Last week, the Zimbabwe central bank announced the distribution of a new $50 BILLION note! That's Zimbabwe dollars. One U.S. dollar is worth 25 billion Zimbabwe dollars. One $50 billion note will buy two loaves of bread. Today. Probably only one loaf of bread by the time it gets into circulation.
That's what happens when a country creates too much paper money, or equivalent credit.
Zimbabwe is not a poor nation in terms of natural resources or literacy. Despite a troubled history since gaining independence in 1980, the former Rhodesia has one of the highest literacy rates on the African continent, at 90.5 percent. And it has a huge asset base of natural resources, with deposits of more than 40 minerals including gold, silver, platinum, copper and asbestos, as well as forest land.
Yet this country is in the midst of hyper-inflation, something few Americans can imagine. The inflation rate is estimated at 231 million percent annually! No one actually uses the currency, making the new notes a waste of the paper they're written on. The unemployment rate there is more than 80 percent, and the economy is shrinking at an alarming rate.
OK, Zimbabwe is an extreme example of what happens when a despotic government takes over the economy. Germany, after World War I, was another example -- but also too far removed from our consciousness to make a current impact. Those images of German citizens pushing wheelbarrows full of currency down the street to buy milk are long forgotten, or a quaint memory.
It certainly couldn't happen here. Our financial leaders are much too smart. And so are we. (I always believe that -- except when I catch Jay Leno "streetwalking" and realize how little our citizens know about current events, much less history.)
The fact that the Congressional Budget Office has just announced a $1.2 TRILLION budget deficit for the year makes little impact. The fact that the president-elect says the stimulus package will involve huge costs on top of that projected deficit is taken with a yawn. After all, we're America. Our dollar is still the world's strongest currency.
If we have to print or borrow our way out of our problems, the world will just have to understand. After all, they're "stuck" with the dollars they already have earned from selling "stuff" to us. That's the money they've loaned to us by buying Treasury bills, notes and bonds. They're even willing to settle for zero percent interest on these loans, which is "proof" of how much they like us and need us to keep our economy going.
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