In April 2008, the Reserve Bank of Zimbabwe was miffed. The country’s central bank governor, Dr. Gideon Gono, produced its first quarter monetary policy statement by reminding anyone who might read it that his actions were being duplicated the world over. Apparently still smarting over criticism by his central bank peers, Dr. Gono, an honorary degree, was more disturbed by that than the hyperinflation gripping his nation. By March 2008, when Bear Stearns failed, the consumer price index for Zimbabwe had already become largely incalculable.

Undoubtedly in full CYA mode, the monetary report leaves little to the imagination:

1.15 Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.

1.16 That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide…

1.18 A few months ago, the USA economy confronted a severe mortgage crisis, which threatened to spark an economy-wide recession.

1.19 The USA Central Bank again responded by injecting over US$160 billion between December, 2007 and March, 2008, to provide impetus to the American economy and prevent a worse crisis from happening…

1.21 Faced with a yawning threat of systemic bank failures on the back of the aftermaths of that country’s mortgage crisis, the Bank of England was directed by its Government to intervene by providing a £50 billion lifeline to the UK’s banking sector.

1.22 Here in Zimbabwe we had our near-bank failures a few years ago and we responded by providing the affected Banks with the Troubled Bank Fund (TBF) for which we were heavily criticized even by some multi-lateral institutions who today are silent when the Central Banks of UK and USA are going the same way and doing the same thing under very similar circumstances thereby continuing the unfortunate hypocrisy that what’s good for goose is not good for the gander.

The problem with this monetary report, for the Federal Reserve and its closer peers, is that there is much that is correct about it. In many ways, this was lashing out against the same cheap shots as those practiced in contradiction of the Bank of Japan after its first bout of QE (the Fed criticized BoJ heavily only to follow almost exactly in their footsteps seven years later). The vastly different results, however, are actually helpful in illustrating our current predicament (just as the ECB and Fed moving in “opposite” directions in 2008 but ending up in the same place anyway provides another constructive baseline in that regard).

Obviously, we know what occurred in the US and the “developed” world, despite the almost trillion dollar monetary “injection” by the Fed. No matter the size or form, stocks crashed, bonds crashed and the global economy crashed. Zimbabwe, by contrast, crashed but in the “other” direction:

The most absurd example is the Zimbabwe experience. While statistics are a bit hard to come by, we know that the Zimbabwe stock index was actually doing quite well, relatively, up to 2007. In April 2007, the Zimbabwe Industrial Index (I didn’t know it existed, either) had risen 595% already for the year. In the prior 12 months, the nominal return was 12,000%. Inflation for the period was estimated at only 1,729% per year, so it appeared like stocks were “winning” the race. It did not matter that unemployment had reached about 80%, or that official stats estimated GDP had more than halved from 2000.

Not long into the global collapse after Lehman in the fourth quarter of 2008, some estimates put Zimbabwe’s inflation into the quintillions, so fast were prices changing. The official estimate was “only” about 231 million percent.

The primary difference was truly money supply; the US and global “dollar” system was hemorrhaging not actual and useful currency (closer to real money) used by ordinary people and businesses for everyday commerce but instead interbank, wholesale liabilities and dark leverage. Zimbabwe, by contrast, actually printed currency. Thus, Zimbabwe’s “stimulus” actually came out the other side, showing up almost everywhere, including the real economy, because there was no place else for it to go. The Fed’s invigorated attempts were simply swallowed up by that wholesale chasm for which they had neither appreciation nor answer.

One pushed out into hyperinflation ,the other in a confused and opposite deconstruction. In both cases, denial was strong and vigorous because both were sure they were following closely the orthodox textbook on liquidity and supply:

Monthly US data on payroll employment, civilian employment, industrial production and the unemployment rate are used to define a recession-dating algorithm that nearly perfectly reproduces the NBER official peak and trough dates. The only substantial point of disagreement is with respect to the NBER November 1973 peak. The algorithm prefers September 1974. In addition, this algorithm indicates that the data through June 2008 do not yet exceed the recession threshold, and will do so only if things get much worse…

 

I know that at any moment we could fall into the recession abyss. I know that the payroll and household data might be revised, and leave me with a bright red face. In the meantime, we need to recognize that if this doesn’t qualify as a recession, it surely isn’t normal growth. Since this is something very different from anything in the recorded history, we need a name for what we are experiencing. That’s obvious. It’s a severe Buffeting.

That was written in a paper published by the NBER in August 2008, the very turgid economists who get to decide what counts as an “official” recession. The strong resistance to the urge to clarify in semantics what was becoming more obvious back then is this monetary artifact; that “this is something very different from anything in recorded history.” Indeed it was, and, more importantly, continues to be.

If there needs to be a name given for this shifting global regime and the durable, ongoing imbalance of it all, the word “eurodollar” must appear in at least prominence since it accounts for all the confusion, disaster, and constant malady and economic shriveling. Of course, there are other lessons from these disparities, as well, perhaps the most primal being that maybe central banks of any form and type should just resist the urge to keep intruding no matter what. It’s bad enough when they even understand actual money printing, but it doesn’t turn out any better (the question of degrees may be more political than monetary) when they don’t.