Results 1 to 3 of 3

Thread: American investors could learn from Zimbabwe experience ...

  1. #1
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default American investors could learn from Zimbabwe experience ...

    by Bill Bonner

    (snip)"Zimbabwe also continues to provide real world, real time lessons on how markets really work. A Reuters report tells us that the Zimbabwean greenback was pegged to the U.S. model back in April at the rate of 15,000 to one. But now it is June and a single U.S. dollar bill will bring you a stack of 200,000 Zimbabwean dollars.

    Do you see how it works, dear reader? The more the central bank of Zimbabwe puts out dollars, the more people don't want them. This is the way everything works. Quality and quantity vary inversely. In the currency world, an increase in the quantity of money, leading inevitably to a decline in its quality - its purchasing power - is called inflation.

    But oh - if only it were simpler! We now have a phenomenon that not even Mises foresaw. The U.S. dollar increases in quantity - depending on how you measure it - at a speed variously clocked at three to ten times faster than GDP growth. U.S. dollar-denominated derivative contracts now have a nominal value equal to 12 times the total output of the entire world. And so far, people are not exactly eager to get rid of U.S. dollars. At the top end, inflation in art, antiques, collectibles, Shanghai shares, luxury houses and so forth is proceeding at a rapid - though, still not Zimbabwean - pace. At the bottom, inflation in consumer prices is mixed...and middlin'.

    It is surely a Crack-Up Boom we are living through. But things are so cracked and so booming, it is hard to know what will happen next - but we have our suspicions. (snip)

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: American investors could learn from Zimbabwe experience ...

    and about the Crack-Up Boom the author referred to above ...



    (snip)"What is a "Crack-Up Boom?" Von Mises explains (with thanks to Ty Andros for reminding us):

    "'This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.'

    "But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

    "It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last."

    Mises is describing the lunatic phases of a classic inflationary cycle.

    At first, no one can tell the difference between a real dollar - one that is earned, saved, invested or spent - and one that just came off the printing presses. They figure that the new dollar is as good as the old one. And then, prices rise…and people don't know what to make of it. Later, they begin to catch on…and all Hell breaks loose.

    You see, if you could really get rich by printing more currency, Zimbabweans would all be as rich as Midas, since the Mugabe government runs the presses night and day.

    Von Mises died in 1973 - long before this boom really got going - let alone cracked up. He may never heard of a hedge fund…or even a derivative, for that matter. A world money system without gold? He probably couldn't have imagined it. People spending millions of dollars for a Warhol? Twenty million for a house in Mayfair? Chinese stocks at 40 times earnings? He would have chuckled in disbelief. He understood how national currency bubbles expand and how they pop, but he probably never would have imagined how insane things could get when you have a whole world monetary system in bubble mode.

    He'd have recognized the beginning of this bubble…and he'd have recognized the end, but the middle…or the beginning of the end - that would have dumbfounded him. During his lifetime he saw a Crack Up Boom in Germany in the '20s…and a few more here…but he never saw a worldwide Crack Up Boom.

    No, dear reader, no one, anywhere, has ever seen a worldwide Crack Up Boom. We're the first, ever. Pretty exciting, huh? "(snip)

  3. #3
    Veteran Member StuartL's Avatar
    Joined
    Feb 2006
    Location
    European Man Of Mystery
    Posts
    648
    Thanks
    1
    Thanked 21 Times in 7 Posts

    Default Re: American investors could learn from Zimbabwe experience ...

    I am currently about 2/3rds of the way through reading Empire of Debt by Bonner and Wiggin and it is a good read. Not all news. But they write well and have a very logical approach to thinking.

    Similar ideas really. Most of their writing is about huge US debts (govt, corporate and personal) but they clearly know their economics.

    Highly recommended.

Similar Threads

  1. one reason investors may be rushing back into the US$
    By Melonie in forum Member Boards
    Replies: 9
    Last Post: 08-11-2008, 07:13 PM
  2. Replies: 3
    Last Post: 02-15-2008, 03:00 PM
  3. historic date for Zimbabwe ...
    By Melonie in forum Member Boards
    Replies: 15
    Last Post: 10-12-2007, 09:15 AM
  4. my first out of town experience! learn from my bumbling.... :)
    By oodlesofnoodles in forum Newbie Board
    Replies: 6
    Last Post: 11-30-2006, 11:11 PM
  5. Any Current Investors??
    By oceanside in forum Dollar Den
    Replies: 27
    Last Post: 06-11-2006, 01:42 AM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •