Monday, July 28, 2008

what happens when there's no paper to print (too much) money?

From an LA Times "staff writer", a really nice article on the economics and politics of inflation, hyper-inflation, and printing money...

It has come to this: Zimbabwe is about to run out of the paper to print money on.

Fidelity Printers & Refiners, the state-owned company that tirelessly churns out bank notes for the Robert Mugabe regime, was thrown into a crisis early this month after a German company stopped supplying bank note paper because of concerns over Zimbabwe's recent violent presidential election, widely seen as fraudulent by international observers.

The printing operation drastically slowed. Two-thirds of the 1,000-strong workforce was ordered to go on leave, and two of the three money-printing shifts were canceled.

The result on the streets was an immediate cash crunch.

"If you think this currency shortage is bad, wait two weeks. By then it will be a disaster," said a senior Fidelity staffer, who spoke to The Times on condition of anonymity because he would face dismissal and possible violence for talking to a Western journalist. The paper will run out in two weeks, he said.

Fidelity Printers is Mugabe's lifeline. It prints the money to pay the police, soldiers and intelligence organs that keep the regime in power....

If the regime can't pay the security forces on which it relies, it would face economic paralysis -- and potential collapse....

Everything's ok until this sentence. Economic paralysis is not likely (at least anything worse than what they're enduring now)-- if people understand that the inflation will change. Political paralysis is closer. In fact, political destruction is almost certain.

Zimbabwe's economic meltdown harks back to the collapse of its major export industry, commercial farming, after Mugabe's controversial land reform program early in the decade. That left the nation starved of foreign exchange, but government spending went on.

How did it do that? It printed money. But printing more and more money without an increase in productivity fueled rampant hyperinflation.

As hyperinflation spiraled last year, Fidelity printed million-dollar notes, then 5-million, 10-million, 25-million, 50-million. This year, it has been forced to print 100-million, 250-million and 500-million notes in rapid succession, all now practically worthless. The highest denomination is now 50 billion Zimbabwean dollars (worth a U.S. dollar on the street)....

Everyone at Fidelity Printers knows the money printing is propping up Mugabe, the staffer said. Despite the threat to their jobs, some secretly hope for breakdowns and paper shortages, he said.

"I'm happy about this crisis caused by the unavailability of paper," the staffer said. "Because maybe it might lead to a change of things in this country."



Post a Comment

Subscribe to Post Comments [Atom]

<< Home