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Monday, March 5, 2012

Hyperinflation - Its Causes and Affects

ByTom Genot

Inflation is defined as an increase in the overall level of prices for goods and services in an economy over a period of time. Thus as the prices of goods and services increase each unit of currency actually buys less, therefore decreasing the purchasing power of the money.

Hyperinflation therefore is defined as a very high rate of inflation or inflation that has gone "out of control". During a hyper inflationary event price levels within a specific economy rise very quickly as a function of its domestic currency in contrast to a foreign currency losing its real value at an ever increasing rate.

Definitions of hyperinflation range from the low end, being when there is an accumulation of inflation consecutively over a three year period reaching 100% or 26% per year. On the high end hyperinflation is seen as the rate of inflation exceeding 50% per month. In a hyper inflationary environment a ferocious cycle is formed where more and more inflation is produced by the ever increasing cycle of money printing. When a nation's money supply runs up unchecked hyperinflation becomes visible and is usually connected to wars, political or social upheavals, aggressive bidding on currency exchanges or currency meltdowns.

Below is a partial list of countries that suffered hyperinflation in the 20th and 21st centuries. It is important to note each country listed, suffered hyperinflation due to the destruction or failure of its own fiat currency. Throughout history fiat currencies have always failed, bringing down entire empires.

• Poland: 1921 - 1924 Hyperinflation peaked at 988,223%

• Austria: 1922 - Hyperinflation peaked at 1426%

• Germany: 1923 - Hyperinflation peaked at 325,000,000% in November

• Greece: 1944 - Hyperinflation peaked at 11,300%

• Taiwan: 1945 - 1952 Hyperinflation peaked at 2,420%

• Hungary: 1946 - Hyperinflation peaked at 1.3 X 10 (16th power) %

• China: 1949 - Hyperinflation peaked at 4,210%

• Israel: 1971 - 1985 Hyperinflation peaked at over 900%

• Chile: 1973 - Hyperinflation peaked at 600%

• Mexico: 1982 - 1993 Hyperinflation peaked at over 10,000%

• Bolivia: 1984 - 1985 Hyperinflation peaked at 20,000%

• Argentina: 1989 - Hyperinflation peaked at 5000%

• Brazil: 1990 - 1994 Hyperinflation peaked 30,377%

• Yugoslavia: Oct 1, 1993 through Jan 24, 1994 had cumulative inflation of 5X10 (15th power)%

• Bulgaria: 1996 - 311%

• Zimbabwe: Nov 14, 2008 - Hyperinflation peaked at 79,600,000,000%. For all 2008 Hyperinflation was at 89.7 Sextillion%

Frequently hyperinflation is caused due to a Central Bank's decision to increase its money supply to finance its nations over-extended government debt and spending. Consequently there is a decrease for the demand on the nation's money relative to the money supply that in severe cases will cause a total loss of confidence in the money such as a "run on the banks". This transforms into a swift increase in the rate of spending causing rapid increases in prices. The continuation of hyperinflation will remain until such a time that excessive money printing or increased bank credit stops the promotion of excessive money creation.

In excessive situations price controls that had been in place to prevent paper currency devaluation fail, quickly escalating the money supply that lacks intrinsic value. In this situation hyperinflation will continue until the point which the currency is completely destroyed or discarded. In general hyperinflation is linked to paper money or fiat money, this being said the money supply can drastically be increased with no more effort than it would take to press a start button on a printing press. Thus when "fiat money" is printed, government obligations that are not denominated in money increase in cost by more than the value of the money created.

When the system for currency circulation becomes excessive and devalued it was generally followed with a "run" on the store of value or a bank run. Throughout history hyper inflationary events usually end by reverting back to "hard money" such as gold and various forms of bartering. As hyperinflation takes over an economy its devastating effects usually will wipe-out the purchasing power of all public and private savings which in turn distorts economies to support hording of real assets and extreme consumption forcing the monetary base of hard currency to quickly exit the country effectively turning the affected country into a wasteland for future investments.

After effects from hyperinflation are just as complex. An area hit by hyperinflation has always seen painful and traumatic experiences by those suffering through it. Looking ahead, the next government to come out of it will most always enact some form of policy to prevent this event from ever happening again. This might include having the Central Bank become very aggressive towards maintaining price stability and possibly make a move towards some form of hard basis of currency. Furthermore the enactment of policies such as stringent wage and price controls.

However even this cannot always prevent further inflating of the money supply by its central bank leading to more widespread shortages of consumer goods and services unless these controls are absolutely strictly enforced. Should the new or any proceeding Government not heed its own laws pertaining to the controls it has set into place to prevent a re-occurrence, the stage will once again be reset towards hyperinflation reoccurring in the future.

Sadly the United States is playing with its own toxic cocktail with the remaining ingredients soon to be added, there will surely be hyperinflation in America that could be on the scale of the 1920's Weimar Germany hyperinflation or greater. The US dollar is the world's reserve currency and if hyperinflation develops in America it will affect most countries around the world today. This is a reality that most Americans are blind to and those who do not prepare now beforehand, will more than likely have lost everything.

Those who are prepared or start now while time is still on their side will ride out this event and be on the top when it is finished. The key is to invest what assets you have now into "Hard Assets" such as physical gold and silver because throughout history gold and silver have always been a true store of value regardless of any economic conditions in society and always seek their true value.

Tom Genot -

For information, news, articles and videos to invest in gold and silver and where the best places are to buy it. You will also find information for preparing and protecting you, your family and your assets from the pending economic crises and destruction of the US. Dollar. Author Tom Genot provides information and resources helpful to everyone. Insure your prepared beforehand, check us out at www.coinbullion.net.

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Thursday, February 23, 2012

Tackling Root Causes of Famine in Horn of Africa Posted By : Wolassa L. Kumo

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Tackling Root Causes of Famine in Horn of AfricaBy: Wolassa L. Kumo

[ Posted On: 2011-08-21 ]
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Dr. Wolassa Kumo Dr. Wolassa Kumo.

The cradle of mankind, Horn of Africa, remains the land of untold human tragedy. While we still have a vivid memory of the 1984 famine in Ethiopia that killed over a million people, 12 million more people are facing agonizing famine once more. The death of over 29000 Somali infants during the past few months will always remain a scar on the conscience of Somali politicians, the leaders of Horn of Africa and the continent, as well as, the global community. While leaders of these countries bear prime responsibility for such calamities, lack of political will on the part of the international community, particularly the African continent, is ignominious. There is enough food in the world to feed everyone on the planet, but there is no political will to distribute it. It is, nevertheless, recognized that while continued relief aid by the global community can save lives it cannot prevent another famine and is, therefore, paradoxically undesirable.

The current famine is triggered by the most severe drought that hit the region in 60 years, but it is not caused merely by climate changes. The current famine in the region is the result of deeper structural and geopolitical anomalies. First, Somalia, the hardest hit by the current famine, does not have a functioning state, and hence a functioning market. Lack of functioning state and market undermines food security and expose the people to vagaries of nature. Nature just took toll of the already vulnerable people; it did not cause the vulnerability.

Second, economies of the Horn of Africa countries are characterized by severe structural weaknesses. Over 80% of the population in Ethiopia, Eritrea, Somalia, Sudan, Uganda, and Kenya lives off traditional subsistence agriculture. However, no concrete measures have been put in place to improve the productivity of this vital sector by the governments of the respective countries during the past five decades. Subsistence agriculture in Horn of Africa is still today characterized by archaic technology, hand ploughing and oxen driven farming, with insignificant use of mechanization and irrigation technologies. According to IFAD (2011) only 1% of the land in the Horn of Africa region is irrigated, versus 7% in Africa and 38% in Asia. Thus underinvestment in agriculture and in adequate management of natural resources including soil, water and forestry are the main reason behind chronic food insecurity in the region and the recurrent famine we witness in the region today.

Agriculture contributes 44% of GDP and 85% of employment in Ethiopia; 33% of GDP and 80% of employment in Sudan; 21% of GDP and 75% of employment in Kenya; 22% of GDP and 82% of employment in Uganda; 17% of GDP and 80% of employment in Eritrea; and 65% of GDP and 71% of employment in Somalia. Clearly, Horn of Africa's economy is predominantly agrarian and therefore the least developed economy in the world. Sustained and higher economic development in the sub region therefore depends crucially on the transformation of the predominantly traditional agriculture. The current famine haunting the sub region is therefore the direct consequence of decades of failed agrarian policies pursued by the countries in the sub region.

Key macroeconomic indicators provide further testimony to such failed economic policies. The combined GDP of the 7 Horn of Africa countries in 2010 was US$139 billion, while the total population of the seven countries in the sub region in 2010 was 222 million, with the implied average nominal per capita income of US$626. The sub region contributes 22% of the continent's total population, but only 9% of the continent's nominal GDP. The GDP of the 7 Horn of Africa countries is only about 60% of the GDP of Nigeria, itself not a shining economic star.

The much praised fast economic growth during the past decade in Ethiopia and Uganda has not made any dent on the level of underdevelopment and poverty either nationally or in the sub region. The major economic hub in the sub region, Kenya, is plagued with endemic corruption as well as low investment that for decades stifled any economic progress in this otherwise dynamic economy. According to the IMF World Economic Outlook Database (April 2011), Kenya's average annual real economic growth for the period 2001-2010 was just 4% compared to over 7% recorded by Uganda and Ethiopia. Investment increased to 22 % of GDP in both Ethiopia and Kenya in 2010 slightly lower than Uganda's 24%, but still falls far short of that needed to fundamentally transform the structure of the economy. In other smaller countries in the sub region, such as Eritrea, investment remains below 10% of GDP while the war-torn Somalia has not seen any meaningful investment in two decades.

Therefore, while undesirable, climate change was not the root cause of the current misery in Horn of Africa. It is the failure of the governments of the region to collectively or individually address the fundamental structural weaknesses in their respective economies and ensure political stability, in the case of war-torn Somalia, during the past decades that are behind the current malaise.

During the past two years most Horn of Africa countries, such as Ethiopia, Sudan, Kenya and Uganda leased large chunks of fertile lands to investors from emerging economies of Asia and the Middles East to produce food for export or biofuel. While the host governments and foreign investors claim that this constitute proper investment in agriculture to ensure food security, civil societies in Africa and the west label it as "Land Grab" that is bound to further undermine food security in the continent. It is premature to conclude, given a relatively short period of time since global land lease began, that land lease contributed to the current worsening food insecurity in the sub region, but the signs are worrying that it may worsen food insecurity in the future. Leasing large portions of fertile land to few foreign conglomerates in countries where 80% of the population live under subsistence farming, does not fundamentally address the structural anomalies of these economies and is therefore bound to fail.

The transformation of traditional agriculture as an engine of growth and development was emphasized by Theodore Schultz (1964), who states that all resources of the traditional type are efficiently allocated, and hence the rate of return to increased investment with the existing states of the art is too low to induce further saving and investment. According to Schultz, therefore, the development of traditional agriculture depends on breaking the established equilibrium. Based on a theory of the price of income streams, he suggests that breaking such established equilibrium requires the introduction of modern inputs in the form of human and material capital, not leasing the most fertile land to foreign conglomerates whose primary concern is food or fuel security at their own homeland. We are not sure to what extent the recent massive land lease arrangements in Africa have been based on economic theories or pragmatism, what we are sure is that they are not the most innovative of the policies to address the structural imbalances in African economies.

Correcting such imbalances in African economies need African solutions; of course, with the right mix of foreign direct investments in all sectors of the economy, while the root causes of the chronic famine in the Horn of Africa can only be addressed by (IFAD, 2011):

� Protecting and restoring degraded land resources.

� Improving water management and expanding irrigation

� Improving animal, plant, and range management practices of small scale farmers to make them less vulnerable to hazards and climate variability

� Strengthening community-based animal health services.

� Identifying viable and acceptable alternatives to pastoral livelihoods.

Further, appropriate land use policy including tenure security, and agriculture development centered industrialization strategy are key to ensuring sustainable rural development in the sub region. Horn of Africa is a home for millions of pastoral farmers. As indicated in the last bullet above, recurrent rain failures and drought have made the survival of pastoral communities increasing precarious over the past five decades. It is time for governments of the Horn of Africa countries to act decisively to create a viable alternative livelihood to the pastoralists in the sub region. Governments must mobilise resources both domestically and globally to permanently address the pastoral problems of Horn of Africa. Such supports must be sustained and be backed by provision of other basic services such as education, health, clean water and economic infrastructure. Failing this, the governments of the region and the international community should brace themselves for the worst during the next drought cycle.

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About The Author: Dr. Wolassa L. Kumo -- is a development practitioner and researcher. His research interests include risk and uncertainty, productivity and efficiency, finance and investment, currency substitution and development problems of Africa. Currently, he is working as a researcher in a public institution with a primary responsibility in econometric modelling. Previously, he taught Principles of Economics in an academic institution. FaceBook: www.facebook.com/people/Wolassa-Kumo/100000140891395 before and after the --> | View Profile & All Articles By: Wolassa L. Kumo |

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