How to live in an economy with 200% interest rate?
bloomberg.comHi, just read this article where official interest rate in 200% in Zimbabwe. How is this even feasible? Why this won’t happen in the western world? I wonder if anyone can help me understand.
Zimbabwe for one thing has a less developed economy. It has no demand for it”s currency.
People hypothesize about the decline of the dollar but the question is, what replaces it? There are serious agency problem inside the Euro zone and who trusts China? There is nowhere near enough gold in the world to support a modern economy.
Does the link to gold still hold true in todays world? There are much diverse asset classes available now and perhaps the root cause of inflationary economy is our inability to accommodate these.
Gold has a special hold on people's imagination. I find it interesting that some people in ancient Rome were paid a few pounds of gold a year which is in the same ballpark of what people get paid in the U.S. today.
In general if there are more asset classes and people feel wealthier because of them that should lead to more spending, and that spending could ultimately drive inflation if demand starts to outpace supply.
https://en.wikipedia.org/wiki/Wealth_effect
I'd be careful at assigning inflation one root cause. Whenever it gets out of hand there seem to be numerous interacting problems. Just to look at some recent events we've had stimulus checks that empowered people to buy manufactured goods, shortages that drive up prices, food and fuel supplies endangered by the Russia-Ukraine war, and the last administration slapping a 20% tariff on imports from China.