by Nick Giambruno, International Man:
Cecil Rhodes once fantasized about the “ultimate recovery of the United States of America” by the British Empire.
Rhodes—an influential British businessman and South African politician—was a staunch supporter of British imperialism. The famous Rhodes scholarship is named after him.
He helped colonize southern Africa on behalf of the UK in the late 1800s.
The country of Rhodesia (now Zimbabwe) was named after him.
During his childhood, Rhodes was plagued with various illnesses. Hoping a different climate might improve his health, his family sent him to South Africa with his brother at the age of 17 to work on a cotton farm.
Almost immediately, the brothers caught “diamond fever,” which had been sweeping the region. They found the diamond business much more lucrative than cotton.
Rhodes started out personally supervising his workers at his open-pit diamond mine. He even sorted the stones himself. It was hard, dirty work, but he was laying the foundation for a global empire.
A few years later, he founded the De Beers Mining Company. With the financial assistance from the infamous Rothschild banking family, it grew to dominate the global diamond market. It still does to this day.
Like in other African colonies at the time, there was a system of racial segregation in Rhodesia, with a ruling white minority.
By the 1960s, a series of black liberation movements had spread across Africa. It was also a key area on the Cold War chessboard, with the Soviets and the West backing different sides.
One of the charismatic black Rhodesian leaders was Robert Mugabe, who has ruled Zimbabwe for decades. Now 92 years old, he is the world’s oldest head of state.
Mugabe would rise to lead the ZANU movement, a black nationalist group that waged a guerilla war against the Rhodesian government.
Mugabe’s fighters ultimately prevailed against the 250,000 white settlers, many of whom had been there for generations. Rhodesia dissolved, and Zimbabwe was born in 1980.
Today, Mugabe and Zimbabwe are sanctioned pariahs in the West. Westerners accuse Mugabe’s government of human rights violations. Of course, these same Western governments are mostly silent when so-called human rights abuses come from their own puppet governments, like Saudi Arabia’s and Egypt’s. But let’s not get off topic…
Zimbabwe wasn’t always a disaster. In the years after independence, it had a productive private sector and some of the best life expectancies and infant mortality rates in the region.
The problems started to get serious in 1997. Mugabe started handing out cash to placate voters, especially war veterans. A year later, he sent troops into a military quagmire in the Democratic Republic of the Congo.
The warfare and welfare costs pushed government spending higher than they’d ever been before.
But Zimbabwe wasn’t just spending more money… It was producing less.
Agriculture was the main pillar of Zimbabwe’s economy.
In 2000, the government implemented a “land reform program.” It confiscated farms from white owners and gave them to government supporters. The new owners didn’t have the experience to run profitable operations. So, agricultural exports—and Zimbabwe’s economy—tanked. Tax revenues fell in tandem.
The government had huge bills to pay but not enough money to pay them. The military started to get restless.
What happened next should have been predictable.
Like most governments with their backs against the wall, Zimbabwe chose the easy option… printing money on a massive scale.
Dr. Gideon Gono was the governor of the Reserve Bank of Zimbabwe at the time.
During a recent trip to Zimbabwe, Doug Casey and I met with Gono. To explain his impossible task as bank governor in the 2000s, he used an analogy. It was like he was “in a car without gas, and the government was ordering him to drive from point A to point B.”
The episode illustrates what I believe to be a main purpose of central banks.
Even though most politicians, economists, and pundits in the mainstream media won’t admit it, central banks exist to help governments finance themselves… at the expense of the average man. It’s the hidden, but real, reason they exist.
To fund the government, Gono’s central bank created large amounts of Zimbabwe currency. It was very similar to the U.S. Federal Reserve’s quantitative-easing (QE) program, which is just a euphemism for money printing. As you may know, the Fed has printed money by the trillions and used it to buy U.S. debt, helping to finance the U.S. government.
You didn’t need to be a financial genius to see that printing money to cover rising deficits would eventually result in hyperinflation.
Zimbabwe’s hyperinflation came in 2008. It completely destroyed the currency and the economy. Prices were doubling every 24 hours. The central bank started minting larger and larger denominations of currency notes, up to the trillions of Zim dollars.
The 100-trillion-dollar Zimbabwe note is actually the largest denomination bill ever printed.
In 2008, there were strict capital controls, or restrictions against using foreign currency. That meant Zimbabweans had no choice but to use a rapidly depreciating currency. It was illegal to use foreign currencies like the U.S. dollar. Nonetheless, its use flourished in the black market.
Incidentally, I am not a fan of the term “black market.” People use the term negatively. If anything, you should view arbitrary government restrictions like capital controls negatively, not attempts to bypass these restrictions. A “black market” is really just a “free market.” Next time you see “black market” in the mainstream financial media, substitute it with “free market.” It will help you think more clearly.
Of course, wages didn’t keep up with Zimbabwe’s inflation. Unions argued about salaries every week. At the height of the hyperinflation, the average salary amounted to around 70 cents. Naturally, most people stopped going to work. A paycheck in Zim dollars wasn’t worth their time. Unemployment skyrocketed to 90%.
Schools and hospitals closed. The government imposed capital controls that brought factories, mines, and other businesses to a screeching halt. Grocery store shelves were empty. Many had to drive to South Africa just to stock up on canned food.
Zimbabwe went from being a major agricultural producer to the world’s top recipient of food aid per person. It was like if Italy were to become an importer of spaghetti.
The World Bank called this the “deindustrializing” of the Zimbabwean economy. By 2009, the private sector was operating at 10% of its former capacity. It was like the Industrial Revolution in reverse.
It was a complete and total economic collapse.
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