Over the lifespan of this website there has been an extremely sad story as I have detailed the economic depression in Greece and the way that those supposedly helping have in many ways made it worse. Yet even it is being thrust aside as the worst economic case right now by the crisis which is enveloping Venezuela. No doubt you have read about the various shortages of which the lack of toilet rolls was the most publicised. Well according to France 24 the state of emergency which has been imposed has now led to shortages in an even more basic commodity food.
Lopez described herself as a former partisan of the socialist “revolution” started by late leader Hugo Chavez and continued by Maduro.
“Here in Guarenas there were revolutionary supporters. But now the people no longer want revolution — what they want is food,” she said.
“The people are going hungry. We are tired of lining up, of killing ourselves for just a carton of eggs or some bread,” she said.
The BBC reports that this situation has come about because of this.
With subsidised goods becoming increasingly scarce, many Venezuelans have been forced to queue for hours to get the essentials.
When a sought-after staple such as cornflour arrives at a supermarket, the word will spread quickly over social media and hundreds of people will queue to get it.
Apart from the hunger issue no economy can function if its citizens are having to spend so much time queuing for basic necessities. So what has gone wrong?
The IMF reported on inflation in central America last week and opened with one of the drivers of it.
Falling global commodity prices and the normalization of monetary policy in the United States have contributed to widespread currency depreciations in Latin America…….Indeed, prices are on the rise in Latin America while they stagnate in the rest of the world.
Then it notes this.
two of the region’s largest economies—Venezuela and Argentina—have the highest inflation rates in the world
Actually whilst Argentina has a serious problem of its own Venezuela is on a different scale although for some reason the IMF does not show it on the chart below.
So how does inflation averaging some 122% in 2015 grab you? That is hyper-inflation in anybody’s language and it comes at a time when inflation is supposed to be dead. The IMF gives us a strong hint as to a major cause of it.
exchange rate pass-through remains larger than warranted.
The IMF cannot resist the central banking mantra of these times in spite of the calamity taking place in Venezuela.
rightly tolerating a temporary period of higher inflation that was outside their control.
Others have estimated the inflation rate to be even higher than the IMF calculations. Professor Steve Henke suggested it was 700% last August. Actually in January the IMF suggested it such a level had not happened it was on its way.
Inflation will surge to 720 percent in 2016 from 275 percent last year, according to a note published by the IMF’s Western Hemisphere Director, Alejandro Werner.
However you calculate it and indeed define it we are clearly seeing a case of hyper-inflation in Venezuela. I believe it is still illegal there to calculate inflation so if I was there I would be in jail. Oh and this from the Guardian in February indicates that even the falling oil price is not helping to reduce inflation.
Prices at the pump in Venezuela will jump as much as 6,086% for 95 octane gasoline, from 0.097 bolivars to 6 bolivars, or 1,300% for 91 octane as of Friday.
We fear the worst once we read things like this from the IMF.
Further declines in commodity prices have added to the marked downturn that began in global metals markets during 2011 and in oil markets during 2014………Foregone income varies according to the relative importance of commodities in the economy, being very large for Venezuela (about 17 percent of GDP),
So already we are describing a combination of hyper-inflation and an economic depression on a very severe scale. The current situation is described below.
Real GDP fell by about 6 percent in 2015, according to the central bank, and is expected to fall by an additional 8 percent in 2016.
Actually with inflation at such a high level such calculations must be very difficult to say the least. Some of this is due to an inability to invest and buy the equipment required.
Available foreign exchange has been mostly used to finance imports of basic goods, at the expense of intermediate and capital goods.
There is a correlation between the economic output decline and rises in unemployment which we can glean from this.
In Brazil and Venezuela, a one percentage point increase in growth lowers the unemployment rate by 0.2 percentage points; in Argentina the impact is about half as strong.
The detail for Venezuela is a -0.27 coefficient or last year and this are expected to increase the unemployment rate by a grim 3.8%. Employment peaked above 13 million and is expected to lose a million of that. Oh and if only the IMF had applied this line of thought to its activities in Greece.
But what matters more to the person on the street is how growth translates into jobs.
This is always a sign of trouble,trouble,trouble.
an increase in the parallel market exchange rate
We have seen in Ukraine for example how lack of confidence in the national currency can be described by one of Britney’s hits.
Don’t you know that you’re toxic
Not so long ago the disarray was highlighted by the fact that there were as many as four official exchange-rates! But in March there was a drop to two, except as the quote from Bloomberg below details there is an obvious problem.
The Dicom exchange rate will begin at 206 bolivars to the dollar and then “float” to meet market needs, Perez Abad told reporters Wednesday at the central bank. The primary exchange rate of 10 to the dollar will apply to essential imports, such as medicines.
There is, ahem, quite a gap between 10 and 206 don’t you think? That seems unlikely to be it as we note the need to “float” afterwards. Those of a nervous disposition might like to think of the calming hit by the Floaters before I reveal reality.
Float, float on (Come on, come on,
(Come on, baby, yeah, yeah)
Float on, float on (Ooh, ooh, baby)
Float, float, float on
Float on (Float with me), float on
According to dolartoday.com a single US Dollar will buy you some 1075.47 Bolivars. This no doubt makes the situation described by Forbes even worse.
The economic policies of Presidents Chavez and Maduro have combined to make the country’s banknotes worth less than they paper they’re printed on. Of course, this has been true for some time of the small notes: but reasonable calculations tell us that this is either true now or about to be true of the country’s largest bank note, the 100 Bolivar.
You may have read that this web is so tangled that Venezuela cannot afford to buy new bank notes as it imports them and the exchange rate has fallen so far. No sensible printer will be accepting an official exchange-rate a hundred times worse than the real one!
This is steps on a mantra for central bankers. You see they clean up from a concept called seignorage where they issue for example a £20 note which costs say 10 pence to prodice and hey presto! They have a £19.90 profit. Well not in Venezuela unless they produce larger denomination notes which of course takes us back to today’s theme of hyper-inflation. I guess if there is a lateral thinker there they could print some US Dollars like Zimbabwe has.
We are seeing the consequences of a hyper-inflationary shock in Venezuela. Back in the early days of this website I was regularly asked about hyper-inflation risks as QE style policies were fired up and I replied it required quite a list of policy errors to go wrong. Well Venezuela has had some bad luck with the oil price but it has made policy mistake after mistake including this one.
Fueled by the monetization of the large
Meanwhile next week in unrelated news Lord “talentless ascent” Turner will be granted the honour of a speech at the Bank of England on amongst other things his favourite topic of Helicopter Money. You will not have to look far online to find plenty of “experts” assuring you that it cannot go wrong. On a lighter note here is the “expert” Mark Weisbrot in the Guardian in 2013.
Sorry, Venezuela haters: this economy is not the Greece of Latin America
It is a feature of modern times how if you disagree with someone you become a “hater” is it not? I guess Taylor Swift has to take some responsibility here. But I am rather sad that a country with the largest reserves of crude oil is rewriting the text books on both hyper-inflation and Dutch-Disease.