Zimbabwe’s Parabolic Inflation To Make You Think...

My last piece was quite long and involved, some liked it and "got it", others not so much.  The breaking of confidence was the point I was trying to get to.  I intend to try again with this writing but from a different viewpoint.  Today, rather than continuing to hammer away at the fraud, collusion, and upside down logic of global politics, economics and finance, let's look at a real world case.  I received a rather long note from a reader earlier this week who was visiting of all places ...Zimbabwe!  I did not ask "why" he was visiting and can only imagine, but in light of where "we are going" it is fortuitous for us to have a pair of boots on the ground!  The following is "the heart" of what he wrote.   Please read this twice so it really sets in, I will comment afterward and hopefully this exercise will "make you think".

...First Hand from Zimbabwe:

"Yes, they try to sell you their funny colored money with lots of zeros on it ROFL. They seem offended when you decline their offers. I told the guy I bought some off of eBay, and got the "deer in headlights" look back. I just moved on.

Anyway, met a guy who was friendly so started chatting. This is first hand from someone who grew up here, born here, lived through the hyperinflation, had a real job, parents, house, savings, etc. I just asked him things point blank: what happened and what did you do during that period just to see what reality was.

His parents were pretty well off, brits of course, retired (or very close) for a normal Zimbabwean. Considerable savings. Not a mil USD (equivalent) but up there ($250K-$500K'ish I think in hard savings).

He said: "They went from set for life here in Zim to not being able to afford a loaf of bread in 2 days." (these were his exact words, not mine, not a paraphrase, the exact statement, I remember it clear as day, and this was only 2 hours ago).

The first question of course I followed with was: Um, why they didn't buy gold? And here you have the story:

He said his parents were very conservative and placed complete trust in the system and the gov. It would never even occur to them to do something like that, and he said they said it would be way way too risky to do something like that (not because it was illegal or anything, but because gold was viewed as risky, asset wise!).

He said he might (!!) do gold next time. His first response was he'll buy a few barrels of oil and keep them in his back yard to sell/barter LOL. Seriously. But he said, yeah, gold would be worth doing next time. I honestly don't think that this option had occurred to him yet even to this very day, until I asked him this question. That's just the feeling I got, as he had to pause like he was thinking about do the head nod (thinking, thinking....) what I just said before he answered.

So even now, if it happened AGAIN, the people would not necessarily turn to gold (wow, wow, and wow!). They would all instead INSTANTLY convert everything (it seemed he was indicating) into dollars to be safe! (another wow, Wow, and WOW)!

I told him the USD was likely on its way towards hyper'ing also. He seemed quite (totally) surprised. He said, he thought the EUR was headed that way, but not the USD. It seems that Zimbabwe feels the dollar is now, and always, solid as a rock."

First, please remember this was a conversation with just one person so it is by no means even a "sampling".  It was however a conversation with someone "who had something ...and lost it all".  The story is important in my opinion for several reasons I will touch on.

"Mathematically", the U.S. dollar is headed for the inferno of hyperinflation.  There is no argument on this point from anyone with intelligence.  Even Harry Dent and Martin Armstrong the most staunch "deflationists" around admit the final chapter is that of wildly high gold prices (which means a breakdown of confidence in the dollar).  The difference between "them and us" is "how" we get there?  I believe we have already been witnessing the "squeeze" and run into the dollar as a "safe haven", they see it as a continuing and future event.

The absolute most important thing to take from our reader's comments is this line  He said: "They went from set for life here in Zim to not being able to afford a loaf of bread in 2 days."  Yes I know, something in your gut is telling you "but we aren't Zimbabwe", the U.S. is far more sophisticated, has the greatest military in the world and of course the "it can never happen here" syndrome is chirping in the back of your mind.  Let me say this, "NO, we are not Zimbabwe, what a shame!".  I might have lost or confused you here and I'll get to this in a moment. 

"Banana Republicland" (debt to GDP ratios of 100% or more) is now occupied by a large percentage of the world's sovereign nations.  The U.S. has more than a 100% debt to GDP ratio just using "funded" or on books debt.  The ratio goes ballistic and out of control when you add in "guarantees and future obligations".  After researching the Zimbabwe situation, their debt to GDP number was not greater than Japan's currently and approximately (180%) equal to that of Greece ...with Italy slightly behind.  My point is this, the debt to GDP ratio in the U.S. when everything is included is some God awful number, maybe 500% or even multiples more!  I have news for you, we are already Zimbabwe on STEROIDS!  Before commenting further, I will refute the obvious, "but the U.S. has the strongest military in the world ...probably yes, but we are stretched out with many various "scopes" targeted at us.  The days of "forcing" the dollar on the rest of the world are waning very quickly!  World War 3 will be our main concern should the U.S. try to "force" dollar dominance.  All you need to do is look around, the ROW is and has been angered by our "forcing" the use of dollars.  They have been reacting by doing trade to the EXCLUSION of the dollar.  The days where our military could foist the dollar on the world are over!

I mentioned above, "it is a shame we are NOT Zimbabwe", can you guess why?  Because the U.S. still "has" (or believes it does) mass wealth.  Yes we have really split into the have's and have nots as the middle class has been attacked and fallen into the have not category but ...our living standard is far advanced from Zimbabwe's in general.  We have more to lose.  In other words, "it is better to have never had than to fall from grace".  Zimbabweans lost their savings, on average their "fall" in living standards is miniscule to an event like that happening in the US...  Not to mention the unrest and riots we will see when people who were previously "entitled" ...wake up to nothing!  As an analogy, their fall was off the bottom rung, ours from a skyscraper!  A very timely side note, while writing this article, the Zimbabwe dollar will officially "go away"  http://www.zerohedge.com/news/2015-06-11/zimbabwe-demonetizes-offers-us5-175-quadrillion-zim-dollars

I also found it curious that this person had not "figured out" gold and to this day still has a feeling of "risk" when it comes to the metal.  Stepping back for a moment, why do you suppose invading forces ALWAYS steal their captor's gold rather than the currency and the plates to make the currency?  Please don't tell me I am living in Roman times, or the Middle Ages, or Napoleonic times.  I am not even living in WW I or II times, as recently as the last several years, Iraqi, Ukrainian, Greek and Libyan gold has ALL been pilfered!  Ask yourself this question, if the U.S. was invaded, would our conquerors steal our dollars or break into our vaults in search of gold (maybe to a very bad and empty surprise?)?

Please think this through for yourself, can we in the U.S. and the West in general wake up to closed markets and panic conditions?  Do you really believe paper currency will become more valuable (for more than a week or two) if the debt markets and derivatives are closed with no bids?  Do you really believe gold and silver will be "offered" in any fashion except maybe for something you have as barter?  I still cannot get over the deflationists argument the dollar will strengthen in this scenario.  The killer question of course is this, where exactly should (can) we store all of these valuable notes and digits "safely"?  I suspect there will be a run on wheel barrows and those old "Radio Flyer" wagons will actually again have a function beyond their antique value!

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 Courtesy of Holter & http://www.jsmineset.com