Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Instead of reading about hyperinflation and economic collapse in history, you can watch it play out live. Tune in to Venezuela. – 1

ten trillion Zimbabwe dollars. Not the largest currency in circulation, but close.

Ten trillion Zimbabwe dollars. Not the largest currency in circulation, but close. Tragedy of hyperinflation is playing out again, this time in Venezuela.

The hyperinflation in Zimbabwe resulted in a ten trillion Zim note being worth four cents in American dollars. That would be:

  • Zim$10,000,000,000,000  =  US$.04

When that level of financial devastation happens, it is the result of government policy. Usually socialists pull it off, but German also did so before WWII.

Previous posts:

Venezuela

If you are so interested, you can now watch the sad story as it plays out in Venezuela.

2/3 – Wall Street Journal – Inflation-Wrought Venezuela Orders Bank Notes by the Planeload – Usually governments deal with out-of-control inflation by adding two or three zeros to the currency. Instead of the largest bill in circulation being a 100 unit note, the next run of currency is for a 10,000 unit note. In six months or a year there will be a 500,000 or 1,000,000 note in circulation.

Article says the Venezuelan government isn’t doing that because to do so would acknowledge the astronomical inflation. As the saying goes, denial isn’t just a river in Egypt.

Instead of acknowledging that inflation is running out of control, the government of Venezuela is flooding the economy with the same denomination note. In the last several months of 2014, the article says there were three dozen flights of 747s into the country hauling nothing but currency. Over 30 cargo holds filled with currency.

Hyperinflation is a result of government policies. It is not the cause of economic turmoil. Let’s see what symptoms are showing.

Keep in mind the population of the country is about 30 million. In the last half of 2015, the government released over 5 billion notes into the economy. That would be 167 pieces of currency per person.

Article says there are reports the central bank is negotiating to have another 10 billion bills printed. That would be an additional 333 bills per person. In under a year that would be around 500 bills per person introduced to the country. That would be comparable to releasing $30 trillion of $100 bills into circulation in the U.S. Even the US Fed would have to struggle to pull off that stunt.

Article says the International Monetary Fund is estimating inflation will hit 720% in 2016.

The exchange rate has broken through the 1000 bolivar to one US dollar level on the black market. The official exchange rate is 6.3 bolivars to a dollar.

Article provides the following indicators of inflation. Here are the prices in bolivars for a month’s supply of various foods:

  • 12/14 – 12/15   –   %    – item
  • 2,632 – 14,138 – 437% – meats
  • 3,066 – 12,118 – 295% – fruits and vegetables

In a hyperinflation world you pay for things with “bricks” of currency. If you’ve ever worked in a bank you know you wrap 100 of a currency into a bundle and then put a rubber band around five of those for a “brick” of 500 bills.

In Venezuela now, if you want to have dinner at a nice restaurant, you need to take a brick of currency to pay for the meal.

2/3 – Powerline – For Venezuela, the End is Near – Post points to an article at Financial Times, which is behind a pay wall.

A few tidbits:

  • GDP declined by 4% in 2014 and another 10% in 2015.
  • Inflation was 200% in 2015.
  • On the freely exchanged black market, the bolivar value has dropped 92% compared to the dollar over the last two years.

As you should fully expect, there are shortages and long lines to buy basic staples. Photo accompanying the article looks like the bad old days of the Soviet Union, except people are not wearing parkas as they stand in long lines.

Article points out the government has no strategy to deal with the looming catastrophe.

Laugh and cry

As you laugh at the foolishness of always-failing socialist economic policies, cry for the suffering and misery those policies create for the overwhelmingly vast majority of people in the country.

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