Man Wins 500 Billion Lottery, Buys 3 Chicken Eggs, Claims Poverty!

Could it become just worthless paper

Could it become just worthless paper?

The headline may be shocking, but it is an extreme example of Hyper-inflation.  You may think that something like that couldn’t happen here, but you’d be wrong.  The headline cites an example of exactly what happened in Zimbabwe, due to government interference with the economy, and the issuance of currency from a central bank.

The inflation in Zimbabwe hit a record 231 million percent.  Yes you read that right, not 231% but 231,000,000 percent.  How, do you ask could inflation get so out of control?  The answer is simple.  The government issued currency they couldn’t back with hard assets (gold).  The price in the headline is actually correct.  It would take 500,000,000,000 Zimbabwen Dollars do buy 3 chicken eggs.

The gold standard was abandoned by the United States years ago in favor of what is termed  “Fiat Currency.”  The term Fiat derives from the Latin meaning “let it be done.”  Translated into simple english it means: screw you, we print it, you use it.  The abandonment of the gold standard means the government issues as much currency as they feel is needed, leading to periods of inflation, and even hyper-inflation.  Hyper-inflation is defined as inflation that exceeds 50% in a month.  Imagine going to the grocery market one month and paying $100 for your purchase.  When you return next month to do your regular shopping, the bill would be at least $150 dollars for the same items.  For those of you that work, did you recieve a 50% raise last month to cover the increased costs?  I didn’t think so.

At the beginning of 2009 congress passed a stimulus bill that approached 1 trillion dollars in initial cost, and much more in projected cost over the lifetime of the bill.  Let’s break that down.  The average U.S. household earns $27,600 a year according to 2009 estimates, or about $13.26 per hour.  Now imagine you just received your credit card statement and you alone were responsible for a 1 trillion dollar balance.  It would take you 36,231,885 years to pay off (not including interest).  Inflation also hits your bank accounts.  Imagine again that you have $10,000 dollars in savings, and inflation hits 20%.  Well your savings is now worth about 20% less, or $8000 dollars.  You didn’t do anything, and you lost $2000 dollars.  Makes you feel warm and fuzzy inside doesn’t it.

Okay, lets conceptualize high inflation, or hyper-inflation kicks in, what do we do now?  The scary secret that the government doesn’t want you to know about, is the only way to reign in inflation is through interest rates.  Interest is the way the government pulls money out of the market.  Sound familiar?  Sounds like a “hidden” tax to me.  Why don’t banks refer to it as a loan tax when we borrow money?  Its all semantics, a case study in psychological subversion, change the language from something people abhor, and change it to something less disdainable. 

In order to overcome the high inflation that is coming, the banks have to raise interest rates.  I believe when hyper-inflation finally hits not only will we feel the pinch in our pocketbooks in the form of higher prices, but those that are in debt will see the double whammy of extremely high interest rates.  Home loans with an APR of over 20% may not be uncommon, and I loathe to even mention what your credit card rates will be.  My advice: get out of debt now, and lock in low interest rates (if possible) now!

Unfortunately as the United States economic woes continue the U.S. dollar has gone from international currency of choice and a worldwide symbol of US global hegemony, to a widely shunned currency.  The dollar has become so entrenched many experts believe its decline may already be irreversible.  China is advocating replacing the dollar with a more “stable” currency (their own).  If you think we have problems now, wait till you see when the world abandons the dollar, and all of our foreign held debt becomes due.  All of those dollars coming home to roost.  If you think it would be wonderful to be “swimming” in money, it wouldn’t incite a thrill to now know that currency is now worthless.

Published in: on August 16, 2009 at 2:39 pm  Comments (4)  

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4 CommentsLeave a comment

  1. Your story brings back memories of pre-war Germany, where people would actually take wheel barrows full of paper money to the store to pick up a loaf of bread. I do recall reading where people actually burned the money for warmth, feeling that they got more use out of it that way. Are we headed there ourselves? I suppose only time will tell.

    One good thing however, housing sales have gone up 7%. Economies typically follow home sales. Which would be good if history were to hold true in this circumstance.

  2. It’s probably worth pointing out that the increase in home sales may not be an accurate reflection of the current ‘goings on’ in the economy.

    By that I mean that the government is artificially stimulating the housing market, with an $8000 tax credit, just in the same way that it has done so with the unconstitutional “cash for clunkers” program. That program artificially increased car sales while destroying some 450,000 so-called clunkers that would have likely gone back into the used car market for resale to lower income individuals.

    Other factors that appear to be putting the economy back on the upswing may be false as well and may be a reflection of the trillion-dollar spending spree the government has gone on. Once those dollars have been flushed through the system, it will be hard to sustain the current ‘rebound’.

    My guess is that we are looking at the potential for future hyperinflation, although I cannot say when that might happen. However, the mass printing of money is the base ingredient for such an occurrence, and I’m not sure how we will avoid it.

    • You bring up an excellent point. This road is very very slippery without a doubt. It is sardonic in the fact that in order for the rebound to continue, the money must stay in the system, but the banks don’t seem to be putting back out into the system. They are very much holding onto it, which will bring about the same collapse that congress was trying to avoid by infusing the system with worthless money to start with. I suppose at this point, only time will tell.

      • Actually, if the banks were to ‘dump’ the funds they are currently holding, it’s likely that inflation would take off at a breakneck pace.

        The way to fix things isn’t to encourage lending, it’s to encourage savings. Savings are the basis of the capital that is utilized for future investment.

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