When $1.5M is not enough to buy a week's worth of groceries

We are talking about Zimbabwe. Several newspaper have this story about hyperinflation in Zimbabwe today. Prices double daily. Barter has replaced cash.Government regulations only permit the withdrawals from banks of Z$1.5m a day, which is not enough to buy a week's worth of groceries. It is fascinating to read.

Zimbabwe's inflation will rocket to 1.5m% before the end of the year, the US ambassador to Harare predicted yesterday, forecasting massive disruption and instability that will drive President Robert Mugabe from office.

In a telephone interview with the Guardian, Christopher Dell said prices were going up twice a day, sapping popular confidence in a government which is now "committing regime change on itself".

"I believe inflation will hit 1.5m% by the end of 2007, if not before," Mr Dell said. "I know that sounds stratospheric but, looking at the way things are going, I believe it is a modest forecast."

Zimbabwe's official inflation is 4,500% but independent economists and retailers say it is really above 11,000% and picking up speed. The black market rate for the Zimbabwean dollar has slumped, from Z$160,000 to the pound last week to more than Z$400,000. It collapsed further yesterday, tumbling to more than Z$300,000 to the dollar. The official rate is fixed at just Z$250. Mr Mugabe insists that the Zimbabwe currency must not be devalued.

"Prices are going up twice a day, in some cases doubling several times a week," said Mr Dell, who is approaching the end of his posting to Zimbabwe. "It destabilises everything. People have completely lost faith in the currency and that means they have lost faith in the government that issues it.

While perma bears have been trying to paint this kind of scenario in USA, these kind of things are less likely to happen in democratic country and in capitalistic economy. The leader selection process in such countries acts as a check on policy makers. The pendulum swings when next President comes in. If a issue becomes more pressing, alternative leadership emerges, by cashing in on peoples dissatisfaction. Anyone for Mike Bloomberg as President. If he gets elected ( which is unlikely, as per Scott Adams theory Americans usually elect the tall guy with the best hair regardless of his experience or policies)many of the structural imbalances will get remedied. The very hint of his running will send all the President aspirants to copy his economic agenda anyway. So chances of hyperinflation in America are remote.


KN said...

Zimbabwe: Best Performing Stock Market in 2007

Pradeep how does that sound?

Here is the article http://www.mises.org/story/2532

Just got back from 3 weeks in India, are you from there? What an educational experience....but had loads of fun.

Pradeep Bonde said...

Thanks for the link. Hyperinflation is such rare nowadays, that it is interesting to watch Zimbabwe. Latin America also had similar experience many years ago.

Yes I am from India. For most outsider India is overwhelming experience.

Unknown said...

Good stuff again, Pradeep. I don't think there is really a fear in the States of hyperinflation. Most people know and believe that the Fed will stomp out any inflation with an interest rate hike. Just look at how gold reacts whenver the spotlight is put on inflation; it drops. This shows that the general belief is that the Fed WILL control inflation. They have built their inflation-fighting credibility over the past 20 years.

The question that always remains (and that causes stock market volatility) is whether these interest rate hikes have the potential to hurt the economy and earnings prospects. With gold and other resources priced so high in combination with the the inflation gauges being at the upper part of the "comfort range" currently, it is unlikely the Fed will ease. This probability has existed for many months, it is just that Wall St. tends to see what it wants to see.

KN said...

We went to Delhi to Pune then Mumbai, down the coast to Goa and further to Kerala.

Which part are you from?

Pradeep Bonde said...

I am from Pune/Mumbai part. But I have traveled all over India. The company I worked for as Marketing and Services Head had offices in around 1300 cities and towns in India.

QUIKTDR said...

I don't want to appear to be an anti-semite but I cannot see the U.S. with a Jewish President given the state of world affairs.

I hope I am wrong but I believe a Jewish President would enrage a more violent and pervasive anti-American vigor.