In today’s post I want to discuss the Zimbabwe Hyperinflation economic crisis that occurred, why it happened, and dive into some key takeaways that are essential we remember in the United States.
How Bad was Hyperinflation in Zimbabwe?
Compared to other hyperinflation events that have occurred around the world recently Zimbabwe really stands out and is pretty well known as the amount of hyperinflation the country experienced was just mind-boggling. It is recorded as being the second highest in history, just behind Hungary in the mid 1940’s. In November 2008, the daily inflation rate was 98% and this may be understating it as the government was alleged to be corrupt and not keeping accurate numbers. So, prices were doubling daily, unemployment skyrocketed to 70% and the economy essentially became a barter economy. The printing of money was so bad the country ran out paper. (Why the US could experience hyperinflation)
Now what caused this country who in 1980 gained its independence from the United Kingdom to have such out of control inflation?
Well as we will see the usual reasons are responsible here.
First off, right from the get-go in the 1980’s Zimbabwe had high inflation. It was high in the 1980’s but reasonable as it ranged from 7% to about 19%. But the key thing to note here is Zimbabwe, even with the higher inflation, was really an economic success story, as it had strong economic growth during this time as a newly formed country.
The early 90’s is when things began to get really fall apart. Zimbabwean President Robert Mugabe began to implement a program named the Economic Structural Adjustment Programme, or ESAP. The primary objective of this was moving the economy from production of non-tradable goods to tradable goods. So, in other words the program prioritized exports over building a diversified domestic economy. And what’s most troubling about this in my opinion? That the program was pushed by the World Bank and the IMF. The program pushed growth among large multinational corporations, not small businesses.
What happened next in the 1990s added more fuel to the fire and we’ll see how allowing the gov’t to have too much power can cripple the economy. In the late 1990’s, the government instituted land reforms to evict white landowners and farmers and then replace them with black farmers. Now why was this a huge problem? Many of the black farmers didn’t know how to farm. As a result, food production dropped rapidly. To make matters worse, the banks didn’t want to loan money out, so this credit tightening rippled throughout the economy. Manufacturing dropped and many people went broke. Crime and corruption rose, and cases of HIV skyrocketed. Food output fell by about half during this time and by about the early 2000’s around 11 million citizens had fled.
Around this time, the Mugabe government which was an absolute disaster began recklessly printing money to finance the Congo Wars. Top army generals were paid ridiculous amounts and corruption ran rampant in the government.
By the early 2000s hyperinflation had arrived, as the inflation rate was over 100%. The country suspended debt repayments in 04′ and was soon kicked out of the IMF. There only path at this point was to print money as sanctions by the US and EU crippled the country. At this time, the government began blaming the hyperinflation on outside events. (Read about hyperinflation in Argentina here)
Life was a disaster for everyday people. Citizens couldn’t speak up for fear of retaliation by the government. The government attempted to ban inflation by requiring businesses to stop raising prices. These price controls failed, as predicted. Multiple currencies were tried and all failed. ATMs couldn’t handle the values of the bills in trillions.
Zimbabwe continued to struggle because of these decisions.
In 2019, Zimbabwe made an attempt to launch a new Zimbabwean currency, and this quickly failed. The first year the inflation rate was 500%. People still preferred to use other currencies, but eventually the govt made it illegal.
What can the United States learn from the Zimbabwe hyperinflation?
So here in the US we can learn from Zimbabwe’s experience. Mismanagement, corruption, excessive money printing – those things drove the economy into dire straits. Here we have a divided political system where politicians move further to the outside and less toward the center. In my opinion, we’re already seeing poor decisions being made with things like ESG and other programs pushed that a large part of the country doesn’t support. Money printing has been out of control for way to long by both the federal government and the Fed.
It’s true that the United States economy is diverse and technologically advanced, but we have to look at what trends are occurring in economy and where they are headed. We are largely a service-based economy, about 70 to 80 percent of our GDP comes from services, meaning services are provided, and products are not made. And this here is fine and dandy when your economy is growing, and all sectors of the economy are doing well. But when things get bad, a service-based economy is going to struggle even more as people cut back on services. Services are often luxuries and things you can do yourself. We depend way too much on other countries for goods and need to bring manufacturing back home.
One other takeaway from Zimbabwe is how govt intervention in farming decimated the country. We have been seeing food supply issues here already the last few years for a variety of reasons and one thing that doesn’t help our future in farming is having big investors buy huge farms and then rent it out at high prices to the people who actually know how to farm.
