Everyone knew it was coming. But not everyone is happy about it. After the Bank of England raised interest rates this morning, the British Chamber of Commerce voiced a complaint about “persistent interest rate increases” which it says might threaten the economy.
It’s a complaint that’s become familiar when central banks raise interest rates. People benefitting from cheap money want it to stay that way. And just last we a we spoke with an equity strategist at an institutional investor who tried to convince us that Bernanke and the Fed were holding out too long against an interest rate cut.
Inflation in the United States and most of Europe has been so low for so long that it may have become difficult for some to remember the real havoc inflation can wreak on an economy. Fortunately for those with short memories, Zimbabwe is providing a real-time demonstration of inflation-gone-haywire.
Today’s Guardian puts it succinctly:
The actual level of inflation is unclear as the government has not released its figures for June. The official rate for May of 4,500% is said by economists and major businesses to be far below the actual rate of 10,000%. Many have predicted that inflation will soar, including the American ambassador to Harare, who forecast that inflation would hit 1,500,000% before the end of 2007.
Robert Mugabe, who runs the Zimbabwe, is running to the rescue with police enforced price controls, so expect the situation to get far worse.
On the other hand, the Zimbabwe Industrial Index is up something like 15,000% in the last 12 months, beating—for now—the price hikes.
Shops emptied as panic grips Zimbabwe [Guardian]
So, the real questions are how much money has Goldman made on that condition and how cold is SAC’s trading room when market anomoly conditions get that hot, personality flaw correcting apparel or not?
It’s gone plaid
The stock market will rocket up in nominal terms, as Zimbabweans try to dump their currency in favor of some sort of tangible asset or investment. However, in real terms, when all is said and done, gains will likely prove illusory for most.
Unfortunately, most of these people are unable to exchange their money for a relatively hard currency or get their savings outside of the country. Terrible situation, and not unlike the Weimar inflation of the early 1920s.
Isn’t this a situation where the World Bank and/or IMF is supposed to go in and provide at least some advice, if not financial support? Clearly the guys running this country have never taken econ 101 (although sometimes I also think the same thing of Pres. Bush)
obviously nobody warned them about leptokurtosis or other irrelevant economic statistical phenomena in which we specialize
Apparently, not everyone can have the experience of LTCM under their belt World Banker
Ian Smith was right. Bring back Rhodesia!!