and overall preparedness is probably the best investment!

Yes. Other commodities are being hit by inflation. Wheat, coal, copper, et cetera are mush more expensive (in terms of US dollars) nowadays.

Question: What exactly IS the mechanism for deflation (the real definition: contraction of money supply)?? How would the Fed (or govt.) absorb the excess dollars out of the economy?? Would it be enough to simply make the "digital money" in the system dry up? I know that accounts for the vast majority of money, rather than tangible paper dollars.

That's one the most diffuicult question nowadays (i think). The Fed could start by NOT CREATING more inflation. Also, real economic growth means that prices go down. The problem, though, is that the Fed is expanding the money supply at a faster pace.

 

[tpreitzel]

Yes. Gold is a hedge against inflation. That means that it is NOT a hedge against deflation. So, sell your gold as soon as begin deflation.

Personally, I'd sell gold in a deflationary environment ONLY if speculating. By speculating, one can make a bit of money, though. Many hold gold to preserve a portion of their wealth without worrying about trends in the market.

 

[danberkeley]

Personally, I'd sell gold in a deflationary environment ONLY if speculating. By speculating, one can make a bit of money, though. Many hold gold to preserve a portion of their wealth without worrying about trends in the market.

Correct. But we are no where near the end of inflation in the USA. Buying gold as a hedge agaisnt inflation is far better than opting for a CD or Money Market.

 

[JordanQ72]

I'm not sure why they are even bothering to quantify the inflation rate. I mean, somebody went to the trouble of calculating a 66,212% rate of inflation?

Wouldn't it be logical at that point to say "fuckit! This money is crap! I'm not compiling these statistics, because by the time I finish, whatever you offered to pay me for these calculations won't be worth my time!"

It's not that bad actually. It comes out to something like a 1.5% daily inflation rate. Yes, your economy is completely fucked, but you can still calculate the rate at which it's going down the crapper easily.

Also, Zimbabwe is an interesting case. A lot of stuff went wrong to get us here. First off, Mugabe is a moron. I'm not talking how people see Bush or Bernanke as economic morons, I mean a truly clueless person.

It began with him chasing all the white people off what used to be Africa's breadbasket. He then gave the land away on basically a cronyism system of distribution. These people knowing dick all about farming, simply sold off and stole everything that wasn't bolted down, abandoning the farms, and collapsing the agricultural sector. It also lead to massive unemployment, with everyone working on or associated with the farms being let go.

It then gets worse because Mugabe believes everything to be this overarching 'white conspiracy' against him, even the basics of economics. In the face of this, and contrary to the advice of every economist he questioned, he simply decides that giving everyone large sums of money is a great idea, I'm talking yearly salary worth. When the obvious hyperinflation kicks in, he figures he can simply give people more and more of this money. He believes that if he gives people enough money, the basic food goods they need will somehow appear on the shelves. That the issue is that people are too poor, not that his country simply can't produce the food anymore.

When they started having food shortages from the broken agricultural sector, he starts putting price caps and rations, thinking that this will stop inflation, and prevent nonexistent greedy rich people from buying up all the nonexistent food. They fail as expected, and here we are.

 

[Primbs]

Pretty messed up situation.

Just goes to show you how political systems can destroy an economy.

Because most of the world have socialist, controlled economies many of the countries are having money and economic troubles.

Lack of freedom and centralized planning lead to these disasters.

 

[Doktor_Jeep]

What they did to the white farmers in occupied Rhodesia compares to the way the Germans treated Jews.

Just google it and you will see the atrocities commited against the farmers.

So I say, let the bastards starve.

 

[danberkeley]

What they did to the white farmers in occupied Rhodesia compares to the way the Germans treated Jews.

Just google it and you will see the atrocities commited against the farmers.

So I say, let the bastards starve.

The same thing happened in Russia and South Africa.

 

[AceNZ]

Question: What exactly IS the mechanism for deflation (the real definition: contraction of money supply)?? How would the Fed (or govt.) absorb the excess dollars out of the economy?? Would it be enough to simply make the "digital money" in the system dry up? I know that accounts for the vast majority of money, rather than tangible paper dollars.

The money supply is contracted in at least the following 3 ways:

1. A reduction in net bank loans. Banks create many times more money than the Fed does. Loans can be reduced either by paying them off or by defaults. When banks don't create new loans at a faster rate than they are being reduced, then there is a net reduction in the money supply. Note that defaults have a compounding effect because they destroy reserves, which further impacts a bank's ability to create new loans.

2. Through FOMC actions by the Fed. When the Fed sells treasury securities in the open market, the money supply is reduced. This also reduces bank reserves, which produces a compound effect, since the maximum amount of money that banks can create is a multiple of bank reserves.

3. Money can also just be removed from circulation. This can happen if it goes overseas, for example. Or if people pull cash out of the bank and hold it rather than spend it.

Aren't we going through a depression in the midst of inflation?

Not yet. A "depression" is usually thought of as a 10% decline in GDP. We're down a little over 2% so far (according to shadowstats.com), which is still considered to be a recession.

 

[Acala]

Inflation

Check out the prospects for world inflation and. of course, inflation in the USA:

http://www.dailyreckoning.com/Writers/Mogambo/DREssays/MG022508.html

 

[fx57]

The whole inflation verses deflation debate in regards to the US economy is silly. It is so simple. We are going to have both: Inflation in terms of dollars and deflation in terms of gold.

This "correction" has been going on for years already, and will continue until the government interference in the economy stops and lets it complete its cycle. When you see 20% interest rates and a 1:1 dow/gold ratio you'll know the cycle is near complete.

 

[Acala]

?

What do you mean "deflation in terms of gold"?

Do you mean the demand for gold is outstripping the supply?

 

[fx57]

By "deflate in terms of gold" I mean prices of consumer items will go down in relation to gold. A car that costs 30oz of gold now later costs 20oz of gold.

Think of everything in terms of gold and it becomes much clearer what is going on.

 

[forsmant]

Houses are sure getting cheaper in terms of Gold.

 

[Acala]

Why

Why would the exchange value of gold as expressed in other goods change? (Excluding things like houses that are losing value as a result of having been on the crest of a wave of dollar inflation.)

Gold is staying steady against things like oil and wheat. Do you expect the supply of gold to go down? Or are you thinking the demand will go up significantly? I suppose either one is possible in the short term, but is there some long-term change you are thinking about?

Not arguing with you, just interested in your perspective.

 

[danberkeley]

Why would the exchange value of gold as expressed in other goods change? (Excluding things like houses that are losing value as a result of having been on the crest of a wave of dollar inflation.)

Gold is staying steady against things like oil and wheat. Do you expect the supply of gold to go down? Or are you thinking the demand will go up significantly? I suppose either one is possible in the short term, but is there some long-term change you are thinking about?

Not arguing with you, just interested in your perspective.

In The United States, the problem is not a shortage of gold. The problem is that the value of the US dollar is falling because of inflation. This means that the price of gold, in US dollars, has to rise in order to compensate.

Globally, almost every central bank is inflating the money supply which is why our (USA) situation is not, relatively, as bad as it would be if the other central banks were not debasing their currency.

 

[fx57]

Why would the exchange value of gold as expressed in other goods change? (Excluding things like houses that are losing value as a result of having been on the crest of a wave of dollar inflation.)

Gold is staying steady against things like oil and wheat. Do you expect the supply of gold to go down? Or are you thinking the demand will go up significantly? I suppose either one is possible in the short term, but is there some long-term change you are thinking about?

Not arguing with you, just interested in your perspective.

Imagine a 100% gold standard with stable consumer prices. Introduce some fiat currency and it will drive prices up due to inflation. That is where we are at now... prices are extraordinarily high in terms of gold. Gold is cheap.

Now imagine the fiat currency starts collapsing in value due to the end of a bubble and/or loss of confidence. That is deflation of the money supply. Prices will fall until all the fiat is worthless or confidence is somehow restored in it. We are still talking about prices in terms of gold.

If you start talking about prices in terms of unbacked fiat dollars, prices are not predictable any more as they are completely dependent on the rate the Fed creates new money. The only thing you can rely on is that prices will go up, since they have a strong incentive to prevent falling prices and the full capability to do so. Just look at what they are doing right now to prop up housing prices.