Uh Oh ...

Normally I agree with Dave Ramsey, at least at a personal economic level. It is good not to be in debt. And I even agree with him on another idea he spoke of today, but not for the same reason. I do not recommend to my friends to buy gold. My reason is that one does not make all that many $1000 (now $1300) purchases. Gold isn't an investment. It is a parking place. As is silver, which I do own and recommend. $20 increments. Dave Ramsey is worried about a gold "bubble", the price being unreasonably high and going down later. In what? Dollars? Unlike shrimp, lettuce, and even corn, silver and gold stay the same. An ounce of silver is worth an ounce of silver. No more. No less.The ounce of silver that I got for a dollar in 1964 is still worth ... an ounce of silver. The Federal Reserve Note I left in an old coat pocket and found recently now buys about 4% of what it would in 1964. That is the point. Dave Ramsey made a point about the Petroleum bubble last Summer when sweet crude went to $145 a barrel and gasoline was "$5 a gallon", and how that was a bubble too. But he missed the point: it wasn't petroleum nor gold that is the bubble. The dollar is the bubble, and a heavy one at that. When gasoline was $4.50 a gallon here, my ounce of silver bought four gallons of gasoline just like it did in 1964 when gasoline was 25¢ a gallon.

Right now, Mr. Ramsey, gold is at a record high, and silver is as high as it has been since the Hunt Brothers tried to corner the market many years ago. But, this is merely a symptom. The following is a commodity news clip from Friday October 9, 2010 from Brock Associates, a commodities broker to his clients:

Corn, soybean and wheat futures at the Chicago Board of Trade will all have expanded daily price limits on Monday as a result of Friday's sharp gains.
The daily price limit on corn futures will be expanded to 45 cents per bushel from the normal level of 30 cents.¹
...
Price limits will also expand on Monday for CBOT soymeal, soyoil and oats futures. For soymeal, the price limit widens to $30 a ton, from $20.

Straightforward working information that CNN, CBS, ABC, NBC and MSNBC, and even FOX didn't find important enough to mention even though it is a suspension of rules designed to control runaway panic selling and buying. Couple that with this information from today's Economic Policy Journal:

Corn prices have hit a two-year high in early morning trading, jumping more than 8 per cent.
CBOT December corn surged by an expanded daily limit of 45 cents, or 8.5 per cent, to $5.73¼ per bushel, the highest since September 2008. In the last two trading sessions, corn is up more than 15%.

Now, remember that little decal on your gas pump last time you bought gas - "may contain 10% ethanol". Ethanol, alcohol made from corn by Archer Daniels Midland in Clinton Iowa. They are competing with you for the food you eat and the feed that feeds the food that you eat.



No, Dave, you don't have to trade in commodities for the price of commodities to reach down and bite you².
Dave, usually I try to live my live in rules you would approve. I have little to no debt (depending on when you ask me. After a trip or after the next month). But I do have some holdings in silver of which you would not approve. They are not an investment. They are an insurance. Just like term insurance on my life, my silver is an insurance against financial calamity. And just like the life insurance, the health insurance, and more obviously, the fire insurance, I hope never to take advantage of it. I don't track its value from day-to-day looking for my opportunity to sell and make a profit. What would I put my safety net in? Dollars? A 401k?
You often advise your listeners to put their savings in a 401k. Do you suppose that the surge in the price of commodities on Friday and Monday might possibly be connected with a recess hearing at the U. S. Senate on Thursday that revived a long dormant plan to nationalize 401k and other tax sheltered savings plans.

Democrats in the Senate on Thursday held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401(k) plans to more "fairly" distribute taxpayer-funded pensions to everyone.
Sen. Tom Harkin (D-Iowa), Chairman of the Health, Education, Labor and Pensions (HELP) Committee heard from hand-picked witnesses advocating the infamous "Guaranteed Retirement Account" (GRA) authored by Theresa Guilarducci.
...
In a nutshell, under the GRA system government would seize private 401(k) accounts, setting up an additional 5% mandatory payroll tax to dole out a "fair" pension to everyone using that confiscated money coupled with the mandated contributions.³

Which 2000 page lame-duck omnibus bill will this be hidden in? Between theft like this and the regulations-and-debt coming out of Washington, is there any wonder that people are afraid of the future of the dollar?



¹ What this means is that there are no sellers willing to sell at the mandated price high limit. So far, people can not be forced to sell at a loss. Stay tuned.
² Gold here may diverge from the other commodities as it is a hedge against currency variation only, i.e. it does not get traded like all the other commodities primarily as a regulator of supply against future commercial demand - even silver is an industrial metal and traded that way as its primary purpose. Speculation and arbitrage are parasitic riders on the primary purpose of commodity trading; even if, sometimes the tail wags the dog.
³ http://www.humanevents.com/article.php?id=39336

A Monopoly on Monopoly™ Money

Once upon a time in a land that was not far away...

Almost anyone could make a dollar bill. That's right. All the bill was was a certificate of ownership, a receipt. You still get them now - the difference is that with the common green Federal Reserve Note so common, no one remembers that we used to pass the receipts back and forth. The dollar was not the green piece of paper. The dollar was a round piece of 90% silver weighing 0.77344 troy ounces. Under the US Constitution, the US Congress had the sole power to coin money, regulate the value thereof, and of foreign coin... But the certificates, that was a different story. States, banks, companies, cities could and did circulate specie that could be exchanged for lawful money. It wasn't until the Progressive Government became greedy, coveted it all and formed the Federal Reserve, created Income Taxes, and taxed competing currencies, that the government felt the need to channel all our wealth through their hands in Washington.

Just prior to the Great Depression of 1929, there was somewhat of a standardization of currencies with new smaller bills - the ones that we use today. There were six major types, three of which survived the Depression. The ones that didn't make it were:


The Gold Certificate. Circulated in ten and twenty dollar certificates, each one represented a coin of gold of its nominal value. Private ownership of Gold and Gold Certificates became illegal under President Franklin Delano Roosevelt in 1932.¹


There were two types of National Currency:


The National Bank National Currency, backed by Treasury Securities that your local National Bank of Hometown had purchased with "lawful money" from and then deposited with the Federal Government's Treasury Department in an amount equal to the currency in circulation. This effectively doubled the amount of money in existence. The following quote from a publication of the Friesian School.

If the problem during the Great Depression had really been that there was "not enough money," then it would be surprising that National Bank Notes were suppressed in 1935 -- the bonds that had been issued to secure banknotes were all discontinued. If, however, it is understood that the political answer to the Great Depression was that only the federal government can be trusted with power over the economy, banking, and money, then the move is self-evident. (emphasis theirs)

And The Federal Reserve Bank National Currency, issued by the Federal Reserve bank, this bill was backed by Treasury Securities similarly purchased from and deposited with the Treasury Department. Aside from no longer differentiating the currency and note, this is not materially different than recent Federal Reserve Bank actions. These continued to be in marginal circulation until 1945.



The ones that survived until more recent times were:


As with the Gold Certificate,The Silver Certificate. the Silver Certificate is a receipt for metal on deposit with the Treasury Department. No more certificates could be in circulation than silver coin in circulation and in reserve. It was a natural limit on inflation. C. Douglas Dillon, Lyndon Johnson's Secretary of the Treasury ordered silver coin to cease being minted in March of 1964,several months after President Kennedy's assassination. The bills ceased being redeemed for silver in 1968.²

The United States Note,
the Federal Government's own fiat currency. Originally issued under President Lincoln, they became bound to an existing quantity in 1878 that continued until 1990s, although in the later years they existed in captivity and were not issued out to the banks and public.

And finally, the monopoly on Monopoly™ money. The only currency now in circulation. The one that (with the United States Note aforementioned) purports itself to be a dollar and not redeemable for one, the Federal Reserve Note. Between the Federal Government borrowing money to back them and the Bureau of Engraving and Printing printing them to belong to and be issued by the Federal Reserve Bank, a quasi-independent corporation, the current currency is a Gordian Knot of evasion of responsibility while retaining the benefit of wealth. Unfortunately, it is ultimately redeemable only in itself.

So was this one:


The advantage of having multiple currencies, was the same as the advantage of the backed currencies, stability to prevent runaway inflation, while still allowing the advantage of the fiat currencies, liquidity (ready availability without hoarding) to match the real wealth of the Gross National Product.

Having a monopoly of merely one currency, and a non-government fiat one at that, is that there is no balance on their checks. There is nothing to moderate the ease of debasing the currency. We will all be the poorer for it.

¹’² Gold nominally backed the US currency internationally under the Bretton Woods system until 1971, when President Nixon ceased honoring a run on the US gold reserves by Charles de Gaulle when the pegged price was less than the international price.

Inflation

'By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. . . . The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.'
- Lenin

On face, there are two types of inflation: Cost increase, and currency debasement. I have heard some say "We cannot be in inflation, the prices are going down, We must be in deflation." No, we are in stagflation and the prices are going down. Think of it as a fire sale. There is a certain amount of desperation to keep any kind of commerce going, but what is being sold is what is already in the pipeline. Little is being created. Nothing is being manufactured in this country. Few ships are on the high seas. The rail-yards sit empty and still. No wealth is being produced to back up the increase in currency. Indeed, the increase in currency is not reaching the people. Where is it?
Just as "Cash for Clunkers" has been an empty promise (ask any auto dealer how many unpaid claims there have been, and the gov't claims to have spent all the cash), and TARP still sits 80% unspent. The reactions of the Chinese and OPEC to uncouple from (dump if you prefer) the dollar are based not on what our President has done, but on the promises of spending that he is making. Just as citizens are buying precious metals as a refuge from what is expected to come, our biggest overseas trading partners are hedging their bets - just in case. But where you or I may have a hundred thousand or two in cash assets, the Chinese and Saudis have trillions and if panic makes your portfolio shrink, think of theirs. They have a dilemma. If they do what the would honestly like to do and run screaming out the door, your hundred thousand would be worthless paper, but so would their trillions of FRNs. They have no choice but to exit gracefully. Lets hope that our people and politicians can wake up before they make that exit.
But more, how do they make that exit? They must spend it (or do something that has been our exclusive province since the Second World War - provide international relief and foreign aid). Currency exchange just passes the buck (accidental pun), and leaves someone else holding the problem. So there is a glut and it requires more dollars to accomplish that same exchange. There is the inflation, and the problem. We, the United States and its President, Government, and bankers think of the dollar as our own. After all, it even has our name on it. But it has escaped our control and ownership. And when the Federal Reserve and the Treasury conspire to buy our own debt, it enters more Federal Reserve Notes into an already glutted system - over there, not here. We are a country lately of entitlement. Just as our people expect that the world owes them a living, so does our financial system. We have sent our earned wealth over to China, and the Mid East in the purchase of transient things. You know the gas is gone, and so are most Chinese goods you have ever bought. Now we are sending our unearned wealth. They have US Federal Reserve and Treasury notes, both of which are promises to pay later. we are going to pay them ... with what?

Wouldn't It Be Nice To Have An Honest Free Press?

What does this tell you about our leading news sources?

Headline The Independant (London): The Demise of the Dollar

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies...

Headline Breitbart: UN calls for new reserve currency

The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the "privilege" of building a huge trade deficit.

Headline USA Today: Letterman gets ratings bump from apology

David Letterman's apology to his wife and staff members means another big night in the Nielsen ratings for the late-night talk-show host, the Associated Press reports. ...

Headline USA Today Money: How to rebuild an investment portfolio after recession's hit

One year after the collapse of Lehman Bros., the average stock mutual fund is virtually unchanged. ...

Headline New York Times (online): Obama Says He Won’t Slash Troops in Afghanistan

President Obama told Congressional leaders he would not substantially reduce U.S. forces in Afghanistan, but he remains undecided about a troop buildup.

Headline CNN.com: Harsh outposts pose serious challenge for U.S.

A base in Afghanistan where eight U.S. troops died in a battle over the weekend was scheduled to be closed in the next few days, CNN has learned.

Headline Time Magazine (Online): The Orangutans of Sumatra Under Threat*

The cultivation of palm oil damages the habitat of the apes of Sumatra.

* To Be fair, I am only dealing with the leading headlines. Time Magazine online did have a link to an editorial What if oil weren't priced in dollars? It stated:"Such a change wouldn't be unmitigated bad news for Americans."

Contango and Backwardation - or Veruca Salt Wants It Now

Now there's some terms you don't see everyday.

These two terms describe conditions in the futures markets. Contango is the normal condition in which things will cost more in the future than now. It is normal because it includes the costs of storage of the real commodity, and the money value of lost interest realized by paying now instead of later. And increasingly in our society the probable effect of inflation of the currency.

Backwardation on the other hand is a bellwether of things to come. If a precious metal like say silver was trading at $16/oz for immediate delivery and trading at $14/oz six months out, the prudent thing to do would appear to be sell your silver now and re-buy it now for delivery in a half year, pocket the $2000 or $20,000 stick it in a CD drawing interest,and retrieve your silver in six months avoiding the storage fees. But it doesn't happen. Or rather it doesn't happen until the difference is sufficient. Why? Because of the risk that you will not be able to retrieve your purchase, and the risk that the money you have drawn off your transaction will have inflated (read devalued) to a greater extent than your gain.

Gold Breaks 1000

1015 actually. The press is so excited! The silver I bought for $14.50 premium (commission) included closed today at $17.41 spot. I am not excited, I am worried. Why? Why am I not happy?

Gold and silver are not investments. They could be, but they aren't at this time. What they are is stores of value. An ounce of Gold will always be worth ... an ounce of Gold. An ounce of Silver will always be an ounce of Silver, no more, no less. Not so for that Federal Reserve Note¹ you are carrying in your pocket.

So why aren't I happy? Because not all of my money is secure in tangible assets. And a gain in Silver or Gold is more than offset by the loss in my savings, my salary, and ultimately, my pension.




¹Note - a memorandum of debt

Why bother?

Money used to come with a stern warning on it about counterfeiting, and a tremendous amount of filigree to make it difficult to copy. In this day and age, with Mr. Obama's predilection for issuing debt at every meal, it might be more economical to abolish the Secret Service's mission to control currency and let the counterfeiters run wild. We could save the money that the SS and the Bureau of Printing and Engraving cost. Even with all the copy machine and laser printers running full time, there would be less unbacked currency than the Government dumps into the economy now.

More Inflation

Remember that 100 Billion Dollar Zimbabwe bill that I posted 10 days ago?
Well, too late. Now you need 100 Trillion to make the same purchase.

Buddy Can You Spare A Billion? Or A Hundred.

In 1980, when Rhodesia became Zimbabwe, a Zimbabwean dollar was on a par with a United States dollar. But they were a little short of cash ... so they printed a few more.

Now the United States is a little short of funds. And the Chinese who have been running a tab for us in US Treasury Bills are having second thoughts. So with the credit card up close to the limit, what do we do?

... print a few more?

It Can't Happen Here ... Can It?

I do not often reprint things like this, so the least I can do is point you to her eBay profile. 6947karen is selling Zimbabuean currency on eBay. This is what happens when the government goes on a printing binge. This is her story. I hope you will buy some from here to show others.

******************************************

First dollar

The first Zimbabwean dollar was introduced in 1980 and replaced the Rhodesian dollar at par. The initial ISO 4217 code was ZWD. At the time of its introduction, the Zimbabwean dollar was worth more than the U.S. dollar, with ZWD 1 = USD 1.47. However, the currency's value eroded rapidly over the years. On 26 July 2006, the parallel market value of the Zimbabwean dollar fell to one million to the British pound.

Second dollar

In October 2005, the head of the Reserve Bank of Zimbabwe, Dr. Gideon Gono, announced "Zimbabwe will have a new currency next year." New banknotes and coins were to replace the then current Zimbabwean dollar. Gono did not provide a name for this new currency. In June 2006, Deputy Finance Minister David Chapfika stated that Zimbabwe had to achieve macroeconomic stability (i.e., double digit inflation) before any new currency was introduced.

The dollar was redenominated on 1 August 2006 at the rate of 1 revalued dollar = 1,000 old dollars. The new dollar is subdivided into 100 cents, although cents are not used in practice. Together with the redenomination, the government devalued the dollar by 60 percent vs. the US dollar (see exchange rate history table below), from 101,000 old dollars (101 revalued) to 250 revalued dollars. ISO originally assigned a new currency code of ZWN to this redenominated currency, but the Reserve Bank of Zimbabwe could not deal with a currency change. Therefore the currency code remains 'ZWD'. The revaluation campaign, which Gideon Gono named "Operation Sunrise" was completed on 21 August 2006. It was estimated that some ten trillion old Zimbabwe dollars (22% of the money supply) were not redeemed during this period.

On 12 December 2006, Dr. Gono hinted in a memorandum to banks and other financial institutions that he would lay out the next phase of his monetary reforms dubbed Project Sunrise Two when he announced the monetary policy review statement in January 2007. It was not possible to get immediate confirmation from Gono's office whether the memorandum was advice to banks that he would be launching the new currency in January. But the chief executive officer of one of the country's largest banks said industry players had understood the governor's memo to mean new money would be introduced next month. A possible name appeared to be "ivhu", which means "soil" in Shona.

The following year, on 2 February 2007, the RBZ revealed that a new (third) dollar would be released "soon" and gave some details of the new banknotes (see below). However, with inflation at the time still in the four digits, the banknotes remained in storage. During the same month, the Reserve Bank of Zimbabwe declared inflation "illegal", outlawing any raise in prices on certain commodities between 1 March and 30 June 2007. Officials have arrested executives of some Zimbabwean companies for increasing prices on their products. Economists generally suspect that such measures will be ineffective at eliminating the problem in the long term.

Economist Eddie Cross reported on 15 June 2007 that "There is talk that the Reserve Bank will cut another three zeros off our currency next week and this would mean that one Zimbabwe dollar would now equal one million of the "old" dollars. Chaos reigns in commerce and industry and those in the public sector are frantic."

The Zimbabwe dollar was again devalued on 6 September 2007, this time by 92%, to give an official exchange rate of ZW$30,000 to US$1, although the black market exchange rate was estimated to be ZW$600,000 to US$1.

Meanwhile the WM/Reuters company introduced a notional exchange rate (ISO ZWD) which more accurately reflected black market exchange rates. Since there was a shortage of foreign exchange in the country the official rate was nearly impossible to obtain. The method of calculation was based on Purchasing Power Parity utilizing the dual listing of companies on the Harare (ZH) and London Stock exchanges (LN).

Third dollar

Reserve bank governor Gideon Gono announced on 30 July 2008 that the Zimbabwean dollar would be redenominated. Effective August 1, 2008, ZW$10 billion would be worth ZW$1; the new currency code was ZWR. The planned denominations to be issued are coins valued Z$5, Z$10 and Z$25 and banknotes worth Z$5, Z$10, Z$20, Z$100 and Z$500. While the German firm of Giesecke & Devrient is no longer printing Zimbabwean currency, The Daily Telegraph reported that the new currency was printed before the relationship was severed and has been kept in storage since then.

Due to frequent cash shortages and the worthless Zimbabwean dollar, foreign currency was effectively legalised as a de facto currency on 13 September 2008 via a special program to officially license a number of retailers to accept foreign money. This reflected the reality of the dollarization of the economy, with many shop keepers refusing to accept Zimbabwe dollars and requesting U.S. dollars or South African rand instead. Despite redenomination, the RBZ has been forced to print banknotes of ever higher values to keep up with surging inflation, with ten zeros reappearing by the end of 2008 (see below).

As of the 29th January 2009 all Zimbabweans are to be allowed to conduct business in any currency.

Fourth dollar

On February 2, 2009, the RBZ announced that a further 12 zeros were to be taken off the currency, with 1,000,000,000,000 (third) Zimbabwe dollars being exchanged for 1 new (fourth) dollar. New banknotes are to be introduced with a face value of Z$1, Z$5, Z$10, Z$20, Z$50, Z$100 and Z$500. The banknotes of the fourth dollar are to circulate alongside the third dollar, which will remain legal tender until 30 June 2009.The new currency code was ZWL.

The Zimbabwean dollar is now largely irrelevant with the economy being almost completely dollarised.

Inflation
v • d • e
Zimbabwean inflation rates (official) since independence
Date Rate Date Rate Date Rate Date Rate Date Rate Date Rate
1980 7%, 1981 14%, 1982 15%, 1983 19%, 1984 10%, 1985 10%,
1986 15%, 1987 10%, 1988 8%, 1989 14%, 1990 17%, 1991 48%,
1992 40%, 1993 20%, 1994 25%, 1995 28%, 1996 16%, 1997 20%,
1998 48%, 1999 56.9%, 2000 55.22%, 2001 112.1%, 2002 198.93%, 2003 598.75%,
2004 132.75%, 2005 585.84%, 2006 1,281.11%, 2007 66,212.3%, 2008 231,000,000% (July).

Rampant inflation and the collapse of the economy have severely devalued the currency, with many organizations using the US dollar, the euro, the pound sterling, the South African rand, or the Botswana pula instead. Early in the 21st century, Zimbabwe started to experience hyperinflation. Inflation reached 623% in January 2004, then fell back to low triple digits in 2004 before surging to 1,281.1% in 2006.

Inflation reached another record high of 3714% (year-on-year) in April 2007. The monthly rate for April 2007 exceeded 100%, implying that inflation may soon exceed all forecasts, as 100% monthly inflation over sustained 12 months would produce annual inflation of over 400,000%. Mid-year inflation for 2007 has been breaching records as inflation for May 2007 was estimated at 4,530% (year-on-year).

On 21 June 2007, the United States ambassador to Zimbabwe, Christopher Dell, told The Guardian newspaper that inflation could reach 1.5 million percent by the end of the year. The unofficial inflation rate at that time was above 11,000%, and the black-market exchange rate was Z$400,000 to the pound.

On 13 July 2007, the Zimbabwean government said it had temporarily stopped publishing (official) inflation figures, a move that observers said was meant to draw attention away from "runaway inflation which has come to symbolise the country's unprecedented economic meltdown."

On 27 July 2007, the Consumer Council of Zimbabwe (CCZ) said its recent calculations for the monthly expenditure for an urban family of six showed that inflation for the month of June was more than 13,000%. The Central Statistical Office (CSO), the official source of Consumer Price Index numbers, had not released its figures since February (2007) when it reported annual inflation at 1,729%.

In September 2007, the Central Statistical Office announced an official inflation rate of 6,592.8% for August 2007. Private estimates were as high as 20,000%. In October 2007, they announced an official inflation rate of 7,892.1% for September 2007. In November 2007, they announced an official inflation rate of 14,840.5% for October 2007.

Hyperinflation
Official, black market, and OMIR exchange rates Jan 1, 2001 to Feb 2, 2009. Note the logarithmic scale.
Main article: Hyperinflation in Zimbabwe

On 27 November 2007, the chief statistician of the Central Statistical Office, Moffat Nyoni, announced that it would be impossible to calculate the inflation rate of the dollar any further. This was due to the lack of availability of basic goods, and subsequent lack of information from which to calculate the inflation rate; plus, most computers had an insufficient number of digits and software. The International Monetary Fund has stated that inflation is predicted to rise to 100,000% per annum.

On 14 February 2008, the Central Statistical Office announced that the inflation rate for December 2007 was 66,212.3%, and the unofficial exchange rate was Z$7.1 million to the US$1.

On 20 February 2008, the Central Statistical Office said that officially, inflation has in January 2008 gone past the 100,000% mark to 100,580.2%.

On 4 April 2008, the Financial Gazette (FinGaz) reported that officially, inflation in February 2008 jumped to 164,900.3%.

On 15 May 2008, the Zimbabwe Independent reported that officially, inflation in March 2008 jumped to 355,000%.

On 21 May 2008, SW Radio Africa reported that, according to an independent financial assessment inflation in May 2008 jumped to 1,063,572.6%. The state statistical service has said there are not enough goods in the shortage-stricken shops to calculate any new (official) figures.

On 26 June 2008, the Zimbabwe Independent reported that, latest figures from the Central Statistical Offices (CSO) showed that annual inflation rose by 7,336,000 percentage points to 9,030,000% by June 20 and was set to end the month at well above 10,500,000%.

The Sydney Morning Herald reported that inflation was likely to be two million percent in May 2008 and ten to fifteen million percent in June 2008, according to John Robertson, a respected Zimbabwean economist. Robertson estimated inflation in July 2008 to be forty to fifty million percent. Inflation can only be estimated because of the impossibility of following the cost of individual goods.

According to Central Statistical Office statistics, annual inflation rate rose to 231 million percent in July 2008. The month-on-month rate rose to 2,600.2%.

As predicted by the textbook quantity theory of money, this hyperinflation has been caused primarily by the Reserve Bank of Zimbabwe's choice to mushroom the money supply.

Since February 2009, following a period of hyperinflation and widespread rejection of the devalued currency, companies and individuals are permitted to transact domestic business in other currencies, such as the US dollar or the South African rand. In consequence, the Zimbabwean economy has undergone dollarization and the Zimbabwean dollar has fallen out of everyday use.

Money supply (2006–2008)
100 million Zimbabwean dollars

On 16 February 2006, the governor of the Reserve Bank of Zimbabwe, Gideon Gono, announced that the government had printed ZW$20.5 trillion in order to buy foreign currency to pay off IMF arrears. In early May 2006, Zimbabwe's government announced that they would produce another ZW$60 trillion. The additional currency was required to finance the recent 300% salary increase for soldiers and policemen and 200% increase for other civil servants. The money was not budgeted for the current fiscal year, and the government did not say where it would come from. On 29 May, Reserve Bank officials told IRIN that plans to print about ZW$60 trillion (about US$592.9 million at official rates) were briefly delayed after the government failed to secure foreign currency to buy ink and special paper for printing money.

In late August 2006, it was reported that about ZW$10 trillion old dollars (22% of the money supply) had not been exchanged for revalued dollars. These bearer cheques were demonetized.

On 27 June 2007, it was announced that central bank governor Gideon Gono had been ordered by President Robert Mugabe to print an additional ZWD$1 trillion to cater for civil servants' and soldiers' salaries that were hiked by 600% and 900% respectively.

On 28 July 2007, it was reported that Mugabe has said that Zimbabwe will go on printing money if there is not enough for underfunded municipal projects.

On 30 August 2007, it was reported that an additional ZW$3 trillion had been printed to pay for 500,000 scotch carts and 800,000 ox-drawn ploughs plus an unspecified number of cattle.

On 3 September 2007, it was reported that that the black market in Zimbabwe is once again booming despite price controls. People who previously were employed for a paltry US$11 (ZW$2 Million) a month are now able to turn as much as US$166 (ZW$30 Million) just through black market trading.

On 24 November 2007, it was reported that money supply was now $58 trillion revalued Zimbabwean dollars (ZWD) ($41 million US at parallel rates). However, Zimbabwe banks could only account for $1 to $2 trillion of those dollars, meaning that members of the public were holding $56 to $57 trillion in cash.

On 4 January 2008, it was reported that money supply had been increased by $33 trillion (to $100 trillion) revalued Zimbabwean dollars (ZWD) Further, the demonetization of the $200,000 bearer cheques was put on hold, thus increasing the money supply.
A selection of Zimbabwe Reserve Bank bearer cheques printed between July 2007 to July 2008 (now expired) that illustrate the hyperinflation rate in Zimbabwe.

The planned issue of additional banknotes (denominations of ZWD 1, 5, and 10 Million) on 18 January 2008 will increase the money supply by an unknown amount.

On 21 January 2008, it was reported, by Gideon Gono, that the money supply had been increased to ZW$170 trillion since the middle of December. Further, Gono expected it to reach $800 trillion by 28 January 2008.

On 1 March 2008, it was reported that documents obtained by The Sunday Times show the Munich company Giesecke & Devrient (G&D) was receiving more than €500,000 (£382,000) a week for delivering bank notes at the astonishing rate of Z$170 trillion a week.

"The regime is surviving by printing money," said Martin Rupiya, professor of war and security studies at the University of Zimbabwe. "At this stage there is no other way."

According to a source at the Reserve Bank of Zimbabwe, G&D was delivering 432,000 sheets of banknotes every week to Fidelity printers in Harare, where they were stamped with the denomination. Each sheet contains 40 notes and the current production is entirely in Z$10M notes. On July 1, 2008, Giesecke & Devrient decided they would no longer print bank notes for Zimbabwe, bowing to pressure from the German government.

In the Guardian, on 18 July 2008, a report on Zimbabwe's inflation, said that an egg costs ZW$50 billion (GBP 0.17, USD 0.32), and it showed adverts for prizes of Z$100 trillion in a Zimbabwean derby and ZW$1.2 quadrillion ($1,200,000,000,000,000.00: approx. GBP 2,100; USD 4,200) in a lottery. It also showed a monthly war pension currently is ZW$109 billion (GBP 0.37, USD 0.74), shops can only cash cheques if the customer writes double the amount, because the cost will go up by the time the cheque has cleared, and people can only withdraw a maximum of ZW$100 billion from cashpoints
Zimbabwe's $100 billion banknote with the number of eggs it could purchase on its release date

On 23 July 2008, an Austro-Hungarian company based in Vienna confirmed that it is providing the Reserve Bank of Zimbabwe with the licences and software required to design and print Zimbabwe currency. The company, named Jura JSP, said it would consider ending its supply of licences and software if the European Union required it to do so. Without the licences and software, the Reserve Bank of Zimbabwe may be unable to print notes in larger denominations than are already in circulation.

On 24 July 2008, the Reserve Bank of Zimbabwe announced that "appropriate measures are being put in place to address the current setbacks being faced on the currency front, as well as on financial and accounting systems. It promised that in "the next few days" it would institute changes to the minimum cash withdrawal limits and IT systems' constraints. Currently, the government limits cash withdrawals to ZW$100 billion per day, which is less than the cost of a loaf of bread. IT systems cannot handle such large numbers; the automated teller machines for one major bank give a "data overflow error" and freeze customers attempt to withdraw money with so many zeros. That same day, the Institute of Commercial Management reported that ZW$1.2 trillion is worth the same as one British pound.

From January to December 2008, the money supply growth rose from 81,143 percent to 658 billion percent.
Date 2006 (July)
Money Supply (ZWD) 45 Trillion
Date 2006 (Aug) 2006 (Sept) 2007 (Nov) 2007 (Dec) 2008
(Jan 21) 2008
(Jan 28) 2008
(March) 2008 (June) 2008 (-)
Money Supply
(Revalued ZWD) 45 Billion 35 Billion 58 Trillion;
67 Trillion 100 Trillion 170 Trillion 800 Trillion 25 Quadrillion more than 900 Quadrillion -

Coins

In 1980, coins were introduced in denominations of 1, 5, 10, 20, 50 cents and 1 dollar. The 1 cent coin was struck in bronze, with the others struck in cupro-nickel. In 1989, bronze-plated steel replaced bronze. A 2 dollar coin was introduced in 1997. In 2001, nickel-plated steel replaced cupro-nickel in the 10, 20 and 50 cents and 1 dollar, and a bimetallic 5 dollar coin was introduced.

Plans by the Reserve Bank of Zimbabwe, for new Z$5,000 and Z$10,000 coins were announced in June 2005. However, the coins never appeared.

All old coins were reintroduced at face value to the third dollar in Aug 2008 and new $10 and $25 coins were introduced. These coins were minted in 2003 but only issued with the redenomination.

Banknotes, traveller's cheques and bearer cheques
Main article: Banknotes of Zimbabwe
£8 worth of Zimbabwean dollars in 2003.

First dollar

At independence in 1980, the Reserve Bank of Zimbabwe introduced notes in denominations of 2, 5, 10 and 20 dollars. A 50 dollar banknote was introduced in 1994, followed by 100 dollars in 1995, 500 dollars in 2001, and 1000 dollars in 2003.

In 2003, with mounting inflation, the reserve bank started issuing travelers cheques in denominations of 1000, 5000, 10,000, 20,000, 50,000 and 100,000 dollars. These were superseded later the same year by bearer cheques, initially in denominations of 5,000, 10,000 and 20,000 dollars, with cheques for 50,000 and 100,000 dollars following in 2006.

Second dollar

The RBZ issued new currency on 1 August 2006, with bearer cheques in denominations of 1, 5, 10 and 50 cents, 1, 10, 20, 50, 100, 500, 1000, 10,000 and 100,000 dollars. There is also a 5 dollar denomination although the note does not appear on any of the reserve bank advertisements. Bearer cheques of 5,000 dollars (dated 1 February 2007) and 50,000 (dated 1 March 2007) were issued in March 2007, followed by cheques of 200,000 (dated 1 August 2007) in August 2007. Subsequently, Gideon Gono of the RBZ announced on 19 December 2007 that new bearer cheques (Z$250,000; Z$500,000; and Z$750,000) had been produced and would be released on 20 December. Additionally, the current high value bearer cheques (Z$200,000) would be demonetized as of 01 January, 2008. However, due to ongoing problems, plans to demonetize this note were put on hold at the end of December.

At a press conference on 16 January 2008, reserve bank Governor Gono stated that "With effect from Friday (January 18), the Reserve Bank of Zimbabwe is releasing the following bearer cheques into circulation: one million dollars (officially worth about US$33/22 euros but worth about 50c at the parallel rate), five million dollars and 10 million dollars." He continued,"...daily cash withdrawals have been increased from the current Z$50 million to Z$500 million per individual." Less than a month after announcing a similar move, Gono said the new notes would provide much needed relief to consumers who often have to go shopping with sacks of cash.

The Zim Independent and Zim Online reported on 4 April 2008 that 25 million dollar and 50 million dollar bearer cheques were being issued as of 4 April. The RBZ also increased the maximum withdrawal limit for individuals to $5 billion a day. The following month, on 5 May, the reserve bank announced that 100 million dollar and 250 million dollar bearer cheques were to be issued as of 6 May. It also had decided to float the official exchange rate to counter black market speculation. A mere 10 days later, on 15 May 2008, the RBZ announced that 500 million dollar bearer cheques were to be issued as of 20 May. It was also announced that agro cheques in the amounts of 5, 25, and 50 billion dollars would be issued on the same day. All of these will be dated to expire at the end of 2008.

The Los Angeles Times reported on 14 July 2008 that a German company has stopped supplying bank note paper to Fidelity Printers & Refiners, the Zimbabwean government-owned company that prints Zimbabwean currency. Virtually incessant use of the currency-printing presses have caused many of the machines to break down, and repair parts are no longer being shipped to Zimbabwe to repair the machines.

The RBZ on 19 July 2008 announced that agro cheques in the amount of 100 billion dollars were to be issued as of 21 July.

Third dollar

Since the Zimbabwean dollar was revalued in August 2006, there were repeated discussions and proposals regarding a further revaluation. As early as the beginning of 2007 it appeared that a revaluation was planned with new banknote designs being commissioned. New plans were announced in October 2007 They were initially postponed until 2008 before, in November 2007, the revaluation was described as "imminent" and would remove as many as four zeros from the currency and would be called Sunrise 2. However, on 18 December 2007, it was reported that a further printing of the current Z$200,000 bearer cheques had been produced, seemingly instead of revaluing. Further new issues of bearer cheques have since taken place.

On 30 July 2008 the RBZ announced a new currency, effective 1 August 2008, removing 10 zeros from the monetary value, by "a factor of 1 to 10".. Old coins from the first dollar in the values of 10c, 20c, 50c, $1, $2, and $5 became legal tender taking the value in new currency(thus, effectively increasing their value 10 trillion-fold), with additional $10 and $25 coins introduced, and notes in the denominations of $1, $5, $10, $20, $100 and $500. The old bearer cheques and agro cheques would continue to circulate alongside the new notes until 31 December 2008, with shops displaying prices in both old and new currency.

However, the familiar cycle of printing ever higher denomination notes to keep up with inflation continued despite redenomination. A $1,000 banknote was introduced by the RBZ on 19 September 2008, and ten days later, as the unofficial exchange rate surpassed 270,000 ZWD to the US dollar, it issued new notes in the denominations of $10,000 and $20,000. A $50,000 banknote was released on 13 October 2008, followed by $100,000, $500,000, and $1,000,000 denominations announced on 3 November. The daily cash withdrawal limit was raised for individuals to Z$500,000 from Z$50,000 and for select companies it went up to $1 million. Banknotes valued at $10 million, $50 million and $100 million were issued as the withdrawal limit was increased to $100 million per week on 4 December 2008.Scarcely four days later, on 8 December, the RBZ issued a $200 million banknote, and introduced a $500 million note on 12 December, worth approximately US$8 at the time In little over half a year, the billion denomination returned, with the RBZ issuing banknotes of $1 billion, $5 billion, and $10 billion on 19 December.

Despite rampant inflation continuing into 2009 that has rendered the currency worthless and spurred increasing dollarization of the economy, the RBZ has announced yet another set of new notes, this time in denominations of $20 billion and $50 billion to be released 12 January. Stepping up another order of magnitude, the reserve bank announced the trillion denomination for the first time, unveiling banknotes valued at $10 trillion, $20 trillion, $50 trillion, and $100 trillion on 16 January. The new notes are supposed to help citizens still in formal employment to withdraw a full month's worth of salary by showing a corresponding payslip. On 2 February 2009 the central bank announced that it had revalued the currency again, this time removing 12 zeroes, causing Z$1 trillion to be reduced to Z$1.

Fourth dollar

On 2 February 2009 the dollar was revalued again, with Z$1,000,000,000,000 being reduced to Z$1. The new banknotes introduced with have face values of Z$1, Z$5, Z$10, Z$20, Z$50, Z$100 and Z$500] The banknotes of the fourth dollar are to circulate alongside the third dollar, which will remain legal tender until 30 June 2009

Dow Jones Soars On Obama News!

Dow Jones up 3.91! Of course it was down 100 times that much several times in the last week alone, but according to the news, that was just a glitch and this is great news.

Coincidentally, I found the following picture (without attribution) on the web and find it to be aptly appropriate with the more general trend of the Dow and the upcoming devaluation of the dollar.

Inflation

the Econ Review

On reviewing this image from a link in the previous blog entry, I noted something. The author has noted the date of freezing wages and prices with a red bar. Look before the preceding point and see if you can find March, 1964. I know you can. That is the point where the minor dance of values makes an abrupt first turn up. It happened almost immediately on the end of anchored currency. There was an instinctual reaction in the Market. People knew even if they didn't realize they knew what was happening to them.


This illustration is borrowed from the Econ Review, a publication of Professor of economics William R. Parke at the University of North Carolina, Chapel Hill. I hope he will forgive me for this uncleared use of his work.

Insufficiency Is Not Economy

A thought came to me as I dressed this morning.In true John Galt style, I work a simple honest workman's job, but one that requires me to wear a uniform. This morning I put on one of my newer uniform shirts. The manufacturer and my employer saved money by the imitation economy of making the shirt-tails an inch or so shorter than they used to be. This has the result of afflicting me with maintenance-man syndrome. Or at least it would if I didn't wear a tee shirt and maybe if I had an ass.

But as a country, we no longer know the difference between quantity and quality, and especially, we no longer know the difference between price and value. This accounts for the success of WalMart and the nation of the People's Republic of China. It also accounts to a large extent for our current economic problems and unemployment.

In keeping with this trend, you can expect Mr. Obama to take one more office of the US Department of Commerce (along with the Census)and put it directly under the White House. The National Bureau of Standards will be made a direct report to the White House and Rahm Emmanuel. The standards of weight volume and distance will be be adjusted so that we will produce more. Where currently we produce a million gallons of orange juice in a given time period, now we will be able to produce 1.5 million gallons. The textile industry through no more plants will be able to produce the number of yards of fabric that it produced in 1960. There is currently one small problem, New York will be more miles away from Washington, DC, but a blue ribbon panel of Chicago Democratic Machine members is working on that problem and expects to have it worked out during the second or third terms.

A similar adjustment is planned for the value of the dollar.

Boil the Frog Slowly

Nations are not ruined by one act of violence, but quite often, gradually, and almost imperceptibly, by the depreciation of their currency, through excessive quantity.

Nicolas Copernicus 1525

Liver and Onions - the Story of My Life

When I went away to college, the dining hall was run by a company known as Saga Foods. Palatable, but not special (except for my dining companions). Except on Saturday night. Saturday was steak* night. Saga Bill would stand outside all afternoon in the Northern Illinois cold grilling steaks over several charcoal grills. Several times I noticed a phenomenon. Just when I got to the point in the serving-line where one would normally be handed their steak on a plate, they ran out. Boom. That's it. I got the alternative choice which no one had taken - Liver and Onions. Now, I like onions well enough, but I never developed a taste for liver. As a matter of fact, I couldn't abide it at all. It was not that I hadn't tried. But the important thing was that the change-over came just when I got there.

Several years later, when I went into the Army it happened every time I turned around. I waited my turn and when it got to me to be my turn, the whole game changed. When I was inducted, the rest of the guys boarded an airplane to fly off to basic training. I was unceremoniously abandoned to fend for myself. In WOCS (Warrant Officer Candidate School) we were hazed constantly by upperclassmen. The practice stopped when my cohort became upperclassmen. When I got to Vietnam, all the others were assigned leaving me standing by myself.

Now, It is about to happen to me again. I have lived my life pretty much by the rules. Behaved myself. Gotten myself out of all debt. Stayed with my job for 25 years. And I am getting toward the portion of the line where they serve the steak - retirement. I never expected much. Just enough to get by on. That miscellaneous cut of meat that is tough, but tastes good enough. But I expected to have some rest (and escape from the ingrateful complaining people adults and children who make up most of our educational system). But as I approach that point in the line, I see the steaks dwindling. The Politicians, the media people, and their cronies have taken the biggest ones for themselves; and more important than that, they are throwing the rest in the trash. They are debasing our currency to buy themselves one more election cycle. They are going to loot our retirements directly by taxation and indirectly by debt so they can get votes and contributions (read bribes) from groups like the UAW and others. They are going to prolong the agony of that meltdown at the expense of my future.

It's not just the stock market, but that doesn't help. That was just a place where people and retirment systems could store their wealth. With everyone trying to escape from being stuck when Obama and the Democrats (in particular, but no exclusively) raise capital gains taxes, no one is buying, so the price goes down and wealth just evaporates.

It is the money itself. Whether the bailout comes from loans from the Chinese ( interest is the largest item in the Federal Budget) or from printing and circulating unbacked currency, our National Treasury is being depleted and our money is not worth as much, will not buy as much, will not support us as much or as long as we planned.
It will not repay our sacrifice in scrimping and saving to accumulate it. And we at retirement will never be able to rebuild our individual wealth.

Whatever I have saved, What ever I have put away, Whatever retirement I have accrued, is about to be liver-and-onions. Just so the politicians can have one election cycle. Just so the UAW can have its overpaid and under-worked jobs for another three months. Just so the executives at AIG can have one more banquet.

And, don't get me started on that line over there for Medical care. Good Medical care is about to run out too. Just wait until the Politicians fix that one.

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*Steak in the sense that they were once beef from real cows. The cut of meat wasn't really a good one, and they were tough, but they had sat in the juices and tasted good enough.

***********************************************

Gold!

On the side of this Blog page is a cute little applet that shows and tracks the price of gold. I don't own any gold, mostly because while it is a great hedge against hyper-inflation, I do not do much in the way of $1000 transactions. Oh, a house, and a camera, and an occasional car, but other than that? For hyper-inflation, I stick to Silver, heavier per value, but its nice twenty dollar per troy ounce¹ increments far more liquid.
BUT, Gold is an excellent barometer of the health of wealth. And in the last 40 hours, I have noticed something. Gold has increased against the dollar by 20% - It went from $775 per troy ounce spot price to $925.10 per ounce. This is an increase of almost exactly 20%. Somebody somewhere with lots of Money² thinks the world just went to hell in a handcart

¹ Not spot - what you or I would actually pay to hold it in our hot little hands.
²First mis-type was Monet. Probably have lots of those too.

As Constant As the Dollar

As Constant As the Dollar
Original photograph by luxomni

These are five of the six kinds of currency in circulation prior to FDR*. Although readily interchangeable for each other, each one really was different. Two of them were anchored in value, because they backed by a coin or block of metal of similar value. In truth, they were a receipt for ownership of that coin or hunk of metal. Therefore it was a "Certificate" of ownership. It was easier to carry and readily transfer the receipt than it was the metal itself. The other bills were promises. "We don't have it right now, it is tied up in other things - i.e. loans or property, but we can get you some metal. Hence it was a promissory note - a United States Note, or a Federal Reserve Note. The last is National Currency. This is a place-holder -- i.e. "We not only don't have it in metal right now, but we don't even have it on loan right now. We will get you some eventually". The purpose is to keep commerce moving. Since "A" will work for "B" and "B" will sell to "C" who will sell to "A" all we need is a barter ticket to keep track of the motion.It self-proclaims that it is exchangeable for "Lawful Money". Ipso Ergo, it is "Unlawful Money".

They were all interchangeable, as was the silver dollar that was really a measured amount of silver (until C. Douglas Dillon, President Lyndon B. Johnson's Secretary of the Treasury ceased redemption in March 1964). Gradually, these bills all have been removed from use, leaving only the Federal Reserve Note in circulation.

To quote the U.S. Department of the Treasury web site, "the [Federal Reserve] notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are "backed" by all the goods and services in the economy." Because that is neither a fixed amount nor relationship, the value is free-wheeling.

But do note that that full faith and credit never seem to work in the public's favor. That 10 cent Pepsi, now a dollar-thirty-nine
-- it wasn't the Pepsi that changed.


*The sixth was the National Bank note or "hometown note" issued by national banks (First National Bank of [Your-town here]) under authority of the Federal Reserve system.

Argentium

Original photograph by luxomni

Please note that each one of these is still worth more than than the four gallons of gasoline that it or the paper dollar that it was exchangable for were worth in 1964*. Can your greenback say the same?

*Bullion value only -- has been hovering at more than five times a gallon of gasoline during July, 2008.

I surprised myself

I have been saying this for a while, but it caught me again. Can it be anything but a conspiracy to keep us stupid?
Ask everyone you know. "Why is gas so expensive?" I have heard the usual litany - "Speculators". "Big oil". "The Arabs".
The answer is , of course, gasoline is cheaper than it was in 1964. Huh?

In nineteen-sixty-four, the Dollar was an instrument called a silver certificate. It equaled and was exchangeable for one silver dollar at any bank. It was also in nineteen-sixty-four that either dollar equaled and was also exchangeable for four gallons of gasoline.

A mere 100 days after the death of President John F. Kennedy President Lyndon Johnson accomplished a goal he had since he was an assistant to Senator Sam Rayburn in the early days of FDR. He demonitized silver and removed the requirement that there be an actual "dollar" for each certificate in circulation. In essence he made the bill the dollar.

Little-by-little, the currency inflated. Now, in 2008, we take those two dollars and see what they buy. The paper one now buys one quart of gasoline - one sixteenth the amount of gas that it bought in 1964. But what of the silver dollar? At today's spot fix for silver and the price I paid for gasoline this very afternoon, one silver dollar would have bought not four gallons of gas as in 1964, but five full gallons of gasoline.

So as you listen to people blame everyone in sight for the so-called high price of gasoline, remember, they are not blaming the groups really responsible for the slipping of our savings and decline of our real salaries, the bureaucracy of the Federal Government and our own Representatives. They are misdirecting us to see the dollar as a constant and gasoline as a variable. But seal up a jar with one gallon of gasoline, and one with a one dollar bill. Come back in ten years and see which one has lost its value.