BLUF: By analyzing Zimbabwe’s historical hyperinflation and the global shift towards “real assets,” we understand why such assets maintain their value during inflationary times and provide a hedge against such economic instability.
OSINT:
We begin this analysis with a historical outlook on Zimbabwe’s economy, looking back to 2010. Zimbabwe had just about survived a year after the cessation of its notorious hyperinflation. That inflation was so severe – hitting roughly 90 billion trillion percent – that the Zimbabwean government eventually had to abandon its currency. At the time, the Zimbabwean dollar had lost so much value that people were using it as wallpaper.
Previously, Zimbabwe enjoyed a lively, productive economy fuelled by various rich minerals and agriculture. Even after two decades of independence under Robert Mugabe’s rule, inflation was relatively manageable, lingering around 20%. But then, inflation spiraled out of control, thanks to a catalogue of brutal policies brought in by Mugabe. From price fixing to land reform, the effects were deeply felt as Zimbabwe’s economy took a drastic downturn.
The damage was worse when Mugabe’s government rolled out hefty borrowings, inflating the nation’s debt and, ultimately, triggering the central bank to print more currency. The economy got worse. Less capital meant less production of services and goods. And yet, the bank was increasing the amount of paper money. This caused inflation to spiral out of control, reaching almost 600% by 2003, over 1,000% by 2006, and shockingly, 90 billion trillion percent by November 2008.
Experiences from locals who endured the ordeal of ranking up their purchases amidst escalating prices painted a grim picture of the everyday life in a collapsing economy. Everyday commodities would suddenly spike in prices, even as you shop. There seemed to be a constant rush just to pick anything from the shelves before another price hike. Even during a quiet meal in a restaurant, waiters would often update you with the new price for your beer.
It’s important to note that, during trying times, even bread, a staple of life, retained its value or rather served as some form of makeshift currency. This is a solid reminder that: real assets, those that fulfill critical needs, retain value in chaotic economic times. The same applies to consumer`s behavior. During an economic boom, low-interest rates, unemployment, and inflation fuel confidence and optimism, with an increased likelihood for people to spend and borrow. This is mirrored by the top-performing assets.
In recent years, there has been a shift in behaviors favoring ‘real assets’ over ‘recreation assets.’ Despite this, there’s been an enduring mismatch in priorities up to the first half of 2022. A shift in focus is happening, placing more importance on ‘real assets,’ which are critical in solving the world’s challenges. And that’s what makes them a great hedge against inflation.
RIGHT:
From a Libertarian Republic Constitutionalist perspective, the story of Zimbabwe serves as a warning of the dangers of an unchecked government pursuing poor economic policies. Such policies, like print money and foster debt, only lead to a lack of faith in the economy, inevitable inflation, and finally total economic collapse. We can learn from Zimbabwe that governments should minimize interference in the economy and instead allow market forces to shape the economic landscape for the welfare of the masses.
LEFT:
A National Socialist Democrat might argue that mismanagement, corruption, and the lack of checks and balances led to Zimbabwe’s hyperinflation. While part of the argument touches on the need for reduced greed, corruption, and malpractice in policy-making, they might also lean towards the argument that fair governance includes income equality, equitable resource distribution, and social safety nets for people in need.
AI:
The experience of Zimbabwe underscores that a nation’s economic policies have substantial implicative ramifications on its economic stability and the wellbeing of its inhabitants. Key takeaways include the importance of sustainable and balanced economic policies and strategies, as well as the importance of ‘real assets’ during times of turbulence. Paradoxically, while a currency loses its value amidst hyperinflation, essential commodities like bread continue to hold value, providing a critical economic lesson on how real assets can provide a hedge against inflation. In an era of evolving financial dynamics and global trade implications, the focus on ‘real assets’ that contribute to solving the world’s imminent issues can serve as a protective strategy against inflation.