The petrol pumps dried up a month ago. Water and electricity are off more often than they are on. The national currency has an expiry date of July 2007 stamped on it but it's worth hardly anything anyway, so nobody seems to care.

Some Zimbabweans find a perverse comfort in all this because they believe, as the American ambassador put it, that Robert Mugabe is committing regime change on himself with his mad economics. It cannot get any worse, they say, but it can.

As bad as Zimbabwe gets, it still seems that there is a long way to fall. Mobutu Sese Seko ran Zaire into the ground for more than two decades and was only removed by an invasion. Successive military governments plundered Nigeria, wrecking its economy and infrastructure and still retained power. Zimbabwe may be far from the tipping point.

That said, everyone except Mugabe and his inner circle seems to agree that with inflation accelerating so fast no one really knows what it is, and with much of the economy decamped to the black market and a system of bartering, total economic meltdown cannot be far off.

The US ambassador's prediction sent a shudder through the upper echelons of Zanu-PF (the ruling party) and prompted Mugabe to order the police and army into the shops to enforce the cutting of the prices of everything by at least half. While it demonstrated Mugabe's loose grasp of the causes of inflation, the efficiency with which reductions were imposed also showed that in some way he remains very much in control.

Mugabe's neighbours are divided and even those bearing the brunt of his chaos appear paralysed. He arrived at the summit of southern African Presidents to thunderous applause. To many, he remains a liberation hero and it offends their African nationalism to see him pushed around by the Americans and British.

The Angolans are behind him. The Zambians and South Africans are more critical, but Mugabe appears scornful of Thabo Mbeki's efforts to mediate a settlement between Zanu-PF and the opposition. Zanu-PF delegates simply didn't turn up for the first round of talks. When they did, there was little evidence they viewed them as anything more than a sop to Mbeki.

Mbeki says he wants to reach agreement on terms for a free presidential election next year. Why would Mugabe agree to that? He's spent seven years rigging elections precisely because he knows he's going to lose and has no intention of surrendering power - at least not to anyone outside Zanu-PF. He can go into another election pretty much on his own terms and may not need to rig it so much after all. The opposition is weak and divided and has lost the confidence of the people.

About one-third of the population is estimated to have walked out of the country, most to South Africa. That relieves pressure on the regime by removing some of those most likely to rebel, along with potential opposition voters. It also provides a steady stream of hard currency back to Zimbabwe.

Mugabe appears to retain the loyalty of most of the security chiefs, partly because they are old comrades in arms, but also for more immediate interests. The central bank is little more than a cash dispenser for the elite who buy dollars at the official rate and sell them at 800 times more on the black market.

Some of Mugabe's inner circle also have good reason to fear what will come next. The military and police chiefs have enough blood on their hands to face trial under another administration, although the opposition has offered an amnesty and power sharing in an effort to encourage Zanu-PF to dump Mugabe.

Yet there are signs of discontent among those around Mugabe. Questions continue to swirl around the death of the head of the presidential security guard, Brigadier General Armstrong Gunda, who was supposedly killed when his car was hit by a train. Six days before Gunda was killed, about 15 members of his force were arrested and accused of plotting a coup, although not the general. Ordinary Zimbabweans are still trying to work out if there really was a coup plot or whether Mugabe was simply demonstrating once again that he still sets the agenda.

But the mystery over Gunda hints at the direction any solution may have to come from. The region's leaders can't provide the solution, neither can Britain. Change will have to come from within and if the opposition can't do it, perhaps Zanu-PF's survival instincts will kick in and it will ditch its greatest liability. But don't count on it happening soon.

· Chris McGreal has been reporting from Africa since 1990