Hyperinflation Scare: Conservative PDP Fear Mongering

The Finance Minister and other conservatives have responded to my suggestions not by a critical analysis but by flippantly concluding that ruinous hyperinflation would result. This is an old trick of the conservative elite. Their ploy is to frighten the people from the very ideas that will benefit them. They want us to recoil from what might be our very rescue. Because their conservatism is also the economics of the global corporate media, this mythology dominates the airwaves and permeates our economic thinking. People generally have heard but one side of the story. Repeatedly given only one account, they assume that the truth lies in the tale repeated. This article is an attempt to sweep away some of the myths by which the elite steer us from an understanding that befits the national economic interests instead of theirs.

The Finance Minister claimed my prescriptions would lead to situations that existed in Weimar Germany post-WWI, and Zimbabwe and Argentina. I can categorically state the faithful rendition of my suggestions will never lead to such a condition. Numerous countries have walked this path and never came close to gross inflation. America did it in its formative years. It was also this route that led it from the Great Depression in the 1930s (The same with Germany.). China walked a similar path in the 1990s when it began to record its unprecedented growth rates. Meanwhile, each nation that has committed itself to the policy approach of this government has jumped straight into the mire for several years before desperation or common sense forced it to redirect itself to a path more aligned to the one I have drawn.

The examples the Finance Minister offered against my recommendations were a bit odd. A person is unwise to draw analogies to the past without having sufficient historical grasp of the prior situations. The analogies will be prone to be off center as in this instance. The three circumstances she cited are far removed from what I advocate. Either the Finance Minister was being glib, woefully ignorant or both. If her intervention is indicative of her knowledge of history, our economy will be sorely pressed because her knowledge of the past will prove too superficial to do much good in the present.

As a result of losing WW I, Germany was burdened with an onerous reparations bill by the victors. Famed economist, John Maynard Keynes disparaged it as a “Carthaginian Peace” because the war damages exceeded the German capacity to pay without inviting national ruin. The damages amount to a confiscation intended to keep Germany in weak, indebted circumstance for perpetuity. The debt was to be paid in gold or in the currency of the creditor nation. Compounding the trouble, France and Belgium occupied the Ruhr, Germany’s industrial heart, reducing economic activity which further impeded the quest to pay the impossible war reparations. Left with no other choice, Weimar printed vast amounts of its currency and bonds to trade for gold, pounds and dollars in order to redeem the annual war bills when they fell due. Forced payment of an exorbitant external debt causes Weimar hyperinflation. This situation is a far cry from a sovereign nation paying its own citizens a decent wage in its own currency for productive toil modernising the nation’s infrastructural base. Instead of citing the Weimar predicament, the Finance Minister should have studied the different economic trajectories of France and England in the immediate post-war years. England adhered to gold-standard austerity economics. That nation fell into a recessionary trough. France exercised a looser peg to the gold standard and engaged in expansionary fiscal policy. The French economy was much healthier than that of its English Channel rival.

Zimbabwe was also cited. President Mugabe’s land redistribution and other policies caused inflation because these measures resulted in economic dislocation, resulting in diminished productivity and capital flight. However, Mugabe’s hyperinflation came from another direction, an external shock similar to what crippled Weimar Germany. While fronting as a tough nationalist, Mugabe’s Achilles Heel was that he borrowed liberally from the International Financial Institutions (IFIs) and private banks. Debt was denominated mostly in American dollars. The IFIs and banks had always rescheduled his debt as it came due. When he embarked on land reform, the Western governments that control these entities changed their policies. They blocked debt extension. The vast bill became due. His feet to the fire, Mugabe did the only thing he could. He printed Zimbabwean dollars that he may go into the market to purchase American ones. The more local dollars he printed, the lower their value fell against the needed American version. The more he printed, the lower the value fell. The more he had to print. This culprit unleashed the hyperinflation. Finally, Zimbabwe succumbed to the pressure, entering an agreement with the western nations. He gained partial debt payment relaxation after pegging his currency to the American dollar and South African rand, thus surrendering a huge chunk of his fiscal and monetary sovereignty to other nations. After the deal, Zimbabwean hyperinflation disappeared relatively quickly.