On Friday, I watched a video clip on the food shortage and hyper-inflation occurring in Zimbabwe. It was about Zimbabweans who instead of enjoying their “golden years” are merely waiting to die because of the country’s dire economic status.
The video brought me to tears to learn that these retirees who diligently saved their entire working lives have a bank account full of worthless money due to hyper-inflation. To highlight the desolate situation, pension in the country pays $1 million Zimbabwe dollars per month (worth less than one U.S. cent), but a sack of onions cost $30 million. How incredibly heartbreaking is it to think of a senior citizen, or ANY individual for that matter, who did all the right things, worked hard and saved money, to find out their hard work is rendered useless and their pension even more so?
So, what is the answer to hyper-inflation? On one hand, the answer is clear: simply stop printing money (contractionary monetary policy). By reducing the money supply, in the long run we reduce price levels → deflation. The tightening of monetary policy will also strengthen the Zimbabwean dollar and possibly make the currency viable once more. On the other hand, we can’t just press the off button on the printer and expect everything to get better. Zimbabwe, like many poor countries, finds itself in the dismal economic abyss known as the "poverty trap". Solve this problem and you can consider yourself the next Nobel Prize winner.
On a lighter note, the previous paragraph reminded me of another video I watched on Youtube. It was a speech by Alan Greenspan. While introducing Greenspan, the presenter made a comment about wishing Economists were one-handed. If economist were one-handed then when pressed for answers on economic issues they wouldn’t be able to say, “Well, on one hand this, but on the other hand that”.
Glad she has two hands,
Your aspiring Economist
Post-script - If anyone wants to watch the Zimbabwean video:
http://www.youtube.com/watch?v=I20UNlC6qWY&feature=related
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