source: http://www.lewrockwell.com/orig9/trench5.html

Zimbabwe's Inflation by Bill Trench

The fiasco underway in Robert Mugabe's Zimbabwe is merely the latest in a long history of collapsing fiat currencies. As the currency loses value the authorities respond by issuing more of it, thereby ensuring that it will lose even more value necessitating the printing of even more money and so on.

The extent of the currency collapse in Zimbabwe is almost beyond belief, and certainly beyond the understanding of the average citizen. At one time the Zimbabwean dollar was more or less on a par with the U.S. dollar. Not any more. As of this writing one U.S. dollar costs 50 billion Zimbabwe dollars (and this after knocking three zeros off the numbers in 2006). Earlier this month in Zimbabwe a newspaper cost $200,000. Today it costs $25 billion. A beer costs $150 billion. By the time you read this it might cost $500 billion.

The chaos spreads through everything. ATMs and computers cannot handle all the additional zeros. Suitcases full of paper are needed to buy things – what few things are available. The inflation is so rapid that wages cannot keep pace. A worker might find that his bus fare today is more than his weekly wage. Life becomes intolerable for almost everyone. Only Mugabe and his cronies continue to live semi-normal lives. For the rest, the only thing that has helped everyday life to retain a semblance of functionality is the foreign currency sent to help their families by the four million or so people who have fled the country.

Why does the state persist in continuing with such an obviously losing game? There are a number of possible explanations and the answer is some combination of these.

   1. Those in control are shielded from the effects.
   2. Protests are stamped out by a well-paid police and military.
   3. The government dare not admit that it's not in control of the situation and hopes that things will eventually "turn around."

While the above are undoubtedly true, the underlying cause of all inflationary situations throughout history is economic ignorance.

A Los Angeles Times article quotes an anonymous staff member in the Zimbabwe plant that prints the multi-billion dollar bank notes: "People are aware that printing money is also one of the causes of inflation." Right there you have the problem. The fact is that printing excess money is not "one of the causes." It is inflation, as any dictionary will display to anyone who consults it. Rising prices are then the result.

Zimbabwe is not the first and it won't be the last country to take leave of its senses. As America's Founding Fathers well knew, the only thing that will prevent debasement of a currency is to base it on gold and/or silver which are incapable of being produced at a politician's whim. However politicians and bankers love to substitute paper promises for these metals so that they and not the citizens will control the currency.

Every paper currency ends the same way. When we look at Zimbabwe we see a fast-forward version of what is happening to our dollar which has lost about 95% of its value since 1900. Will we, too, see runaway inflation? Unless we return to a gold standard, or men become saints, the answer is almost certainly "yes."

July 17, 2008

Um ok.. Well there's people who agree with the gold standard (or other monetary metals) and people who don't. The larger point and reason behind the idea is to prevent inflation. So there are many ways to go about this and it basically entails a stricter control over the amount of money in circulation.  Can you explain how preventing or eliminating inflation would effect technological advancements as you put it?

I agree that its possible the gold market could be cornered and I don't believe there's much if anything in Knox.

But again, the idea is to reduce (or preferably eliminate) inflation. As I've mentioned before on these forums, some of the proposed solutions are:

This method relies on scarcity and human effort:

1. Currency backed by monetary metals (gold/silver/copper, etc.)

The next following methods rely highly on the benefits of decentralization:

2. Individual States/locales/regions, whatever can regulate their own money supply.
3. Legalize the competition of private currency which is backed by commodities (could be monetary metals, or anything) of the consumer's choosing

Right now the big problem is that the Federal Reserve basically operates like a mafia run organization, has never been audited, and fiat currency can be printed en masse without any repercussion to those in power and of which the customers (us) have no control over.

UPDATE: Detailed analysis on the Federal Reserve can be found here - http://smf.rantradio.com/rantvideo-general/videos-on-the-federal-reserve/0/

Well it's sink or swim at this point. Good luck trying to keep afloat with Federal Reserve Notes, they're tanking. People are going to have to wake up or be bankrupt.

It's not idealistic, all these methods have been tried and proven to work before, in this country.

1. 1880s-1933 (US gold certificate); 1928-1957 (US silver certificate)
2. In the US Civil War Lincoln printed interest free government issued currency (Greenbacks), the Confederacy also issued their own currency during the civil war.  During the Great Depression, many counties printed their own 'local scripts' some backed by commodities and others fiat.
3. Banknotes were a common currency in America from the 1600s-1800s. The Liberty Dollar is a private currency backed by gold and silver that you can use right now. But the government has taken certain actions to bully them into shutting down their business.

Sure. That's fine. Money itself is simply a commonly agreed upon means of exchange. I have no problem with people using whatever they want. But people have chose gold and silver in the past for a reason.  I understand that they're are vulnerabilities with a gold backed system considering central banks currently hold the majority of it, maybe a fiat system is feasible but I have doubts. Avoiding inflation of the money supply is the main goal no matter what the system.

Well, there's a reason why people have a common means of exchange. In the past people have traded their surplus goods, but if someone didn't want your surplus goods, then you were screwed. That's why there's a common means of exchange to trade until you can get the good you actually want. 

It's not really probable in a modern economy to always do straight barter without a 'go-between' as it were. But what that common means of exchange is can be determined by the buyers and sellers in the marketplace.

I don't think it's necessary to have a government to decree a legal tender and make private currencies illegal to compete. Free competition will determine what people want to use.

But I do think money should be backed by some physical commodity, if that's not silver and gold then something else just as useful which is scarce and takes significant human effort to manufacture or process.

Right now our fiat system is based on debt and credit and appears highly susceptible to manipulation and that's a very bad thing.