Unlike Zimbabwe, the U.S. can easily get the currency it needs without being beholden to anyone. But wouldn’t that dilute the value of the currency? No.

A month ago, the bond vigilantes were screaming that the Fed’s QE2 would be the first step on the road to Zimbabwe-style hundred trillion dollar notes.  Zimbabwe (the former Rhodesia) is the poster example of what can go wrong when a government pays its bills by printing money.  Zimbabwe’s economy collapsed in 2008, when its currency hyperinflated to the point that it was trading with the U.S. dollar at an exchange rate of 10 trillion to 1.  On November 29, Cullen Roche wrote in the Pragmatic Capitalist:

Back in October the economic buzzwords had become “money printing” and “debt monetization”. . . . [T]he Fed was initiating their policy of QE2 and you’d have been hard pressed to find someone in this country (and around the world for that matter) who wasn’t entirely convinced that the USA was about to send the dollar into some sort of death spiral.  QE2 was about to set off a round of inflation that would make Zimbabwe look like a cakewalk.  And then something odd happened – the dollar rallied as QE2 set sail and hasn’t looked back since.

 What really happened in Zimbabwe?  And why does QE2 seem to be making the dollar stronger rather than weaker, as the inflationistas predicted? 

Anatomy of a Hyperinflation

Professor Michael Hudson has studied hyperinflation extensively.  He maintains that “every hyperinflation in history stems from the foreign exchange markets.  It stems from governments trying to throw enough of their currency on the market to pay their foreign debts.” 

It is in the foreign exchange markets that a national currency becomes vulnerable to manipulation by speculators. 

The Zimbabwe economic crisis dated back to 2001, when the government defaulted on its loans and the IMF refused to make the usual accommodations, including refinancing and loan forgiveness. Zimbabwe’s credit was ruined and it could not get loans elsewhere, so the government resorted to issuing its own national currency and using the money to buy U.S. dollars on the foreign exchange market. These dollars were then used to pay the IMF and regain the country’s credit rating. According to a statement by the Zimbabwe central bank, the hyperinflation was caused by speculators who charged exorbitant rates for U.S. dollars, causing a drastic devaluation of the Zimbabwe currency.

But something darker seems also to have been going on.  Timothy Kalyegira, a columnist with the Daily Monitor of Uganda, wrote in a 2007 article:

Most observers and the general public believe Zimbabwe’s economic crisis was brought about by Mugabe’s decision to seize white-owned commercial farms in 2000. That might well be true. But how about another, much more sinister element . . . sabotage?

Kalyegira asked how a government “with the same tyrant called Mugabe as president, the same corruption, and same mismanagement, kept inflation down to single digit figures [before 2000], but after 2000, the same leader, government, and fiscal policies suddenly become so hopelessly incompetent that inflation is at the latest reported to be over 500,000 percent?”  

Canadian commentator Stephen Gowans calls it “warfare by other means.”  Devaluing the enemy’s currency has been used as a war tactic historically.  It was used by Napoleon against the Russians and by the British against the American colonists. 

In 1992, financier George Soros showed how it was done, when his hedge fund virtually single-handedly brought down the British pound.  His fund sold short more than $10 billion worth of pounds, forcing the Bank of England to devalue the currency, earning Soros an estimated $1.1 billion and the title “the man who broke the Bank of England.”  In 1997, the UK Treasury estimated the cost at 3.4 billion pounds.

One wonders, then, if it is just coincidence that the Open Society Initiative for Southern Africa is a Soros-affiliated organization.  According to Wikipedia, its director for Zimbabwe also directs the Zimbabwe Congress of Trade Unions, the main force behind the founding of the Movement for Democratic Change, the principal indigenous organization promoting regime change in Zimbabwe.

War by Other Means

The push for regime change in Zimbabwe was detailed by Stephen Gowans in a March 2007 article posted on Global Research.  He wrote:

Before 1980 Zimbabwe was a white-supremacist British colony named after the British financier Cecil Rhodes, whose company, the British South Africa Company, stole the land from the indigenous Matabele and Mashona people in the 1890s. . . .

Ever since veterans of the guerrilla war against apartheid Rhodesia violently seized white-owned farms in Zimbabwe, the country’s president, Robert Mugabe, has been demonized by politicians, human rights organizations and the media in the West. . . .

I’m going to argue that the basis for Mugabe’s demonization is the desire of Western powers to change the economic and land redistribution policies Mugabe’s government has pursued; . . . and that the ultimate aim of regime change is to replace Mugabe with someone who can be counted on to reliably look after Western interests, and particularly British investments, in Zimbabwe.

Timothy Kalyegira concurred in this theory, observing:

A former undercover operative John Perkins recalled events that are strikingly familiar to what we see in Zimbabwe today: “[In] 1951…Iran rebelled against a British oil company that was exploiting Iranian natural resources and its people…An outraged England sought the help of her…ally, the United States…Washington dispatched CIA agent Kermit Roosevelt…to organize a series of …violent demonstrations, which created the impression that [Iranian Prime Minister] Mossadegh was both unpopular and inept. (Confessions Of An Economic Hit Man, Ebury Press, 2005, page 18)  Clearly, Mugabe’s capital crime was to displace White privilege in Zimbabwe and personally stand up to the White establishment in London and Washington.


This is not to condone any atrocities of which the Mugabe government stands accused, or to overlook the fact that breaking up the white-owned farms and delivering them to unskilled workers was a disaster for the economy.  The original black workforce did have the necessary skills, and if the farms had been transferred to cooperatives owned by them, little harm would have been done to the economy. 

The narrow issue considered here is whether the Zimbabwe hyperinflation was the result of the government printing money to fund its budget.  In fact, the government was printing money to buy the foreign currency needed to pay debts owed in a foreign currency, something that subjected it to the whims of speculators.      

The U.S. Is Not Zimbabwe

Even if Zimbabwe’s hyperinflation was the result of currency manipulation rather than exploitation by corrupt politicians, couldn’t the same thing happen to the U.S. dollar? 

The answer is, not likely.  The U.S. does not owe debts in a foreign currency over which it has no control.  It can issue bonds payable in its own currency. 

Today that currency is issued by the Federal Reserve, which is privately owned by a consortium of banks; but the Fed has been at least semi-captive ever since the 1960s, disgorging its profits to the Treasury.  Its website states, “Federal Reserve Banks are not . . . operated for a profit, and each year they return to the U.S. Treasury all earnings in excess of Federal Reserve operating and other expenses.”  The Federal Reserve Act provides that it can be modified or rescinded at any time, so Congress retains ultimate control.

Randall Wray, Professor of Economics at the University of Missouri-Kansas City, writes that “involuntary default is, literally, impossible for a sovereign government.” 

The U.S. does not have to rely on foreign investors even to buy its bonds.  If the investors are not interested, the central bank can buy the bonds.  That is, in fact, what the Fed’s second round of quantitative easing is all about: issuing $600 billion for the purchase of long-term government bonds. 

Unlike Zimbabwe, which had to have U.S. dollars to pay its debt to the IMF, the U.S. can easily get the currency it needs without being beholden to anyone.  It can print the dollars, or borrow from the Fed which prints them. 

But wouldn’t that dilute the value of the currency? 

No, says Cullen Roche, because swapping dollars for bonds does not change the size of the money supply.  A dollar bill and a dollar bond are essentially the same thing.  One bears interest and is a little less liquid than the other, but both are obligations good for a dollar’s worth of goods or services in the economy.  If the bondholders had wanted cash, they could have cashed out the bonds themselves.  They don’t have any more money to spend, or any more incentive to spend it, when they’ve been cashed out by the government than when they were holding bonds.     

Moreover, adding money to the money supply cannot hurt the economy when the money supply is shrinking, as it is now.  Most money today consists simply of bank credit, and bank credit is shrinking because banks are deleveraging.  Bad debts are wiping out capital, which wipes out lending capacity.  QE2 is just an attempt to fill the empty liquidity pitcher back up — and a rather feeble attempt at that.  Financial commentator Charles Hugh Smith estimates that the economy now faces $15 trillion in writedowns in collateral and credit, based on projections from the latest Fed Flow of Funds (September 17, 2010).   Based on his projections, it might be argued that the Fed could print enough money to refinance the entire federal debt without creating price inflation.  (The current inflation in commodity prices is due to other factors, as was discussed in an earlier article, here.) 

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, wrote recently concerning the federal deficit:

There is no reason that the Fed can’t just buy this debt (as it is largely doing) and hold it indefinitely. If the Fed holds the debt, there is no interest burden for future taxpayers. The Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country’s net interest burden. And the Fed has other tools to ensure that the expansion of the monetary base required to purchase the debt does not lead to inflation.

This means that the country really has no near-term or even mid-term deficit problem. The current deficit is a positive. In fact, if it were larger we would have more jobs and growth. Furthermore, there is no reason that the debt being accumulated at present should pose any interest burden on future generations. In this vein, it is worth noting that Japan’s central bank holds debt amounting to almost 100 percent of that country’s GDP. As a result, Japan’s interest burden is considerably smaller than the United States’s, even though Japan’s debt is almost four times as large relative to the size of its economy.  [Emphasis added.]  

Although Japan’s relative debt is almost four times as large as ours and its central bank holds enough to equal nearly 100% of its GDP, investors are not fleeing the yen or driving the economy into hyperinflation.  In fact Japan still can’t pull itself out of DEFLATION, despite massive quantitative easing.  The country still has willing trading partners and is still the third largest economy in the world, an impressive feat for a small island. 

If the Fed were to follow the lead of Japan and hold federal debt equal to the country’s gross domestic product, the Fed would be holding $14.75 trillion in federal securities, enough to refinance the ENTIRE U.S. federal debt of $13.8 trillion virtually interest-free. 

The federal debt hasn’t been paid off since the 1830s under President Andrew Jackson.  It is just rolled over from year to year.  An interest-free debt rolled over indefinitely is the functional equivalent of the government issuing money itself. 

Andrew Jackson would have said the government SHOULD be issuing the money itself, rather than borrowing from banks that issue it.  If Congress gave itself the right under the Constitution to issue money, he said, “it was conferred to be exercised by themselves, and not to be transferred to a corporation.”  

Indeed, that may be why the U.S. dollar has been going UP since QE2 was initiated, while the Euro has been going DOWN.  EU governments are doing what the inflation hawks want them to do: cut back on services, privatize their pension money, and otherwise engage in austerity measures to balance their budgets.  The effect has been to depress their economies and throw them deeper and deeper into debt, with nowhere to get the extra cash needed to pay the expanding debt and interest burden. 

The U.S. and Japan are exploring another model: allowing their currencies to expand to meet the needs of their economies.  This was, in fact, the original money system of the American colonists.  It was revived by Abraham Lincoln to avoid a crippling war debt, after which it was dubbed the “Greenback solution.”


Ellen Brown is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free.  Her websites are,, and

19 Responses

  1. […] Ellen Brown viewpoint as a non economist is getting closer an closer to an agreement with Modern Money Theory and our friends in Kansas.  Here she writes about expansion of the money supply and risk of hyperinflation… … Andrew Jackson would have said the government SHOULD be issuing the money itself, rather than borrowing from banks that issue it. If Congress gave itself the right under the Constitution to issue money, he said, “it was conferred to be exercised by themselves, and not to be transferred to a corporation.” Indeed, that may be why the U.S. dollar has been going UP since QE2 was initiated, while the Euro has been going DOWN. EU governments are doing what the inflation hawks want them to do: cut back on services, privatize their pension money, and otherwise engage in austerity measures to balance their budgets. The effect has been to depress their economies and throw them deeper and deeper into debt, with nowhere to get the extra cash needed to pay the expanding debt and interest burden. The U.S. and Japan are exploring another model: allowing their currencies to expand to meet the needs of their economies. This was, in fact, the original money system of the American colonists. It was revived by Abraham Lincoln to avoid a crippling war debt, after which it was dubbed the “Greenback solution.”  (link to full article) […]

  2. I guess that answers my question. Thanks.

    Strategically, this move by the Fed is curious. The institution is owned by and basically comprised of the international banking cartel, which has set its sights on the economic destruction of the West and the removal of the U.S. Dollar as the world’s reserve currency. Only after they succeed in those two endeavors can they establish a global monetary scheme administered under their dictatorial rule, with China and Asia as the new host for the debt parasites.

    There could be serious infighting taking place between Wall Street and Congress (unlikely), or our central bank might actually be rebelling against its foreign owners in a bid to avoid criminal prosecution.

    A more believable scenario is that QE2 might represent some effort to slow down the collapse of the entire system so as to avoid rousing the American public and preventing us from politically mobilizing.

    In the end, this worldwide pyramid structure is now mathematically impossible to sustain and WILL COLLAPSE.

  3. Given that the Fed is a private corporation owned by its member banks, and that it rebates to the Treasury the interest it earns on the money it loans to the Government ( money that the Government itself prints, mirabile dictu!), what do the stakeholders in FedCorp get aside from all the blessings of Mammon they already enjoy for being who and what they are?

    Do payments to stakeholders make up part of the “operating costs and other expenses”? The minute particulars of the Fed/Gov relationship are difficult to fathom, but we know that it is a private operation and not necessarily a 501 c(3) corporation, and it has a mandate to serve the public interest by means of supporting employment and keeping inflation at bay. But I do not think it is what this statement implies: “The Federal Reserve Act provides that it can be modified or rescinded at any time, so Congress retains ultimate control.”

    Congress does not have ultimate control over a private entity. It has the power to change its charter, or abolish it, but beyond that, Congress has no authority over its day to day operations. Bernanke does as he thinks best, he leads, and he will not abide too much scrutiny, such as an audit that might prove very embarrassing.

    Thanks for righteously dispatching the inflationistas, but you make me a little uncomfortable cozying up the Fed. Just because Bernanke’s policies suggest the greenback solution doesn’t mean he’s a greenbacker.

    And if he is a greenbacker by some stretch of the imagination, do we want the greenback model administered going forward by a private corporation, the same crowd that brought us to this grievous situation?

    I don’t think so.

  4. I find this article a little disquieting. Becoming enmeshed with the theory of QE it loses focus on an essential element of Reform – that the issue of new money by the State must surely be transparent and targeted. It must directly stimulate worthwhile and constructive activity – i.e. create private sector employment in the provision of public assets and infrastructure and it should do so without dependence upon the banks and financial markets and without incurring interest bearing debt.
    That may seem simplistic but one explanation is offered in the video on our website –
    And the analogy in the past para that QE is like financing the war with greenbacks highlights the point – those greenbacks went directly to buy weapons and pay the troops – it short circuited the banks and left them to do what they’re supposed to do – maintain our book-keeping system!

  5. China is getting slammed right now with massive inflation in food prices (10% last month!).

    These manipulations of commodity prices by financial predators need to be dealt with or the United States will indeed suffer hideous increases to our average cost of living. Goods and services will become cripplingly expensive in spite of our shrunken money supply.

    As far as the benefit our nation might obtain by emulating Japan’s response to deflation, I think the fact that the Japanese economy still produces real wealth and ours does not is an important difference that should be taken into consideration.

    While I believe the actual money supply doesn’t really affect the value of a currency unless drastically altered overnight, I do view the situation as an international game of confidence … especially when we are the reserve currency.

    Although, I value the confidence of foreign governments in our currency more than the “confidence” of financial predators. The former is at least somewhat reliable; the latter blows in the direction of avarice.

  6. Warren Mosler explains in his book, which is online, that the government and the Fed, and banks in general, do their purchases and their loans simply by creating money on their books, i.e. the Greenback solution. Then they go through this ruse of pretending they borrowed the money from somewhere. The government buys bonds but never pays them off, just keeps rolling them over, which is the equivalent of printing money. You can argue that the creditor’s money is out of circulation for the time being, but the creditor fully expects to be able to cash out when he wants to (just as the banks’ depositors do, although their money has been “lent”), and when he does, the same shell game will be engaged in as the banks engage in: they’ll pull the money from some other borrowed pool. If all else fails, they’ll “borrow” from the Fed, which creates the money on its books; but they could just as well borrow from banks, which also create the money on their books. Ultimately all money is just created on the books of banks. We go through this pretend show of shuffling it around from one bank to another, as if it were real money; but they are all chips borrowed from the banking casino, owed back in a deleveraging process that will necessarily hurt the economy unless the shell game is started up again somewhere else.

    The cleaner, neater way to do it is to eliminate the pretense and acknowledge that the Treasury and the Fed and the banks are just scorekeepers keeping track of who owes what to whom. One man’s debt is another man’s credit; that’s all money is. Adding “debt” or “credit” doesn’t inflate the system, because they zero out on the other side of the balance sheet. That sort of transparent accounting system would also avoid the sorts of runs on the bank we saw with the run on the shadow banking system in September 2008. We need that shadow system because the banks have to keep up the pretense of borrowing from someone before they lend. It would be better to just let them advance credit, period; it will zero out when paid off. That’s all money is and should be today — an accounting system, a series of legal agreements.

    • “One mans debt is another mans credit, that’s all money is” implies that money has some sort of intrinsic value which is absolutely wrong. The quantitative easing that is now taking place is actually creating inflation in the commodities market as well as playing havoc in other countries. Inflation is beginning to move in the US but this is being muted to some extent by the large amount of business failures and unemployment the net result of which is to remove money from general circulation. Money is a means of exchange and herein lies its claim as a store of value. The only thing that creates value is human activity which is embodied in physical production. Marx made this patently clear in Das Capital. As someone who started there banking career as a clerk in open market operations and has gone on to take advantage of the inflationary game I can assure you that when two much money is in circulation the result is inflation. If there are tremendous deflationary pressures which by definition means a fall in consumer expenditure then this equates to monetary contraction.
      This brings me to another point which I have often heard you express and that is the need for the Federal Reserve to be nationalized and be in full control of credit creation. I accept this! However, this is not a panacea by any means and fails to properly analyze what is the driving force of economic development. The short answer is human creativity. One person can look at the soil and see nothing ,another person plants a seed and grows corn and yet another uses a microscope and discovers some unique mineral from which countless possibilities arise. The use of credit to facilitate human productive potential is the critical factor. Credit creation used unwisely is just a euphemism for printing money.

  7. Lincoln’s government was forced to adopt the printing option in extremity, and the idea was so appealing that it became the basis for third party politics in a time of the gold standard and chronic shortage of money to fuel an expanding economy.

    The People’s Party developed as the political expression of the Populist movement, with paper money as its economic solution. The Greenback Party platform was absorbed and elaborated into populist monetary theory.

    Eventually, and inevitably, the gold standard was abandoned. When this crisis developed and Ben Bernanke dropped the Fed Funds rate to near zero, and began issuing free credit, Ellen was equipped to explain to the world what was really going on because she listened to what Helicopter Ben had been saying. Bernanke knew about the greenback, and who knows, maybe he’s a student of populist monetary theory?

    From my perspective, “modern money mechanics” is the populist greenback model, stripped of its populism. They adopted the mechanics at the same time they crushed the spirit of greenbackism.

    It was to be the solution to the chronic shortage of money in the hands of the people. It was to be the foundation of a more prosperous, cooperative, and democratic society.

    So the “greenback solution” is no solution at all in private hands. In fact, it is another tool to help the financial elite retain its power. It is, in fact, used against the people. QE2 helps the private financial institutions primarily, and benefits “trickle down” to the population as well.

    But it is never the people that our latter day greenback solution is aimed at, it is always the financial elite. According to the private financiers, finance is the prime mover of the economy. Capital comes first.

    This defies common sense. It puts the cart before the horse. It is the horse, labor, that pulls the cart full of celebrating financiers cracking their whips. It is labor that the greenback solution was intended to benefit.

    But private capital is very sure of itself. It will destroy the economy and whatever semblance of democracy we have left, and probably never voluntarily see the error of it ways.

    My gut tells me that the greenback solution in private hands is just another WMD.

  8. Another good article in demystifying QE. Thank you Ellen.
    The statement by Dean Baker that – by the FED holding debt indefinitely – there is no interest burden for future taxpayers suggests that future debt obligations are not as unpayable as many vehemently express. The real concern is job creation to get money circulating and producing genuine wealth again. More stimulus is required to achieve that. With near zero interest rates, why is it a problem if badly needed money ends up in the hands of many? Am I missing something?

    • Right, I agree. What people tend to overlook is that virtually all money is created as bank debt, and bank debt has collapsed. So we need public debt to fill the void. It’s not inflationary; it’s just rebalancing the system, countering deflation.

  9. The question, for us europeans, is why the ECB do nothing in order to help Ireland & CO? They have all the tools at their disposal… still they leave the nation to be robbed by the IMF.

    • I agree with that. The ECB needs to extend credit to the member states. There is simply not enough money in the Euro system without some credit-generating mechanism.

  10. Thank you fighting this fight and getting the information out on the Private Corporate Criminal Valueing of the American Peoples Lives.

    This is Re-Localizing!
    This is the RE-Public-ing that America Needs
    This is the Principle that America was Founded on.

    To Not Be Ruled From Afar.

    END THE FED – Support The States Bank Commodities Act and Bring GreenBacks Back!
    Dollar Dead as World Reserve Currency, USA is Bankrupt and Greenspan Admits It Was All a Scam & Fraud, We are asked to make a choice and either Go Global and Submit to a New SDR Currency Under a Bigger Foreign Federal Reserve Bank or Do We Go Local Get Our Houses in Order and Hold the Criminals Accountable?

    Go Local – End the Fed – Demand the State Bank Initiative


    Dec 9th SF Bay Area
    Speaking tonight – GO if you are in the area!

    Wish I could be there, Knock ’em Over.

    • Yes I think it wouldn’t hurt us to not be the world’s reserve currency. Since everybody is trading in our dollars, they leave the country and don’t come back.

  11. Hi, we really enjoyed your talk at Marin Civic Center. Where’s your FACEBOOK WOMAN???

    You’re cause is perfect for Social Media!!! If you need some help putting up video blogs I can help you. You’re on wordpress and slapping up a video is easy.

    I have 1,490 or so “Friends” on facebook and its’ a great way to share this type of idea.

    Mary Cary

  12. Ellen, thank you for your clear-eyed analysis of the many facets of QE2. I was particularly interested in your exploration of the financial catastrophe in Zimbabwe. I always wondered about the “untold story” behind their pernicious hyperinflation.

    In your article, you stated: “EU governments are doing what the inflation hawks want them to do: cut back on services, privatize their pension money, and otherwise engage in austerity measures to balance their budgets. The effect has been to depress their economies and throw them deeper and deeper into debt, with nowhere to get the extra cash needed to pay the expanding debt and interest burden.” It seems that current Administration’s partnership with the Republicans is taking the US down the same path with counterproductive “austerity” measures. What is your take on the latest tax bill? Will you address the ramifications in a future post?

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