Monday, Feb 09, 2009
Imagine this...
VOA: Radical Action Needed To Stop Zimbabwe Economic 'Death Spiral'
Hanke, an expert on the phenomenon of hyperinflation which in Zimbabwe has reached mind-boggling proportions with estimates of percentage inflation rates measured in the sextillions, currently declines to put a specific figure on Zimbabwean hyperinflation other than to set a frequency at which the general level of prices doubles - about every 1.3 days.
Posted by gardeniadotnet @ 12:31 AM (520 views) Add Comment
12 Comments
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1. Neo-serf said...
This is the Zimbabwean history that is never reported....
http://www.youtube.com/watch?v=pSYlFwXmPqU
2. charlie brooker said...
" . . . a frequency at which the general level of prices doubles . . . "
I think physicists would term this "half life"
3. paul said...
I can think of a few other places closer to home where this chaps expertise will shortly be needed.
4. bellwether said...
Paul you were saying yesterday that people like you "with brains" could see what is happening. Can you explain exactly how you envisage hyperinflation taking a grip here ie specifically what steps will be taken to get us there and what limits (if any) there are to this. I know Titanic Captain for one would be interested. I am too.
5. bellwether said...
Paul apologies for my initial sentence clearly proving the limits to my own intelligence and confusing you with Chris! Still question stands if you care to answer.
6. matt_the_hat said...
3. bellwether - I think I can answer your question
Q specifically what steps will be taken to get us there
A Printing money (quantitive easing)
Q what limits (if any) there are to this
A The amount of additional money printed
7. bellwether said...
Thanks Matt, could you describe the mechanics of the QE and in particular how £ would get into supply. We are seeing a massive credit deflation - apx 400 billion lost to money supply due to fall in house prices already without cross referencing all the other associated losses to GDP. Assumimg house prices half this will exceed 2 trilion. To create hyper inflation this contraction needs to be overcome first. How specifically will this happen? Referring merely to QE doesn't address that.
Also by limits I was thinking of external pressures on the UK as eg creditors desert or goods and services become instantly more expensive. I think this govt are hugely incompetent but are they really going to pursue an out and out hyper inflationary which would alienate them utterly in world and indeed political terms, and make us poorer almost instantly. There would be no political gain in this. It wouldn't just be a gentle suicide in a running car in a garage, it would be throwing oneself under the train - few amongst even the morbid have the stomach for that.
8. bellwether said...
Incidentally I'm not saying you are wrong, I just want specifics.
9. matt_the_hat said...
1st of all belwether don't complicate the argument too much, if Zimbabwe stopped printing money then inflation would stop (after some transients). Also no government sets out on the inflation path with the goal as hyperinflation, they print money and give it to capitalist who then become richer on the back of the lag between increases in inflation and increases in wages. Wages go up and most people work in nominal terms so there is a feel good factor. The problems occur when a government gets addicted to this false sense of wealth creation, and throughout history whenever governments have tried this all that comes out is war and civil unrest!
As far as your credit deflation argument - I think this is false - the amount of personal/corporate debt in the UK has remained fairly constant (a fall in house prices does not reduce your mortgage unfortunately - DEBT IS REAL HOUSE PRICES ARE AN ILLUSION). I think what we have is a reduction in the velocity of money, i.e. people buying things, that is what is creating the delusion of deflation. Its easily sorted though, you find the most reckless members of society and give them money to spend from the most prudent that won't (savers). The government has done this with the people who have taken out mortgages in the last 5 years, a friend of mine said to me that his mortgage has gone down since they have come off the teaser rate!! Do you think they will over pay on their mortgage or upgrade the plasma!!
10. matt_the_hat said...
Sorry your first question: could you describe the mechanics of the QE and in particular how £ would get into supply.
Type on a keyboard a large random number, buy all toxic debts from the banks (bad bank very bad bank), inject capital into banks (reduce fractional reserve requirements) by underwriting banks by the newly created money. Banks in theory would then lead this new money, money supply is increased and people will by things increasing the velocity of money also.
11. letthemfall said...
bellwether
I think hyperinflation is very unlikely here. There is no comparison between the UK and Zimbabwe, a country which has had its means of production almost totally destroyed.
12. bellwether said...
I think that's right letthemfall although we are a site full savers and I guess pessimists - we really should be celebrating the fall in asset values and if we think inflation is going to rip ( you and I don't) backing our view and buying assets up.
Matt I don't think I was complicating it, I don't really care if this turns out to be an inflationary or deflationary recession just as long as I've made the right decisions. I do think detailed analysis is needed. Just referring to hyper inflation, weimar, printing press doesn't make it true. Not saying that of you but a lot of the people on site who see this as hyper inflationary don't tend to do the analysis beyond alleging any view to the contrary is govt conspiracy. The following article posted yesterday is worth a read on the subject.
http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html