Gideon Gono Comments on QE3

Gideon Gono, the governor of the Reserve Bank of Zimbabwe who destroyed the Zim dollar by creating hyperinflation, weighs in on the parallels between QE3 and the policy he followed last decade, in the RBZ’s mid-term 2012 monetary policy statement. Gono writes (my emphasis in bold):

2.14 Within this context, the Government of Zimbabwe failed to meet fiscal obligations from budgetary allocations which were severely eroded by rising inflation. As such, the financing of recurrent and capital expenditures presented serious challenges to Government.

2.15 These negative developments threatened to bring the country’s social service delivery system and the economy at large to a complete halt, thereby further impoverishing the Zimbabwean people.

2.16 It is against this background that Government stepped in to save the situation through various interventions by the Reserve Bank of Zimbabwe.

2.17 These interventions which were exactly in the mould of bail out packages and quantitative easing measures currently instituted in the US and the EU, were geared at evoking a positive supply response and arrest further economic decline.

But even still,

2.20 Despite numerous intervention measures undertaken by Government through the Reserve Bank of Zimbabwe, economic activity continued to decline progressively with inflation peaking at 231 million percent by July 2008. Other challenges that affected
the economy include the following:

  • Frequent power outages;
  • Cash shortages;
  • Acute foreign currency shortages;
  • Skills flight;
  • Vibrant parallel market for goods and foreign exchange;
  • Erratic fuel supplies;
  • Endemic speculative and rent seeking behaviour; and
  • Rapid rise in production costs.

2.21 In addition to this compendium of challenges, the value of the local currency declined precipitously as speculative activities intensified. Against this background, transactions were increasingly undertaken in foreign currencies which were more stable and predictable.

Even though Ben Bernanke and Mario Draghi and all other central bankers will try to convince you that what they are doing are really different to what Gideon Gono did, you should really be taking Gideon Gono more seriously, who is basically admitting that the money printing strategy does not work to ‘stimulate’ growth. All it can stimulate are high- and hyperinflation risks.


About Chris Becker

Chris Becker is Market Strategist and Economist at ETM Analytics. Becker is Co-Founder of the Mises Institute South Africa. Visit his personal blog Follow him on twitter @chrislbecker.
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  • Craig

    Interesting – and horrifying. 231 million percent must be a record.

    Some commentators have said that given the size of the stimulus in Europe & the US, there should be much higher inflation than we currently see. Is it true that the inflation has not materialised because the money was directed onto the balance sheets of financial institutions who sometimes even deposited it back at the central banks and that the money has not entered the broader economy due to over indebtedness of borrowers and reluctance of lenders to lend ?

    There is a claim that the inflation has manifested in the stock market and other investment assets. Is that true?

    It also seems (no surprise to Austrians) that the stimulus has not worked to create the desired growth or employment and that it probably won’t (this time either). Given the state of over indebtedness, the lack of growth and low employment, is it not likely that deflation is a more likely outcome than inflation? Is it possible that there could be both inflation (in for example food & fuel) and a collapse of asset prices (equities / property / other investment assets) at the same time? In such a case, if private sector demand has decreased as a result of low employment & over indebtedness can there be any other source of inflation other than government stimulus spending?

    What are the claims of the side which says that this stimulus is different and not the same as was done in Zimbabwe?

    • Bob

      The hyperinflation in Hungary, 1945-46, was worse, according to this paper, on page 12, from the Cato Institute…

      …Zimbabwe peaked at 7.96×10^10 percent per month. Hungary peaked at 4.19×10^16 percent per month. The Weimar Republic was relatively low, at “only” 29,500 percent per month.

    • Noel Falconer MEcon

      Sorry, Craig, 231 million percent is peanuts. The hyperinflation record is held by Hungary, where 400 billion-billion-billion pengõs were converted to one single forint.

      The megalomaniacs so determinedly clinging to power in Washington and Brussels, and Berlin and London, are flirting with a catastrophe beyond comprehension.

  • sbenard

    With central bankers, hubris seems to be genetic. But our central bankers think they are smarter and more sophisticated, so the consequences will be different. They are a textbook case of hubris! Of course, self-appointed sophisticates always think they are the exception, and that “this time is different”. They are consistently proven wrong — but never humbled, mind you! That would be too much to ask! Far too much!

  • Walther Bytes

    An inflation of 231 million percent is indeed shocking. I just looked it up, it was the number per year (extrapolated).
    Concerning Craigs comment I want to add, that I share the same opinion, that all the excess money (which is not literally “printed” yet) has not reached the market and still goes back and forth the banks and large investors. Once it ends up in peoples pockets, the real inflation will start. Necessarily it will happen, because as America clearly shows, the state and its organizations are becoming the biggest employer. He who has the money can spend it as he likes. And the state will spend it by letting people do economically indifferent things like demopraphic surveys, seeding the inflation with their paychecks. At the same time there may be a deflation of prices of consumer products like computers, phones, and things, which are not necessary for survival whereas things that are needed every day inflate (gas, energy, rents, food). At one point in time, people will have to sell properties to afford their living and as a result those prices will drastically deflate, causing other people to sell as well, partially forced by their debts and banks. The flood of fresh money will be put into other things like gold and silver. Things that are money-like but dont lose their value. It will be put into shares, which will drastically inflate, spurring real money printing to meet the demand on the streets (people who withdraw money from the banks). The excess money will cause an explosion in the cost of essential goods, and that – in my opinion – is the spark that ignites hyperinflation.
    Money trickles down from hypothetical goods, to paper goods, to very expensive indivisible objects like living property, to divisible precious goods like gold and silver, to allday goods, causing temporary deflation in the layer it just left (maybe partially corrected by further printing).

    I am convinced, that this will be the inevitable consequence and series of events that wait for us in the next months. Personally I do not believe in the survival of the EUR for longer than 2 years from now. It is quite probable, that by the end of 2013 the inflation is at 20%.

  • 5002 Bay

    I think one of the big differences compared to Zimbabwe is that the status US dollar as the international reserve currency. When that status is weakened and understood I believe the effect of inflation will be more visible. It’s fairly certain that this is in developing and it’s interesting to figure out the time frame for that.

  • Shire Silver

    This actually sounds to me a lot like Gono covering his ass. By saying “we did the same thing as them” he’s deflecting fault.

    • Russell Lamberti

      A central banker deflecting fault. Fancy that.