[GJM] "Can the US 'print its way' out of the Unraveling?" [CITS Capital & Debt Watch #130]

[W. Curtiss Priest]

**                                                              ** 
		  W. Curtiss Priest, Ph.D.

	Center for Information, Technology & Society
	    466 Pleasant Street Melrose, MA  02176
	  E-mail: BMSLIB at MIT.EDU, Voice: 781-662-4044


			  August 1, 2007

			Public Issue #130:

		     CITS CAPITAL & DEBT WATCH

	"Can the US 'print its way' out of the Unraveling?"


	 Commentary by Dr. W. Curtiss Priest, Director:

We in the US currently have an Executive Branch that many don't
trust.

For example, one purpose of waging war is to produce economic
activity.

As I have never seen any country, at any time, pass a law stating
that the central government "may not print money, except for the
purposes of replacing worn money taken out of circulation," many
countries at various times have resorted to printing money to
escape financial problems, only to create hyper-inflation.

Less you think that such behaviors are "behind us," we need only
look at Zimbabwe, today.  Yesterday the central bank "unveiled
a new 200,000 Zimbabwe dollar note (see article below)."

While this practise occurs mainly in "third world countries" with
massive debts to other countries, we must remember that Germany
tried to print its way out of the world-wide Great Depression.
Some of us can see in our mind's eye the political cartoonists showing
buyers with a wheel barrel of money to buy groceries.  It was
that era of economic pain that gave rise to nazism.

Batra, in "The Crash of the Millennium," reasoned that this crash
will differ from the prior one by being inflationary.  Why?  The
US has become a "third world country" because it owes massive debts
to other countries.

At $2 billion dollars a day, we borrow from the rest of the world
to feed our imaginary economy.

So, one way to avoid paying debts denominated in US dollars is
to make those dollars worth much less.  If such a country
correspondingly has employment where wages rise at the inflationary
rate, buying power of consumers remains the same, at least for
goods made within the "inflated system."  As Social Security is
inflation adjusted, people receiving Social Security will retain
the same buying power.  Tempting.

But the costs of hyper-inflation are huge.  All fixed pensions
become, essentially, worthless.  All lending by foreign countries
ceases.  That lending does not just decline, as it is now, with a
slow "drop in the dollar" but plummets.  So, the entire imaginary
part of the economy dependent on such borrowing simply disappears.

That disappearance jolts the economy, causing sudden cessation
of buying which immediately appear as huge losses to US companies
producing services and goods.  Many, already burdened with massive
debt either incurred by poor business practise, or imposed by
"leveraged buyouts" (think thieving financiers) lay off workers
and many go bankrupt.  But, hyper-inflation helps them too as
their outstanding debts can be paid by "cheaper money."  But
any US lender is bilked and destroyed.

That countries still resort to printing money in such circumstances
is a testament to some merit in the scheme.  But the disruption
it causes is a great evil.  Business "as normal" is an impossibility
with prices leaping every day.

No country that's gone into hyper-inflation produces any good
news.  Food often becomes scarce.  Most people live lives of
desperation.

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The entries appear in reverse chronological order, with the
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****************************Advertisement*****************************
Subscriptions to the Boston Globe are available at 617-929-2000 Boston
Globe archives are available for a fee at www.bostonglobe.com
****************************Advertisement*****************************

In time of crisis, a 200,000 dollar bill

Zimbabwe battles runaway inflation

By Angus Shaw, Associated Press | August 1, 2007
Boston Globe, p. A3

HARARE, Zimbabwe -- The central bank unveiled a new 200,000 Zimbabwe
dollar note yesterday, double the face value of what had been the
highest denomination bill in a country where bundles of notes are
needed for the simplest transactions.

The Reserve Bank said in a statement that circulation of the new bill
was for "convenience" in business and individual transactions.

The bill is worth $13 at the official exchange rate or $1 at the
dominant illegal black market rate. With five bills a Zimbabwean
millionaire can buy a handful of scarce food items.

Runaway inflation has led to bundles of bills being needed for routine
purchases. Few businesses or even government departments, including
the tax office, accept checks.

They demand cash or same-day bank-to-bank transfers, for fear the
value of the currency will plummet even further before checks can
clear.

Zimbabwe is in its worst economic crisis since independence from
Britain in 1980, blamed largely on disruptions in the
agriculture-based economy in the former regional breadbasket after the
often violent seizures of thousands of white-owned commercial farms
began in 2000.

Last August, the central bank slashed three zeros from the currency
and issued new notes, saying the old cash had become unmanageable and
computerized accounting and regular electronic calculators were unable
to cope with the number of digits in routine transactions.

Since then, official inflation has trebled to 4,500 percent, the
highest in the world.

Independent finance houses estimate real inflation closer to 9,000
percent.

A government edict to slash all prices last month in a bid to curb
inflation has left shelves across the country bare of cornmeal, meat,
eggs, milk, and other staples.

Acute gasoline shortages have crippled transport and commuter
services. The price of gas has been slashed to half the cost of
importing it.

c Copyright 2007 Globe Newspaper Company.

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