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Friday, 18 January 2008

The Ten Million Dollar Note!

Tenmilliondollar_2 Today, Friday, the world's highest denominated bank note went into circulation. It's worth a cool ten million dollars, and guess where it's valid. Yes, right. It could only happen in Zimbabwe.

The one-million dollar (click picture for bigger image) note has been expected here for weeks. It's appeared too, together with the five million and the ten million. And the streets of Harare and Bulawayo are now crowded with modern millionaires, who have no more money but considerably less unwieldly wallets.

And what will these millionaires buy with their ten million dollar note? Not a lot, is the short answer. The black market rate for ten million Zimbabwe dollars today is about four dollars US. So your ten million will get you perhaps five loaves of bread, or six pints of milk. Hamburger and chips, however, at a local cafe, will be out of reach, at 15 million.

The new note is valid from January 1 this year only until June 30, but by then, with inflation now officially at 25,000 per cent and actually at 150,000 per cent, it won't be worth much anyway.

Who do we Zimbabweans thank for such financial largesse? The note is signed by Dr. G Gono, Governor of the Reserve Bank of Zimbabwe.  Thanks a lot, Gideon.

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Am I rich with ten of those?

Tuesday, December 11, 2007

FROM: BOAS PONDAYI MAGORONGA
2526 NYAMUZIWA RD.
CHERUTOMBO MEDIUM
MARONDERA
ZIMBABWE

CELL: 0912958759
E-mail boasmagoronga@yahoo.com

TO: DR. GIDEON GONO
GOVERNOR OF THE RESERVE BANK OF THE REPUBLIC OF ZIMBABWE


If you get hold of this letter, please distribute it as wildly and widely as possible.

In pursuit of the truth, reality check, intelligent application of knowledge, systems thinking/approach, respect of God, and mathematics-His language. Ask Noah.

It is fortunate enough you can not separate those ideas/concepts. You can not run away from the truth and you can not take cover from God.

Systems thinking/approach-the Creator’s approach dictates that systems that do not merely survive but triumph are those that always sample their outputs, compare with set references, and use the error produced to adjust inputs, modify processing techniques or re-examine objectives and standards.

Systems that make it in the naturally hostile and chaotic environment learn, face the truth, respect God and his language-mathematics, honestly asses the variable and non-variable parameters of the environment, do not waste time and resources wrestling non-variables, manipulate variables to the best advantage, and evaluate output not after fifty years, twenty seven years, five years, one month or day but always and make adjustments/corrections instantaneously.

I apologize to you, the nation and humankind for not coming up with this idea in time. I’m very sorry. I was busy assembling the facts and summoning up enough courage. Anyway, it is never too late or too dangerous for the truth.

The truth touches every creation. Whether you belong to this or that party, church, gang or club you can never shine if you do not face the truth, believe in logic, and shun magic.

You may wonder why I am targeting you. You have got the key to our lifeline-the economy and its blood-money. The buck stops with you.

Forget about politics and all the –isms. Politics sucks from and licks the economy. Theirs is a symbiotic relationship but politics needs economics to the point of total and complete dependence. It is not possible to forever suck from an ailing economy. Let us stop the blame game. To hell with breakfast meetings and expensive talk shows. Taneta kurova imbwa takaviga mupinyi.

Some four years ago you said that if a turnaround strategist fails to cause a noticeable change in ninety days he/she will become part of the problem. Now, almost five years down the line you have dragged the economy, everything that, and everyone who depends on it through the mud to the doldrums, courtesy of the absence of truth.

I challenge you and your advisers, on behalf of prosperity and posterity to resign forthwith. If you do not face the truth within seven days from today I will take you to the highest court in the country. If it refuses to face the truth I will try SADC then AU, UN, and all Human rights groups. If all that fails, the HAGUE.

You lied to the nation and your appointer, His Excellency.

You should have told everyone that sanctions cause poverty and not inflation. Balance of payments support is a soft loan from friendly entities. Diplomatic isolation and withholding of love(ly) offerings does not cause inflation. Low production levels cause poverty and not inflation. High consumption in excess of production causes wealth deprivation and not inflation. Increased production does not reduce inflation but simply mitigates its effects. Inflation can be reduced to 0%.

Subsidies and fixed exchange rates/price controls do not fix inflation but create loopholes for those bent on siphoning.

Baccossi, Aspef, and related projects. Who takes stock?

Sometimes I even shudder to imagine why you fellas at the conical tower deserve salaries.

If the truth fails to touch you we are all doomed, from Zim 1 to Zim nothing.

Textbooks and borrowed notes aside, the truth is:-

For you to understand the causes of inflation and its effects you must first of all understand the origins of paper money and its relationship to value and/or wealth.

By the way, when you mobilize resources and knowledge and convert them into something that satisfies other people’s needs you would have created value. Wealth is the accumulation of such value. You can exchange your value for other people’s value which they would have created elsewhere. That is the basis of fair trade and commerce anyway.

By the way there was no inflation before the advent of paper money. Trade was by barter. With the advancement of civilization and expansion of markets, spatially and temporally, it became increasingly difficult to trade by barter. People, being innovative as they have always been, began to look for something portable, durable, divisible, and with all the other attributes of a good media of exchange that you can think of.

History is replete with all sorts of things which were tried, from coffee beans, beads, precious stones, sea shells, and finally to silver and gold. Silver was finally beaten by gold.

Those who could amass and/or produce- create value in large quantities soon found it difficult to securely keep their large amounts of gold. This created a new breed of business people called gold keepers who would charge some scrapings or few ounces of gold as a return on their investments in the form of vaults, safes, and strong rooms.

The gold keepers would issue the gold owners certificates stating the amounts of gold deposited with them. With time, people began to accept the certificates from trusted keepers as legal tender confident that the certificates were redeemable whenever real solid gold was required. In time such certificates were issued without names and their authenticity was based on the goodwill of the issuers.

When it became fashionable to break down the certificates into various sizes of denominations for convenience of trade, paper money was born. Of course, fake papers were tried here and there with limited success and, in some cases, dire consequences.

Only an insane keeper would issue a certificate not backed by real gold because it would sooner or later backfire when the certificate comes back for redemption and the gold is not there.

Then baby monsters called governments were born out of need when it was realized that there was need to poll resources and appoint a group of people to oversee welfare and development.

Grown-up governments soon realized that in a big economy, if they owned and controlled a central reserve bank which controls the issuance of the above mentioned certificates which we now call money, they can possibly issue themselves “money” when they do not have gold-value-wealth deposited with that bank. This is plain theft, made possible by the fact that the crime can be obliterated by other variable economic parameters which cause very difficult to measure fluctuations.

The best way to illustrate or examine inflation is to freeze all the other variables that cause the red mist and deal with it bare bones. To simplify the discussion, let’s assume the government is an individual like you and me. If the government has got 10 units of wealth and the citizens of the country 90 units the total wealth or GDP of the nation is 100 units. If these units of wealth are represented by a certain currency for illustration purposes, 10 000 zudas per unit of wealth. Then, our national wealth in monetary terms becomes 100 multiply by 10 000 zudas which equals 1 000 000 zudas.

If nobody injects fake money into the system, and we do not create/produce or consume some then, our wealth remains at 100 units valued at 1 000 000 zudas. If we allow exchange and transfer within borders the wealth remains constant.

If the government uses up its share as it should and, within borders, at the end it will have zero units and the people 100 units – wealth gone back to the people. If the government now decides to impress a certain constituency for reasons best known to the policy makers and its coffers are empty, it goes to the printing press colluding with the reserve bank to lie that it has wealth deposited with it.

For argument’s sake let’s say it chooses to steal 20 units to the value of 200 000 zudas. That is 20% of total national wealth.

If 1 000 000 zudas are circulating in the country representing 100 units of wealth and as a result of printing, 200 000 zudas are injected into the system, 1 200 000 zudas now represent 100 units of wealth.

The effect of this rather stupid action now causes each unit of wealth to be represented by 12 000 zudas which means in other words that 1 unit now costs or is valued at 20% more than before the printing. Because of the government folly we say the currency has been inflated by 20%.

All the prices go up by 20%. The currency loses against other stable currencies by 20%. All those who have their wealth stored in the form of cash or bank balance denominated in the unfortunate currency loose 20% of their wealth. In other words the government has 20% from each and every innocent and unfortunate soul who happened to have his/her wealth in liquid form or tried to trade using and keeping for a while the damaged currency.

I hope that the long and winding illustration has enlightened you and realize that a bottle of Mazoe is nothing but just a part of the total wealth we been discussing.

For example if, for argument’s sake the bottle of Mazoe was costing X zudas before the theft, it will now cost X+0,2X zudas after the inflation caused by the theft. It is not the price of Mazoe that has gone up by 20% but the national currency that has lost 20% of its value. We now have 20% more money representing the same national wealth.

The government now has got 20 units of wealth equal to 200 000 un-inflated zudas or 240 000 inflated zudas. Because the government has stolen from the people, they now have 80 units of wealth equal to 800 000 un-inflated zudas or 960 000 inflated zudas. The total wealth of the nation is still 100 units at 1 000 000 un-inflated zudas or 1 200 000 inflated zudas.

However, in reality things do not seem to operate systemically/systematically. In our example above, if all the variable economic parameters/factors that we froze to simplify analysis are let loose, figures are altered but fundamentals stand firm. For example production mitigates and consumption aggravates the outlook.

I hope you can now look around and see where you and the bottle of Mazoe stand. If the smallest denomination was 1 un-inflated zuda it should now become 1,2 inflated zudas and the biggest of say 100 un-inflated becomes 120 inflated zudas. Interest – the cost of using other peoples wealth, fares, fees, prices, cost of living and even the cost of dying will reflect what would have been caused.

Trying to undervalue or overvalue a currency is the most stupid human endeavor one can ever undertake worse than experimenting with your own life and trying to defy creation, resulting in a seething cauldron of, hot ice and cold fire.

Vagaries of nature such as famine, earthquakes, floods, sanctions, war, or even sabotage can only devastate or diminish a nation’s wealth but, can never be able to devalue/inflate it’s currency. Only a sovereign government in full participation with a willing reserve bank governor can do it.

The fact that almost everyone, revolutionaries, liberators, academics, intellectuals, technocrats, human rights activists, trade unionists, civic leaders, clerics, scribes, and world leaders seem to condone, tolerate, and accept such a heinous crime that should be more severely be punishable than genocide demonstrates how money matters are least understood.

It is ghastly to contemplate for how long this subtle crime is going to be tolerated in world affairs.

Although the formula for calculating inflation should be MONEY PRINTED OVER MONEY IN CIRCULATION for political reasons or lack of economic expertise governments and crooked economic advisers prefer Consumer Price Index which is de-facto very easy to doctor.

I have tried in this presentation to show that nothing or not a soul except government in collusion with the Central Bank can cause inflation. Inflation causes price increases, poverty, and devaluation of currency and not vice versa.

I have tried rigorously to avoid the discussion of personalities and the reasons that may cause governments to “print” and cause inflation because of the controversy associated with such topics.


When inflation, or the long arm of government reaches out it devastates all and sundry. It squeezes value out of every creature in Zimbabwe that transacts in the devalued/overvalued currency.

The grip is class insensitive. From those who drive the so-called mapango, Hammers, and Lexuses to those physiologically and socially incapacitated who crawl on their palms and eke out a living from eating or selling junk. This is even made worse by the stubborn fact that, the government, as a consumer and investor, its corrupt offshoots and all the innocent souls, and even the intended beneficiaries of the subsidies or the printing process are crushed under the created load.

As long as you do not appreciate or understand how printing causes inflation, printing forces you to print more, and more printing compels you to print big time causing hyperinflation. Those chosen few who are blessed with the revelation know that the only way out of the spiraling vicious circle/cycle is through sacrifice. You have to stop printing gradually or abruptly and strategically.

What has made me strongly believe that many people do not understand politics and economics, and the fruits from their relationships, is the apparent absence of agitation that should come from the instinct of self preservation in the prevalent hyperinflationary environment.

Devaluation, overvaluation, for convenience issuance of bigger denominations-very soon we will be using the 1 million or 10 million bearer, is a de-facto and subtle way of admitting that the monetary value of our currency has gone somewhere. The largest denomination of $200 000 is now not enough to buy a freez-it that we used to call penny or centicooler.

Are all the people not supposed to know? Is it a crime if they know? Shouldn’t they be empowered with this knowledge? Isn’t it nice to all share this liberating knowledge?

I think the determination we have demonstrated over the years fighting other enemies of the state and adversaries of our nation should now come handy in tackling this muddling.

If you or anyone knows better truth than this, please respond publicly and/or privately.

Regards,
Boas


Mr Magoronga, you say that people should respond if they know better than your example, but there is no response that can know better than the truth. Your example is an almost perfect explanation of the inflation/debt cycle, and indeed one that should be (but is likely not to be) heeded.

But one thing that you did only just touch upon (I assume you didn't elaborate on this for the purpose of simplicity of the base idea) was the idea of Gold Keepers charging for their services.

With any Central Reserve Bank, (even one that has 100% coverage of it's bearer notes) the notes that are issued are issued with a charge of interest, and therefore generate debt and inflation from the moment that they are issued.

However, with an economy that has slid below the 100% coverage of bearer notes, the debt and inflation increases exponentially as the coverage % falls. This creates a greater demand for larger bearer notes, and only a strong government will resist the urge to provide these, as doing so merely adds to the problem in the long term.

A good example to look at to support this is the situation is the stock market crash and subsequent depression in 1930's America.

Sir
The TV states that the rate of inflation is 140,000% 140,000 percentages high. I thought the limit of the percentile was 100 only. May be I better go to the schools. I do not know. May be some one will help me in my maths. Please.
I thank you
Firozali A Mulla MBA PhD
P.O.Box 421
Dar-Es-Salaam
Tanzania
East Africa

100% is indeed the highest a % can go if you are talking about a fraction of a single object. However, with inflation, we are looking at how much higher the value is than its original stable value, so if you look at the Zimbabwean inflation of 140,000% (and taking a standard, stable inflation rate of 2% to 5% as an example) it can be seen how much higher the Zimbabwean inflation rate is over the stable figures.

Also if a price rises from $1 to $3, the price rise is $2 which is 2x the original value, so the price has been subject to inflation of 200%.

your next moment in will always be a mystery

sent me a check to samuel durley 1014 landsford street lancaster,ca 93535

HI I'M DAWNYALE ALVAREZ,27, I BEEN RECEIVED WINNER LIST.. AND I CAN'T FIGURED OUT HOW TO GET IT AND I WAS WONDERING IF I WIN, AND WILL SENT IT IN THE MAIL TO ME.. OR RATHER DELIVER IT TO ME CAUSE I HAVE PROBLEMS KNOWN THE WORDS MEANINGS, CAUSE I'M DEAF AND DON'T UNDERSTAND THE WORDS MEANS SORRY.. PLEASE EMAIL ME BACK .. A.S.A.P. THANKS YOU.

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