International Investing

Is…..Zimbabwe! The Daily Reckoning explains this purely monetary phenomena:

The Zimbabwe Stock Exchange (the ZSE) is the best performing stock exchange in the world, with the key Zimbabwe Industrials Index up some 595% since the beginning of the year and 12,000% over twelve months. This jump in share prices is far in excess of increases in consumer prices. While the country is crumbling, the Zimbabwean share speculator is keeping up much better than the typical Zimbabwean on the street.

CNBC logic fails to explain the coincidence of a rising ZSE and collapsing GDP because it entirely ignores the monetary side of the economy. At this point Austrian economics makes its contribution to our story. According to Austrian Business Cycle Theory (ABCT), the peak-trough-peak pattern that economies demonstrate is not their natural state, but one created by excess growth in money supply and credit. New money is not simply parachuted to everyone equally and at the same time - it is sluiced into the economy at certain initial “entry points.” From these entry points, a number of initial goods are bought by recipients of new money causing a rise in price for these initial goods relative to other goods.