It happens like this: The country is a mess. Or, if it isn’t, a politician says it is. He finds a culprit. Only he can solve the mess. He promises benefits. He gets elected, hands out money, and quickly disposes of his opposition. He puts some in jail. He forbids others from running against him in the next election. His army quells protests. Often violently. Businesspeople send their money and their families out. Eventually they leave also. The leader tries to run the economy. He can’t. Running an economy requires different skills to jailing your opponents. Inflation spirals out of control. The local currency is abandoned.
I’ve seen this play out in places like Turkey, Zimbabwe, Venezuela, Iran, Cambodia, Sudan, Eritrea, Tajikstan, Belarus, etc. and most recently Argentina.
I’m reminded of all this because today’s New York Times has a piece “Forecast for inflation in Venezuela 1,000,000%“
As you read this article, remember that Venezuela has the largest oil deposits in the world. The largest. I’m not kidding.
MEDELLIN, Colombia – The prediction was eye-popping even for Venezuela’s collapsing economy: One million percent inflation by year’s end, according to the International Monetary Fund.
On Monday, the fund released a periodic estimate of growth and inflation rates around Latin America, a roundup that included neighbors like Chile (where inflation should be headed to 3 percent) and Peru (where growth is predicted to reach 3.7 percent).
But it is Venezuela that continues to chart a different course from neighbors – with an increasingly breakneck economic disintegration.
Real gross domestic product, the value of goods and services produced in the economy and adjusted for inflation, is expected to fall by 18 percent in 2018, the third consecutive year of double-digit declines, the fund estimated.
And then there is the million-percent inflation.
“We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s,” the fund stated in its report.
With Venezuela’s government not releasing official figures, the fund’s prediction gave a concrete number to a situation that the country has felt with increasing urgency this year.
On the streets of Caracas, the capital, prices have skyrocketed to levels so high that many vendors now refuse to take bolívars bank notes, the national currency, because their value is eroding so fast. Some wealthy Venezuelans have turned to alternatives like Bitcoin. Store owners guess the prices they should be charging for goods; restaurant menus change weekly; and the price of the dollar, sold on the black market, has reached 3.5 million bolívars.
The inflation crisis comes on top of deep political repression led by President Nicolás Maduro, who was declared the winner of a vote this year that will extend his term until 2025. Lack of basic food and medicine has forced hundreds of thousands to flee the country. The authorities in neighboring Colombia said last week that 870,000 Venezuelans were now in the country.
In its report, the monetary fund blamed drops in oil production and “large macroeconomic imbalances” for the country’s financial problems. It painted a grim picture for the months ahead, predicting that government officials would run fiscal deficits paid for by printing more money, “which will continue to fuel an acceleration of inflation.”
For its part, Venezuela’s government says the woes are a result of an “economic war” waged on it by the United States and wealthy businessmen hoarding supplies and raising prices.
While the million-percent figure may be largely symbolic, the fund’s prediction that the country would soon mirror some of history’s worst episodes of inflation caught the attention of analysts.
“At this point, the Titanic is at a 270 degree angle from where it should be,”said Daniel Lansberg-Rodriguez, an economist at Northwestern University’s Kellogg School of Management.
The period after World War I ruined the economy of the German Weimar Republic. Before the war, the dollar was worth 4.2 marks; by 1923, a dollar cost 4.2 trillion marks. Germany eventually replaced its currency and stabilized it, but millions were financially ruined.
Zimbabwe faced a similar fate under Robert Mugabe after land confiscations and strongman rule precipitated a financial collapse. At one point the country printed a note worth 100 trillion Zimbabwe dollars. The country eventually scrapped its currency as well.
But Mr. Lansberg-Rodriguez said Venezuela might be less successful in fixing its currency issues because of a history of botched attempts to replace the bolívar. He added that Zimbabwe was in a better position to recover because it had a more diversified economy than Venezuela’s.
“The level of chaos in Venezuela makes it that much more difficult to restore confidence and break out of this cycle,” he said.
Meanwhile today’s Financial Times (the pink paper) reports “Turkish lira tumbles after central bank keeps interest rates steady.”
The Turkish Lira hasn’t don’t well in the past year. Turkey’s boss is its new leader for life. They’re calling him Sultan Erdogan. He’s progressively destroying the country. This is an amazing chart for a currency. It’s the last 12 months f the Turkish Lira compared to the U.S. dollar.
The following chart will keep you busy.
It has no redeeming value, except it’s funny.
Yippee
Another great day to own FANG. Thank you Google and Amazon.
Harry Newton, who played tennis at 6:20 this morning with Matt Wood, the world’s best insurance broker. Tennis was glorious. I lost. Matt is superb.
This is a tasteless cartoon. It’s not political. It’s funny — at least to my warped mind.
But how could any of this negativity about Venezuela be true? It’s a socialist utopia. Ask Oliver Stone, Michael Moore, Harry Belafonte, Danny Glover, Sean Penn, Jeremy Corbyn, Madonna… … And we can do it here! Polls show the majority of millennials favor socialism over capitalism–it’s like the entire 20th century never happened. So now we have Alexandria Ocasio-Cortez, a member of the Democratic Socialist of America held up as an example for the democratic party. Denmark and Sweden are sometimes held up as models, but they have the successful free markets that can support a welfare system. DSA believes in the abolition of capitalism in favor of an economy run either by “the workers” or the state. Recently they were saying to “abolish border, abolish prisons, abolish profits.” This is truly nutty, historically and economically illiterate. Progressives will consider the case of Venezuela or North Korea and say that the problem with those countries is not socialism but a lack of democracy, political violence and instability, etc. But repression on the Venezuelan model is not extraneous to socialism — it is baked into the socialist cake. Lenin, Stalin, Mao, Castro (and Castro!), Chàvez, Maduro, Honecker, Ho Chi Minh, Pol Pot, the Kim dynasty, Shining Path… Violence and oppression is not something that just happens to accompany efforts to impose political regimentation on the economy — which is to say, on private life — but is an inescapable accompaniment to it. The Venezuelan case is a textbook example of the evolution of socialism. No one yet knows how many deaths Venezuelan socialism will inflict on Venezuela. But it is a fact that children are starving to death in what was, not so long ago, South America’s wealthiest country. But don’t let that trouble you millennials; just listen to Bernie: https://www.youtube.com/watch?v=zJBjjP8WSbc