The 2nd Zimbabwean Hyperinflation

by Serban V.C. Enache

Zimbabwe is once again facing rampant inflation, a rate of almost 100 percent recorded in the month of May.

I felt the need to investigate its macros. As usual, the graphs are based on info from tradingeconomcis. An important development is that last month, the Government removed the legal tender status of foreign currencies and made the new Zimbabwean Dollar [RTGS] the sole legal tender.

The country dropped its national currency back in 2009, and replaced it with a multi [foreign] currency system in efforts to combat hyperinflation at the time. The recent reverse measure, taken by Emmerson Mnangagwa’s administration, comes in response to dire commodity shortages across the country. Mnangagwa replaced Robert Mugabe as president two years ago in a coup. However, without sufficient US dollars to pay for imports, the country’s fuel stations have frequently run out and gasoline prices more than doubled between the months of January and April.

Fuel going up, coupled with the currency’s depreciation, made the cost of food, transportation, and housing utilities to soar. Due to the lack of confidence, as expected, more and more vendors set prices in US dollars.

In a milestone deal with the IMF last month, the Government agreed to cease net money creation [deficit spending] in order to pay its bills, which was a root cause of the sudden hyperinflation. The IMF is monitoring economic reforms for a year under a mutually agreed program. Debt relief was promised at the end of this year, provided the Government respects the deal. Companies are meant to trade RTGS dollars on an official market, but there were few takers. Analysts said that the Government’s gamble to force greater adoption of the RTGS might very well backfire, pushing transactions in foreign currencies underground.

With all these developments in mind, let’s see Zimbabwe’s flow of funds, and later on we’ll look at other indicators. The country has been a net exporter of Aggregate Demand and a net importer of goods for ten years straight. The Domestic Private sector [composed of domestic firms and households] has been going severely into debt for those same ten years. Only in the last two years was it able to net save financial assets, when the Government seriously expanded fiscal deficit spending.

We also see how the country’s money supply shot up, especially in 2018 and 2019. The M2 measurement [which includes cash and checking deposits + savings deposits, money market securities, mutual funds, and other time deposits] reached an all time high of 10.55 billion US dollars last March.

The unemployment figure has remained stable throughout years, but I don’t put much faith in the accuracy of this data, simply because of how the State defines being unemployed. For example, people like subsistence farmers, who consume all of their own output, are categorized as employed. And more to the point, the graph below is based on the “strict unemployed” definition [one who has been without work, is available for work and is actively seeking work]. The broader definition doesn’t require the latter condition.

Those working in the grey [informal] economy include people who do unpaid labor for a family business or paid employees who are not entitled to sick leave or paid holidays. In Zimbabwe, there are a great many who work in these circumstances. If we count as employed those workers on a payroll with taxes deducted at source and pension coverage, then the unemployment estimate is huge.

On to trade. South Africa owns the largest share of Zimbabwe’s exports. In my opinion, the country is far too dependent on its southern neighbor for commerce, and South Africa’s socio-political stability looks bleak these days. It would be better to seek out markets in different countries, in order to minimize risk and better handle potential negative demand shocks [for Zimbabwean exports] and negative supply shocks [for Zimbabwean imports].

The graph below shows Zimbabwe’s exports by countries of destination.

The graph below shows Zimbabwe’s imports by countries of source.

According to the World Bank, Zimbabwe’s exports sector as percentage of GDP last year was 22.9 percent and its imports sector 25.5 percent.

It’s safe to say that strategic bilateral relations cannot be formed, so long as Zimbabwe’s political class doesn’t compromise on a certain vector the country needs to maintain long term. Foreign investors [state and private agents] won’t be willing to come in, if they believe their investments will be at risk at the next election cycle, or if the chances for political instability and social upheaval are high. In recent years, Russia has been paying more attention to Africa, the northern states in particular, investing mostly in oil rigs and nuclear power plant deals. That’s one potential partner state with which the Mnangagwa administration should seek to do business.

Going back to Zimbabwe’s main trade partner, South Africa… that country is experiencing serious problems in rising criminality, and Ramaphosa’s land reform [confiscation without compensation] is bound to fail. In South Africa, since 1994, 21 percent of farms were put into Black African ownership. But more than 80 percent of those farms failed to remain economically active. If you ask Black farmers the reason for that miserable success rate, they blame the Government, and that’s absolutely true. That’s how you know it was a simulation of reform and not a legit effort behind it; because a singular reform, in and of itself, can’t be successful when everything else remains the same. In order to be a commercial success, an agribusiness requires access to infrastructure, to financial and physical capital, crop insurance, skilled labor, competent management, and access to markets capable of absorbing its output at a price which covers operation costs plus the markup.

South Africa [and Zimbabwe] needs a holistic approach to its national problems, and that means a combination of measures. Changing ownership doesn’t fix anything. The goal should be to decommodify land, which can be done via nationalization or [my personal preference] through site value taxation. Complementary measures should include: community land trusts, community banking, a national infrastructure investment plan, a national health care and education service, a national trade strategy, and last but not least, asset-side reform of the financial sector.

Reducing bureaucracy should be a priority as well. Currently, Zimbabwe is ranked 155th in 190 countries in the category of ‘ease of doing business.’ The more complex the laws and regulations are, the more wasteful and corrupt the system is. The State-dirigist method and Single Tax philosophy don’t require more time spent between citizen and bureaucrat, quite the opposite!

After Mugabe’s land reform, Zimbabwe isn’t out of the woods, and its population is growing too.

Using the printing press without any regard to budgetary rules, without any clear goal in mind, will only make the situation worse. The Zimbabwean Dollar [RTGS], in order to appreciate in value, requires a combination of tighter supply and higher demand for it. The Government’s specialists need to determine the country’s potential output vis-a-vis actual output and adjust fiscal policy in consequence. A negative output gap occurs when actual output is less than what the economy can produce at full capacity – while a positive output gap is the reverse and is inflationary.

The Government should aim for a near zero fiscal deficit; should temporarily ban the importation of luxury items, at least for a few years if not several years; should prioritize the importation of vital commodities – fuel, water, pharmaceuticals, grain, milk, and the like. The Central Bank should be ordered to run permanent zero interest rate policy. Reduced interest payments into the economy means a smaller supply of Zimbabwean currency. And the Government should only accept RTGS in payment of its exports, and it should only guarantee bank deposits denominated in RTGS. This combo would be sufficient to halt inflation, bring price stability and political confidence in state institutions and fuel hope for a better tomorrow.

How the Allies guaranteed a 2nd World War

by Serban V.C. Enache

John Maynard Keynes, as a young adviser to the UK Treasury, successfully predicted another great conflict in Europe after what transpired at the so-called peace of Versailles. In preparation for the conference, Keynes argued that it would be better for Germany to owe no reparations, or a maximum of 2 million pound sterling at the most. He was in favor of a general forgiveness of war debts, including for Britain. Lastly, he wanted the US Government to begin a large credit program to quickly restore Europe to prosperity. But the Allies argued differently, and here is what they insisted on in Article 231 of the Versailles treaty on war debt (1919).

“The Allied and Associated Governments affirm and Germany accepts the responsibility of Germany and her allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies.”

Let’s compare the cold sentiments of Versailles to the peace of Westphalia from 1648, which put an end to the Thirty Years’ War.

Article I: “[…] And this Peace must be so honest and seriously guarded and nourished that each part furthers the advantage, honor, and benefit of the other… A faithful neighborhood should be renewed and flourish for peace and friendship, and flourish again.”

Article II: “On both sides, all should be forever forgotten and forgiven. What has from the beginning of the unrest, no matter how or where, from one side or the other, happened in terms of hostility, so that neither because of that, nor because of any other reason or pretext, should commit, or allow to happen, any hostility, unfriendliness, difficulty, or obstacle in respect to persons, the status, goods, or security himself, or through others, secretly or openly, directly or indirectly, under the pretense of the authority of the law, or by the way of violence within the Kingdom, or anywhere outside of it, and any earlier contradictory treaties should not stand against this. Instead, all and every, from here as well as from there, both before as well as during the war, committed insults, violent acts, hostilities, damages, and costs, without regard of the person or the issue, should be completely put aside, so that everything, whatever the one could demand from the other under his name, will be forgotten in eternity.”

Keynes described the Versailles conference as a clash of values and world views among the principal leaders, “the cynical traditions of European power politics [vs] the promise of a more enlightened order.” Keynes held Woodrow Wilson as the game maker. “When President Wilson left Washington he enjoyed a prestige and a moral influence throughout the world unequalled in history. […] The enemy peoples trusted him to carry out the compact he had made with them; and the Allied peoples acknowledged him not as a victor only but almost as a prophet. In addition to this moral influence the realities of power were in his hands.”

In 1919, Keynes wrote The Economic Consequences of the Peace in which he criticized the Versailles treaty and its authors, while accurately predicting its grave socio-economic and political effects: high inflation, stagnation, and revanchism. He had two main points: that the treaty made it economically impossible for Europe to revive itself, and that the Allies had betrayed the tenets of the Armistice, in which they pledged to the defeated side a degree of fairness with regard to territorial and economic impositions. He judged these violations as a stain on the honor of the Allies and a primary cause for a future conflict. His prediction, that another war would begin in the next twenty years, was surgically precise.

Keynes wrote:

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. […] Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. […] Economic privation proceeds by easy stages, and so long as men suffer it patiently the outside world cares very little. Physical efficiency and resistance to disease slowly diminish, but life proceeds somehow, until the limit of human endurance is reached at last and counsels of despair and madness stir the sufferers from the lethargy which precedes the crisis. The man shakes himself, and the bonds of custom are loosed. The power of ideas is sovereign, and he listens to whatever instruction of hope, illusion, or revenge is carried to them in the air. […] But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes?”

Woodrow Wilson’s Fourteen Points [of the Armistice] had been widely disseminated in Germany prior to the end of the war, and were well known by the German public. Sadly, these promises turned out to be nothing but propaganda. The clear gap between this document and the final treaty of Versailles caused great anger in Germany and fueled ultra nationalist sentiments.

There’s a prevalent myth out there, which states that the nazis came to power in Germany due to hyperinflation. It can be easily debunked through the following observations…

Germany did experience hyperinflation in the early 1920s. By October 1922, the mark stood at 130 billion to the dollar. Marks had to be carried in wheelbarrows and life savings were wiped out. Yet the inflationary spiral was brought under control in November 1923 largely through the efforts of Hjalmar Schacht, currency commissioner and president of the Reichsbank and Finance Minister Hans Luther. For an in depth explanation of their policies, see this previous article.

With inflation in check by 1924, Germany entered a time of relative growth. Hitler, while active in German politics, was consigned to the political fringe. Beginning in late 1929, the German economy fell victim to the Great Depression. Industrial production, employment, and sales fell in the early ’30s , while Hitler’s support increased. Price inflation was nonexistent. Rather, by 1933, when Hitler became Chancellor, prices were going down as a result of collapsing demand. Price deflation is good when nominal economic growth is positive, not negative. Tight credit and tremendous unemployment left millions of people with very few marks to spend on anything.

What brought the nazis to power if not hyperinflation? Austerity! During the years of skyrocketing prices, the percentage of the nazis [NSDAP] ranged below 4 percent (see the 1928 elections). The Government imposed harsh austerity measures in the early 1930s [after the hyperinflation had been reined in]; this increased unemployment drastically and it also gave the nazis their first success (18.5 percent in September 1930). Two years later, the ever growing levels of unemployment and poverty drove Hitler to 37.2 percent in the 1932 elections. This graph speaks for itself.

In 5 years time (between ’33 and ’38), the Nazi Government rebuilt the army, built industries and infrastructure, eliminated unemployment, real wage growth was in the double digits – and all of this in a climate of price stability. As such, contrary to popular mythology, the hyperinflation years didn’t bring the nazis to power. What brought them to power was private debt deflation in combination with harsh fiscal austerity. The end of WW1 wasn’t the end of ‘the war to end all wars.’ Sadly, it was the groundwork for a new one, far deadlier than the first.

In an interview with William Buckley, the founder of the British Union of Fascists, Oswald Mosley, explained why Hitler got into power in Germany and why he didn’t in the UK.

“When I began, in the following six years, right until Roosevelt’s doubling of the price of gold and many other things of that sort, unemployment in Britain was halved. Those six years before Hitler came to power, unemployment in Germany was quadrupled. Now, all those things, and your analysis of the English character, simply depend on the economic situation. Neither fascism, communism, nor any new policy, whether decent, humane, or not, will succeed ever, unless you have a grave economic crisis. That’s the only thing which moves people at all.”

Liberals are so terrified of the profound psycho-political impact of economic crises [second only to war itself and similar in some ways], they dare not speak of such phenomena even when they are happening, nor admit that crises, even unmediated, have severe psychological consequences. The liberals practice this fetishistic disavowal. That’s why the status quo [the so-called center left and center right] is so dangerous to public order and peace itself. It’s a paradox, and paradoxes are nature’s way of telling us [observers] that we’re missing something, that something new waits to be discovered. By shunning alternate points of view and trying to silence them outright, the center misses the dialectic and loses the moral legitimacy in the eyes of increasingly larger sections of the population. I personally hold the creditors of the Versailles treaty, Britain, France, and the US, responsible for nurturing what was to become the most devastating conflict in human history.

The Cure For Hyperinflation: Weimar and Venezuela

by Serban V.C. Enache

We frequently hear people bemoan the dreaded phenomenon of hyperinflation. We often hear only one explanation for it – the government printed money like crazy. We rarely hear the reasons behind the overuse of the currency press, which are: loss of output capacity [human and material] as a result of natural disasters or loss of a war, unfair war reparations, political instability, brazen corruption, the end of a fixed exchange rate with a strong currency. In this article I’ll focus on the cure for the phenomenon of hyperinflation – and this cure won’t entail brutal fiscal austerity that halts inflation by condemning much land and capital [buildings and machinery] to idleness and a great many souls to involuntary unemployment, poverty, and sickness.

The Weimar Republic. Background.

After WW1, life in Germany became hell. The political and economic burdens the creditors of the Versailles Treaty [Woodrow Wilson especially] imposed on the Germans created the conditions for the hyperinflation which soon followed. These impositions were highly unjust and impossible to meet. Meanwhile, the Ruhr Valley, Germany’s industrial heartland was occupied by the Allies. Workers responded to the occupation by organizing strikes. Crashing economic activity led to falling tax revenues and higher welfare payments. The Government, deprived of gold reserves and output capacity, had no choice but to print money to cover its costs plus the war reparations. Hyperinflation ensued. Farmers and manufacturers more and more refused to sell their output for the increasingly devalued Papiermark. This is the context of the phenomenon. Those interested in the facts will verify them, those interested solely in confirming their preconceived notions will dismiss them.

The Plan To Fix The Problem

Finance Minister Hans Luther, working together with Hjalmar Schacht [later head of the Central Bank], using Karl Helfferich’s idea of a currency backed by real goods, formulated a scheme to contain the rampant inflation of the Papiermark. In 1923, Berlin, the Rentenbank was created. The institution provided credit to agriculture, industry, and commerce.

The term “Rentenbank” stems from “annuity bonds”, fixed-income securities [bearer bonds] issued by the first pension banks during the 19th century. Since the Middle Ages the peasants were forced to provide easements to their landlords – various hand services and the like. In the early 19th century, though, agrarian reforms started in Prussia and other German states aimed to disband these obligations. The effort initially failed owing to a lack of a proper credit system.

To accelerate the agrarian reforms, pension banks were established as state-owned mortgage banks. They gave state-guaranteed, freely tradable and fixed-rate bonds (annuities) as money compensation for the expired privilege of the landlords. On the other hand, the peasants paid fixed income to the pension funds over a long period of time, from which the banks were able to service the principal and interest on the bonds. These reforms and the liberation of the peasants gained traction and agricultural productivity rose dramatically.

Enter the Rentenmark

Returning to the 1920s, November 1923 to be precise, the Rentenbank issued its own currency, the Rentenmark, which was covered by mortgages on the grounds of holdings. Total amount of mortgages and land imposts was valued at over 3.2 billion gold-marks. The Act creating the Rentenmark ensured twice yearly payments on property, due in April and October. In return for the real estate, Rentenbank issued interest-bearing bonds with a value of over 500 gold marks or a multiple thereof. The exchange rate between the Rentenmark and the Papiermark was set at 1:1 trillion, and with the US Dollar at 4.2:1.

The Rentenmark didn’t have legal tender status, so there was no legal obligation for private agents to accept it as a means of payment, however, all public institutions had to accept it. Even without legal tender status, the citizens embraced it right away. The Rentenmark’s value was relatively stable, while its quantity remained fixed, Shacht insisted on it. On August 30th, 1924, the newly-introduced Reichsmark became legal tender and was given equal value to the Rentenmark. It’s very important to note that this exchange rate was applied to two fiat currencies over which the Government had power of authority. It retained the right to alter the exchange rate if it wanted or needed to. The issued Rentenmark nominal remained in circulation up until 1948.

Tight Money Policy

In charge of the Central Bank, Hjalmar Schacht implemented a tight monetary policy, the institution ceased discounting Papiermark bills and, despite political pressures, he kept the volume of Rentenmarks strictly limited. As for fiscal policy, Finance Minister Hans Luther went on the austerity route, the correct choice given the circumstances. He brought forward due dates for taxes, increased prepayments of assessed taxes, raised the sales tax, and readjusted the fiscal burden between the regional governments [Lands] and the Reich [the Central Government]. Spending-wise, Luther shrank the number of Reich bureaucrats by a quarter over four months, froze bonuses and reduced their wages. These measures accompanying the issuance of the ‘land-backed’ Rentenmark succeeded; hyperinflation was brought to an end immediately. People spoke of the ‘miracle of the pension mark.’

Between 1926 and 1929 inflation hovered below 2 percent. In the early 30s, however, in reply to the Great Depression, the Government of Heinrich Bruning imposed harsh austerity measures needlessly [tightening credit, cutting wages, cutting public assistance, and increasing taxes], which exploded unemployment and poverty levels in the country and, in the process, made the once marginal Nazis incredibly popular with the people. The National Socialists opposed Bruning’s Government from the beginning, unlike the other right wing parties. Bruning and his policies became widely hated.

See the graph below.

The reader will rightly ask, why did fiscal austerity work for Schacht and Luther, but not for Bruning’s Government? Schacht and Luther applied counter-cyclical fiscal and monetary policy, while Bruning applied pro-cyclical policy. Excess demand relative to supply is eliminated via taxation [draining income from the private sector]. But during the Great Depression, there was too little demand relative to what was actually on the shelves. Bruning’s reforms collapsed aggregate demand levels even further.

Thoughts On Venezuela

The geopolitical aspect is very important, for it can greatly amplify minor or general problems very fast [See Turkey], or it can spark them. The State Central Bank’s dollars in non-cash form reside in accounts at the Federal Reserve, which are beyond Maduro’s control. The Government can’t access these funds. Recently, the US and the UK stole Venezuelan oil and bank assets worth about 30 billion dollars. More so, the US has imposed an outright embargo against Venezuela [trade sanctions levied since 2013 got harsher and harsher, depriving the country of hundreds of billions of dollars in economic activity]. Lastly, belligerent statements coming from Europe and Latin America [Brazil and Colombia especially] and Washington threatening with ‘all options on the table,’ which includes assassination, sabotage, coup, and invasion.

Footage from supermarkets in the capital, stores filled with produce, reveal that a shortage of goods isn’t the problem, but high prices. If it’s true that Maduro’s Government kept public spending high without re-adjusting it to falling prices of crude, then his policy is a key contributor to the bolivar’s dramatically reduced purchasing power. Currency pegs and indexation of wages and pensions with anticipated inflation feed the vicious loop. The Venezuelan Government announced that it’s accepting payments in Euros. In my opinion, this is a big mistake, because the ECB can pull the same stunt on Venezuela that the FED pulled. Maduro is much better off negotiating an entry into the Petro-Yuan with Beijing. Why? You can purchase virtually anything from China. China has made numerous investments across the developing world without asking for political concessions in exchange, in stark contrast to the likes of the IMF. Beijing doesn’t seek regime change or privatizations in exchange for its money. It does business with whoever is interested and it offers advantageous rates too. Trade-wise the Chinese are interested in two things: securing raw material imports and securing demand for their factories. It’s a win-win for both sides.

In my opinion, Venezuela will become Syria 2.0, because there’s no sign that Washington is going to accept any other outcome. The satanic crowd around Trump, the Deep State, and their servants in the corporate media are all pushing the same old hypocritical, war-mongering narrative. They spew it as if it’s a new dish too, not the same rotten thing, teeming with slime and worms. And before we blame it all on the Republicans, remember that 85 percent of journalists in the US are registered Democrats. Since this issue is bipartisan, we know it’s outright devilry. Bolton, Pence, Trump, and the rest – they want to cover up their failure to dismember Syria and Iran by picking on Venezuela, a more vulnerable target closer to home.

If I were in Maduro’s shoes, I’d escalate things ahead of my rivals. I would invite in Russian and Chinese troops and war-gear. Washington doesn’t like to cooperate or negotiate with sovereign regimes. For many decades now, the logic has been, you do as we say, otherwise we treat you as a rogue state. Against a rival who doesn’t wish to bargain and who has threatened [euphemistically or not] violence and murder, you’ve no choice but to take all measures required. Maduro has to choose the 2nd most extreme of defence options [2nd only to the preemptive strike, which doesn’t apply here] because in this context, it’s the wisest step.

If mainstream commentators are fine with US gangsterism, with countries purchasing protection from Washington and the Military Industrial Complex, then they should be fine with Venezuela purchasing protection from Russia and China. They can’t oppose it without being hypocrites and without being Monroe Doctrine apologists, defenders of imperialism, oppression, and mass-murder; not that that’s gonna stop them. Let’s not be naive, US hegemony is shaking. The 2nd Cold War is on.

Update on Venezuela: a report by CEPR finds that US sanctions against Venezuela, started by Trump in 2017, are responsible for tens of thousands of deaths.

So What’s The Cure, Dammit?

The recipe for a return to price stability is contingent on the factors which spawned the instability. This list of measures will hopefully cover all eventualities: 1) Counter-cyclical fiscal policy [drain excess money in circulation via taxation, while cutting superfluous spending.] 2) Land-value capture to replace taxation of buildings, labor, sales, and enterprise [taxing natural monopolies, the rent of location; the site-value tax carries negative dead weight – it brings efficiency to the marketplace]. 3) Buffer stock policies [the public authority buys seminal commodities during periods of excess production and sells these commodities domestically during times of dearth]. 4) Allow the national currency to float freely according to demand [drop any fixed exchange rate, whether it’s to gold or foreign currencies, and embrace a sovereign fiat regime]. 5) Negotiate with rival political factions to settle differences and produce a national accord that appeases all sides to a reasonable extent. 6) Ration basic resources to ensure no section of the population starves [hands and minds are precious and must be kept alive and functional to create goods and services for another day; there’s no sense in killing off one section of the population to feed another extra rations]. 7) Bring in a second or third great power in your region, in order to decrease the bargaining power of the established one/s and strengthen your own position in the process. 8) Link up the country’s regions through a comprehensive system of infrastructure, high speed rail especially [the points of resource extraction with the manufacturing centers, the latter with the marketplaces]. 9) Restrict bank lending for speculative purposes [do not permit banks to accept financial assets as collateral for loans, or to mark their assets to market prices.] 10) Discourage private and public agents from borrowing in foreign currency [always ensure loans in domestic currency are cheaper than in foreign currency; never subsidize the latter type of loans]. 11) Employ all available labor to achieve maximum output [Depending on the situation, participation in public works programs would be mandatory or voluntary. In case of emergency, working hours could be increased and holidays decreased.] 12) Don’t lose a war [or better said, don’t lose peace negotiations concerning your fate]. 13) War Bonds [While the role of War Bonds is to allegedly fund a war, in practice what they do is drain liquidity from those who purchase them. They can be denominated in foreign currency, domestic currency, or both. That being said, liquid or illiquid purchasing power is still purchasing power. People can still purchase things on credit, contingent on their own financial situation. War Bonds may have a psychological effect on the populace, reminding households that they must tighten their belts, deferring consumption to the future, so more supplies can be allocated to the troops in the now. The promise is that, after the war is won, bond holders get paid at a profit. 14) Retiring the currency and replacing it with another [Brazil did it several times in the last 77 years; the Government announces taxes and fines payable in a different currency. This method involves burning away people’s cash savings. To escape hyperinflation, Zimbabwe gave several foreign currencies legal tender status.]