Our billionaire CFD Trader may be rejoicing in his new found wealth, but the rejoicing may not last long. If you believe that the current US economic crisis is bad, it is minor when compared to the real crisis that is currently underway in the country of Zimbabwe.

Update on Zimbabwe March 2009 - Short Video

In February this year the price of a loaf of bread in the country was less than 200,000 Zimbabwe dollars. By November that same loaf of bread cost 1.6 trillion Zimbabwe dollars. So while our billionaire trader may be feeling pretty good about the money he is holding it may not go very far when it comes time to spend it. In July $100 billion dollars would buy you 3 eggs.

With inflation at 231 million% in July and unemployment at 80% it is not surprising that both poverty and disease are at unprecedented levels. It is little wonder that 1/3rd of the population have left the country.

The inflation problem has come about as Robert Mugabe, the current dictator, continues to print money to pay the army and government employees, without which he would lose total control of the country. But even a dictator cannot control market forces. Even with the Reserve Bank of Zimbabwe making inflation illegal in February 2007 and arresting people that dared to put up the prices on certain commodities, inflation continued to rise. The chart below shows Zimbabwe’s inflation up to 2006. A change to a new dollar with less zeros in Aug 2006 did nothing to stop the inflation. This may be a traders Nirvana with inflation climbing from below 200% to over 1,200% per annum in one year it is insignificant with what happened next.

In fact the move up in inflation over the next two years was so extreme it can not be displayed on a chart. 2007 saw inflation jump from 1,281% to 66,212%. By May 2008 an independent assessment of inflation was 1,063,572%. The Zimbabwe Statistical Service reported that there are not enough goods in the shops to calculate any official figures. By July it was estimated that inflation was 231,000,000%. Once again a new currency was issued removing some more zeros in August 2008. By November inflation was estimated to be in the billions of percent.

One of the impacts of inflation is to devalue the currency. When the new currency was issued in August 2008 1 US dollar would buy 1780 Zimbabwe dollars. By September the same 1 US dollar would buy 590,000 Zimbabwe dollars. By the end of October it was 251 billion and on the 12th November it was worth 13 quadrillion. That is $13,000,000,000,000,000 Zimbabwe for 1 US dollar.

This sort of stratospheric move would have traders jumping for joy, but like many other bubbles it will end in a catastrophic bust. The cause of hyper inflation is the continual running of printing presses to create money to meet the government’s commitments. While it may seem like a short term fix, it can have catastrophic consequences for an economy and a country in the long term.

The US government would be well advised to learn some lessons from the experience in Zimbabwe as they create money out of thin air to fix the current economic crisis.

For more enlightening information about trading Contract for Difference (CFDs) in plain simple english, please visit www.learncfds.com

Ashley Jessen
LearnCFDs.com

20 October 2008

Learn CFDs.com is dedicated to helping traders of all levels discover simple and effective trading strategies. We primarily focus on developing a solid trading foundation that sets the platform for long term trading success.

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