When Money Destroys Nations

When Money Destroys Nations

When Money Destroys Nations by Philip Haslam

I keep telling myself not to read economics books because their claims are usually either not supported by data at all or are supported by cherry-picked “studies.” Anyone who has written a paper of any sort knows that they can back up any claim by quote some random study. In this case, I was mostly interested in reading stories of people living through hyperinflation, which were surprisingly difficult to find. Ultimately, this book did a mediocre job of portraying the human side of hyperinflation; instead, it is mostly an onslaught against money printing. While it wasn’t what I was looking for, it was refreshing to see someone bash quantitative easing, which is beloved by mainstream economists. It made me think about where all this extra money has gone. Is that why every startup raises billions now?

1) Zimbabwe, then Rhodesia, declared independence from Britain unilaterally in 1965 when it was ruled by a white government.

Britain was trying to enforce majority rule (African rule) before granting independence. Because the Rhodesian government didn’t comply, the United Nations imposed sanctions.

2) Under inflation, exporters do much better than importers.

Until I worked in Singapore, I never really paid attention to exchange rates outside of vacations here and there. With a business, even a 5% increase in import costs can wipe out everything. On the other hand, export companies benefit from paying in local currency and getting paid in foreign currency.

3) Printing money is the politically easy solution.

It’s like in Monopoly. When someone runs out of money, everyone gets a payout from the bank, and the game continues. No one loses and no one gets mad. Of course this author’s point is that money printing is actually bad. It leads to inflation. Again, where has the $3 trillion gone? There’s been minimal inflation for the past decade. Maybe so much of our assets is electronic money anyway that this $3 trillion doesn’t even register.

4) Over 50% of US government spending is on social security and medicare/medicaid.

The author attributes Zimbabwe’s currency woes ultimately to rampant government spending. Needing more money to pay for the spending, the government resorted to printing money rather than cutting spending. This number puts into perspective what the government’s role is. Should it be spending over 50% of its money on welfare? If so, is printing money an okay solution as long as it gets the job done?

5) Suicide Gorge in South Africa is a series of waterfalls that you can jump down.

Sounds fun – but in this case, it’s used as a metaphor for hyperinflation. Once it starts, it can only go in one direction.

6) At the beginning, money supply rises faster than prices. Once it flips, inflation goes out of control.

As with much of textbook macroeconomics, expectation is key. Perception is reality. If people think prices will go up, then prices will go up.

7) The Zimbabwe government tried to implement price and currency controls. 

It was illegal for people to hold foreign currency. Even exporters who earned in foreign currencies had to sell 25% of their earnings to the government in exchange for local Zimbabwe dollars. The government also set up a Price Control Commission to keep prices low in stores, which meant the businesses were losing money.

8) Utilities like electricity and water became very cheap.

Because the billing systems could not keep up with hyperflation, electricity and water became essentially free. But this also meant that there was no money to maintain the services. People then resorted to getting water straight from the ground.

9) Fuel coupons became the new defacto currency.

Redan Petroleum brilliantly gave out fuel coupons in exchange for foreign currency. These coupons circumvented currency controls. Because people were using it as currency, no one was redeeming the coupons. This meant the company made a lot of money. It eventually morphed into a quasi-bank when it started issuing more fuel coupons than it had in actual fuel. If everyone had redeemed at the same time, it would have been like a bank run.

10) The U.S. struck a deal with Middle East countries to sell oil exclusively in USD in exchange for weapons and protection.

As more US dollars were printed under the gold standard, it became obvious that the system was unsustainable. The author points out how the Vietnam war and welfare expenses were contributing factors. After the collapse of the gold standard, the U.S. needed a way to keep the USD as the #1 currency. This arrangement with the oil states resulted in “petrodollars.” Everyone needed oil, so everyone needed USD.

This book was not well written. It reminded me of a high school thesis paper before peer review. One downfall of reading classics and famous authors is that I forget how difficult writing is (except when I write these list-style posts and still struggle). Anyway, I still learned a lot, and there’s a reason why I chose economics as my major. As for a concrete suggestion, I really wish the author had followed the lives of a few characters and narrated their stories in more depth.

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