Hyperinflation 28 Comments

Zimbabwe cash

Inflation; the process in which prices of goods and services increases through a period of time. Usually the rate of inflation is measured annually for most if not all currencies.

Here in bernos our European customers have even suggested that our prices are cheap in comparison to what they pay at the Gap or where ever it is they shop. The fact is the American dollar has been losing its value over the past four years or so and giving our European expatriates as they saying goes ‘more bang for the dollar.’

We all know what it is and I am sure we have experienced it. I remember once counting 37,000 drachmas and thinking “wow that that is a lot of money.”

Then I found out that 1 American dollar costs about 220 drachmas. At that rate 37,000 is more than 150 dollars. If you are shopping for a suit inGreece
you better be carrying 50 G’s. I am sure by now the drachma is obsolete as the Euro is getting prevalence.

I am sure there are other currency’s throughout the world in which one currency holder has advantage over another. In Ethiopia
for example expatriates vacationing can spend like millionaires and not feel the pinch if they were vacationing inMiami
for example.

Subsequently, it’s no news to carry large amounts of cash to buy a cone of ice cream in some parts of the world, but then I heard:

$1 now equals 25,000,000 Zimbabwe

As reported on CNN last October I was surprised to hear one American equals to one Zimbabwean. Ok fine, it’s officially crazy when you have to spend millions for one meal. And then it surpassed officially crazy when the rate kept going up to 25 times the million in less than 6 months.

if you want to buy a decent suit, you need a truck to carry all that cash.

28 Responses to “Hyperinflation”

  1. 1 ethiopioneer

    I am wondering if there is any better in this world in future.

  2. 2 masinkomelody

    It trully is crazy in Zimbabwe. They recently released a $10 million bill but even that denomination does not buy a burger yilalu.

    Though not comparable, ET is also on an inflation hike too. I was in Addis in January and couldn’t believe the rate at which my money was dissapearing. Life has really become expensive. I have no idea how low income households are surviving.

  3. 3 justme

    where is cheap place to live then??

  4. 4 Ye-Inatu-Lej

    y’all have to thank the Federal reserve board’ monetary policy for the current binge of money printing. The Greenspan ‘kookoo-loo’ from his 96′ “irrational exhuberance” comment to his lax policy of the early 2000′s, led us to the real estate bubble. I don’t remember the Fed stepping-in to save the idiots that loaded up on internet stocks on margin and got wiped out – so the current move to save people from losing the homes they can’t afford is just ridiculous. You gamble, you lose, you pay!! Yes the feds responsibility is partly to provide liquidity but letting the markets drive valuation is what free market is all about. Let China and other sovereign funds capitalize the system and let it walk without crutches, even if it means we might be in a recession for a good period of time. Take a look at what the Japanese did, their banking sector turned into a mess their real estate and stock markets collapsed and interest rates went down to zero. Well, I don’t see a low rate policy turning their economy around. Keep watching the CPI and dream of TIPS!!! The fed will continue to print $$’s!

  5. 5 Dr. Ethiopia

    Every time i hear inflation, i cringe. In Ethiopia, price on every day thing has been skyrocketing like crazy or so i hear since i have been back home for a decade.

    But from time to time i check the price of things, and it seems to just go up by will. I cringe when i hear inflation because, i wonder what it must be like for the poor. It is REAL out there.


  6. 6 sosina

    Ye-Inatu-Lej, hmm..Don’t think anyone is for bailing out the dimwits who tried to buy homes that they clearly couldn’t afford. But what does letting it all BE lead to? What will the domino effect be as it ripples through our entire financial infrastructure? Are forced sales going to bring us back to the true ‘valuation’ of all mispriced assets? Free markets being what they are, unless you are a total purist, you have to agree that sometimes they do get it wrong. If you let this apply to all those turd-blossom assets sitting on all the banks balance sheets that are ‘valued’ by the market at close to nil it won’t be long before we find out that all of them will be technically insolvent. I’m no fan of Benny and his helicopter but the alternative is insanity of great-depression proportions.

    I recommend Akerlof’s Market for Lemons. Our market is rife with asymmetrical information where all these insanely complicated instruments were sold to tiny municipalities in rural Germany, once it is made public that the majority of said instruments are turd-blossoms, the free markets failed to exist for both good and bad instruments. Akerlof says something like when the percentage of good assets to bad assets is skewed to the prior due to asymmetry of information, markets cease to exist, it doesn’t even attempt to price anything. Or something like that. It’s been a while since I read him. Fascinating though.

    Ah, I love this bernos site. So many topics. I feel like I’m back on campus with all the crazy ideas.

  7. 7 Ye-Inatu-Lej

    Sosina, Here, a dozen “Semper Augustus Tulips” for you. Pretty huh…? You have my favorite cousins’ name and I really enjoyed your argument, so what the heck – a little splurge! Now that you’ve set me back $6,820 in the hole by the mid-1600’s standard, without accounting for inflation (by the way you’re absolutely worth every $$) I have to figure a way to get rid of this liability off of my credit report (see, I’m trying to buy that Vespa I’ve been eyeing for the past week). Sosi, you know you can’t squeeze $6,820 out of my bank account these days, but for your pleasure, I took the notes from my deadbeat friends that borrowed money from me in the past, took all my credit cards that I play ‘ende’n dino’ with to figure which one I should pay next – packaged all the other junk I carry then knocked on S&P and Moody’s doors, and walked out with AAA AA1 kisses. As you said a municipality in Germany will love me for it, is that really my fault? Let them have it.

    I do get your ‘asymmetrical information’ argument. And, I am a believer that they do get it wrong not just sometimes but all the time. The domino effect has already been felt and I can argue that letting it be will have no additional impact at this point. Although the trigger was obviously the junk in real estate, the liquidity crisis is the banking version of an enema. Let it cleanse itself. In the U.S. Housing is around 4.5% of GDP and in 2007, strong exports more than offset housing weakness. Housing shrunk by -$120Billion as exports grew by +$200Billion over 2006, and ytd exports seem to be doing quiet well. So the cleansing is bringing risk to the capital markets, the financial sky is not falling, sub-prime is not equal to sub-zero growth.

    Lowering rates aggressively will continue to de-value the dollar. The Fed move to lend $200B in treasuries seems directed at saving Bear Stearns. Let them FALL. If the currency continues to slide Trichet will pound the table, the Japanese will freak-out and G-7or 8 whatever it is these days will do a mouth to mouth on the Dollar as they’ve done 15yrs. Ago. More recently, we’ve lived through the Orange County bankruptcy, LTCM, Internet, 9/11, a couple of wars. There won’t be any systemic failure and the strong will survive. If you noticed no-one these days speaks of commodity prices as being a major cause of the current problem… Gold, Oil, Wheat… we’ll see how it plays out. There is always a market for something somewhere. Sosi, let the turd float while you smell your tulips.

  8. 8 Baheilu

    Drachmas, I was in Greece from ’88 to ’90 and you bring a lot of memory, mostly good. Yes, when one of my brothers sends me $100.00 it will last me for a few months.

  9. 9 Maebel

    wel, since I am in Ehiopia..let me tell you how a typical bachelor is sandwiched with the increasingly sky roccketing inflation of Ethiopia.
    Yesterday, I visit a neighbourhood GULIT to by some KARYA to open my apitite as lunch was ALICHA SHIRO( as I can’t afford to buy BERBERE for it is now 40 sth Birr)
    and I only could buy a single KARYA with one birr. The price of everything is rising dramatically. No wonder if the old proverb about an eag is changed to KES BEKES ENQULAL ANID BIRR GEBA

  10. 10 Mengedegna

    In Zimbabwe the collapse of the financial system, the controversial transfer of land ownership, and the general political climate have resulted in low productivity and high unemployment bringing the economy to its knees. Inflation is simply unreal which is currently well above 100,500%, breaking a world record for a country not at war. The inflation rate is further exacerbated by the country’s central bank printing new currency to finance its domestic expenditure. Most are relying on remittances from abroad which some estimate to be as much as $1 billion US a year.

    On the other hand, Ethiopia’s economy seems to be doing relatively well, at least from what is reported; however, the general increase in price level (inflation) that the country is experiencing could be attributed to lack of control of the money supply by the central bank; excessive government spending; increase in oil and grain prices on the world market and poor domestic harvest.

    In regards to the US, factors such as the credit crunch (as a result of the subprime mortgage crisis); lower interest rates; rise in price of commodities such as oil, metals and grains (largely due to huge demand from emerging markets such as India and China, and also the complex nature of oil and gas trading) are driving the US economy into a stagflation.

  11. 11 Tsedey

    On the other hand, Ethiopia’s economy seems to be doing relatively well, at least from what is reported;

    Relative to what? Zimbabwe? Or its past? Or other countries? Also, in country that inflation is growing alarmingly, can we say its economy is doing well? What is the measure of a growing economy?

    at least from what is reported

    Can we really trust what is reported??

    Just thoughts to ponder…

    KES BEKES ENQULAL ANID BIRR GEBA[/quote] I love the transformation.

  12. 12 Tsedey

    Sorry I meant to quote the first sentence.

  13. 13 Ye-Inatu-Lej

    Did I say “Bear…”?

  14. 14 sosina

    Ye Inatu Lij…you did, you oracle you. weyne, this has been quite the day. All the Spitzer euphoria has worn off.

    Thanks for the tulips. I had never heard of Tulipomania. How interesting and educational. Love it.

    About BSC; I was a summer there and what can I say, it couldn’t have happened to a nicer bunch of sleaze balls. But it scares the shit out of me. If a slight tremor in confidence brings down da bear when years of cranky pot smoking senile jimmy cayne didn’t….who’s safe. And the sad thing is that nobody feels bad for a laid off wallstreeter, aydel? boo hoo as the world’s tiniest violin plays in the background

  15. 15 Ye-Inatu-Lej

    Sosina, i feel very much for you – my desk was walking in a daze a few months ago when we were the headline and the butt of all jokes. Your pain is my pain dear. Next might be LEH they are tapping into a 2B unsecured credit line? NICE! Were you at GS? I have a few friends there and I guess heads are rolling – for all the success, when it’s all said and done there is no mercy. When it comes to BSC, their two failed hedge-funds were the trigger months ago and I’m sure their prime-brokerage is the main reason they’re in this situation now. It doesn’t take much to scare the counterparties and I just don’t understand why they didn’t go out and raise capital agressively end of last year? Now get rid of a couple of monoline’s (FGIC) and there will be blood!!

    The table has turned – isn’t Jimmy a hero in some quarters? As the fed gathered the royalty on the street in 98′, and when asked to contribute a bit more to save LTCM he supposedly threatened to chop off the heads of a few at the table. Fought hard and walked out of that room a hero. Maybe it’s something he smoked that day. Anyways, the fed is just postponing the inevitable – JPM should just buy them .05 on the dollar.

    It’s unfortunate that we can’t enjoy Spitzer’s fall as much. That jerk took money out of my pocket in 02′. Enjoy your tulips, next will be sub-prime scented roses. Oh if you don’t mind where can i get a cd of the “boo hoo and the world’s tiniest violin” might need it for my background noise soon.

  16. 16 Mengedegna

    [quote comment="135615"]On the other hand, Ethiopia’s economy seems to be doing relatively well, at least from what is reported;

    Relative to what? Zimbabwe? Or its past? Or other countries? Also, in country that inflation is growing alarmingly, can we say its economy is doing well? What is the measure of a growing economy?

    at least from what is reported

    Can we really trust what is reported??

    Just thoughts to ponder…

    The statement I made about Ethiopia’s economy growing well was in comparison with that of Zimbabwe’s; however, one could also argue that the economy in the last 5 years or so has generally been performing better than the preceding years.

    High rate of inflation in a country is usually a sign of weakness in its monetary policy (and at times fiscal policy as well). However, a country can grow well and still experience high inflation rate if the money supply in the economy is not monitored by its central bank (i.e. if the supply of money in that country does not match with the demand for money). This sort of problem is often seen in most developing countries whose economy is experiencing accelerated growth. Examples include countries like China and UAE.

    Measures of economic performance include, but not limited to, inflation, unemployment, balance of payments (a statement of a country’s economic transactions with the rest of the world over a period of time) and exchange rate. Although not a perfect measure of a growing economy, a country’s real gross domestic product(real GDP), which is basically the total value of all final goods and services that country produces in a year, accounting for effects of inflation, is currently the most widely measure used measure. In its 2008 publication of index of economic freedom, The Heritage Foundation puts Ethiopia’s GDP per capita at $1,055.

    This measure unfortunately can be a bit misleading, because it ignores other important indicators, such as inequality (distribution of income), the environment, health and education, which all give you a kind of holistic picture. Perhaps a better measure would be the Human Development Index (HDI) which is based on three end products of development: longevity, knowledge and standard of living.

    “Can we really trust what is reported?” Yes, I would like to believe so, at least to a greater extent. However, one should be cautious and question where the information is coming from.

    My yezaGu mengedegna hasaboch

  17. 17 Tsedey

    Thanks Mengedegna. As much as I would like to see our country in the catergory of “developing countries whose economy is experiencing accelerated growth. Examples include countries like China and UAE.”, Ethiopia is among the underdeveloped countries and I doubt if the general inflation explanation applies to us I would think.

  18. 18 Anon


    Interesting how you have Spitzer, your money, tulip, , followed by scented roses.
    The money Spitzer took away went into my pension, and into the pockets of people whose money was stolen and didn’t even know untill Spitzer sent a quake down wall street and made ‘some’ of you empty your pockets. You know the dot com tulip mania was partly fed by collusion between dirt ball investment bankers and equity analyst on behalf their dirt ball clients and themselves. There was Spitzer for the tulip bubble, and I pray Spitzer will came for the busted sub-prime scented rose bubble. Some one has to pay up. Some should go to jail. Spitzer is my hero.

    It’s unfortunate that we can’t enjoy Spitzer’s fall as much. That jerk took money out of my pocket in 02?. Enjoy your tulips, next will be sub-prime scented roses.

  19. 19 spacefog

    Benatachu ,I too heared the price of things is going up. It sort of reminds me of a joke by the late comedian Tesfaye…okey here is the story

    An old lady went to buy a sheep for Fasika right ?

    She asked the price and was really shocked when she learned that it is 400 birr.

    While she was trying to bargain a crazy(ebid) guy who was listening to the conversation with the seller approched her and kept saying ..emama gizut …emama gizut …

    she said ”Antema lije min asab alebih ..bedena gize Abdehal ” …:)

    So Its good that I have gone crazy when I had the time -right?…:)

  20. 20 sosina

    Ye-Inatu-Lej: no not with the masters of the universe. Actually still employed but everyone seems to be waiting for us to fall, so I’m getting ready for the no sympathy.

    Anon: afe qurit yibelilih. “Spitzer is my hero” bilo zim. World’s tiniest violin plays for you too.

  21. 21 Tazbi

    1 US Dollar = 30,591.3 Zimbabwe Dollar

    Nolawi where you get 25,000,000 ?????

  22. 22 Tsedey

    she said ”Antema lije min asab alebih ..bedena gize Abdehal ” …:)


  23. 23 Ye-Inatu-Lej

    Sosina, we’ll live another day.

    Anon, ‘ayiiii’ minew bakih wondem’e? You sounded a bit bitter. Spitzer was nothing but a BULLY!! I doubt a dime of that settlement wall street firms paid went to your pension. He cornered the big names at a difficult time and squeezed as much as he can out of them. The settlement to the most part occurred not out of merit but out of fear that the firms names would get dragged down the street. Reputation is huge, he knew it, and he used it as a weapon. Whenever the party is over, there is always someone crying foul. The public needs to find a better way to cure it’s hangover whenever there is a downturn. I’m not defending the likes of Henry Blodget… If there is a crime committed, then there should be prosecution. But the notion that “someone needs to pay, someone needs to go to jail” just as scapegoat is ridiculous. Where is the fed’s responsibility in this anyway? Do you really believe the reason people are losing their homes is BSC’s, LEH’s, ML’s… fault? Is it really wall streets fault that regulators can’t keep up in setting up safeguards and guidelines to protect the system? How about taking responsibility for oneself? I’m sure your pension allows for different asset allocation, wasn’t it your responsibility to be prudent and have a conservative allocation when you saw the excess? When the likes of the Oracle of Omaha were commenting on the danger of the market, I bet you were watching the street dropouts at CNBC as they were celebrating NASDAQ 5000. The dirt ball investment bankers still think he’s a scum bag – and he did prove most of us right! I am enjoying my subprime scented roses, we run 100/30 – which means we were mostly short the right names ;) You might want to pick up a new hero..Obama?

  24. 24 Anon

    Ye_Inatu_Lej, I am not sure I know who I am after Sosi cut my head off and not satisfied, she zipped me up.

    I can’t even call Cramer to say: double booooya Cramer… tell me this, why are the Street guys resentful? They call you Street drop-out. Is it because you turned their industry into an entertainment industry? And in the process everyday you prove what many have proven before—majority of the analysts are no better than a dart throwing monkey at picking stocks. After all you made your money before you dropped-out for entertainment and fun and still make money… more money. You son of a gun Cramer, you gonna get shot… get a body guard.

    Seriously, I agree the regulators are *more* at fault now and then. I agree Spitzer was a bully: every suspect gets bullied (not tortured) to plead guilty; fear is the antidote of greed. And I agree reputation is big in corporate America. But for Obama to be my hero, I have to see the result.

    And I understand and sympathize with you and Sosina and my friends at @ the Street who must be going through a lot right now.

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