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Venezuelan Hyperinflation Explodes, Soaring Over 440,000 Percent
- rm_-rf_slash 9y agoThere was an op-ed in the WaPo yesterday[1] that was as fascinating as it was terrifying: Rule No. 1 of surviving hyperinflation is simple: Get rid of your money. Given the speed with which money is shedding its value, holding on to it means you’re losing out. The second you’re paid you run out as fast as you can to buy something – anything – while you can still afford it. It’s better to hold almost any asset than money, because assets hold their value and money doesn’t. Find a can of tuna? Buy it. Even if you hate tuna. Even if you have no intention of eating tuna. You can always trade it for something else later. Tuna holds its value. Money doesn’t. I think this is what’s so hard to wrap your mind around if you’ve never experienced hyperinflation. It sounds like it’s about prices rising fast, but it really isn’t. It’s about money breaking down. Under hyperinflation, money no longer works. It doesn’t store value. It just stops doing the basic things people expect money to do. It stops being something you want to have and turns into something you’ll do anything to avoid having: something so worthless you won’t even bend down and scoop it up off the floor while you’re looting. [1] https://www.washingtonpost.com/news/democracy-post/wp/2018/01/17/in-venezuela-money-has-stopped-working/?utm_term=.e6223791bb9b https://www.washingtonpost.com/news/democracy-post/wp/2018/0...
- jandrese 9y agoNot just money, the entire economy breaks down. Why bother working at last week's living wage won't buy a loaf of bread today?
- wu-ikkyu 9y ago>Under hyperinflation, money no longer works. It doesn’t store value. It just stops doing the basic things people expect money to do. This is a funny way of looking at the problem because it frames money as if it were some sort of robot that did things by itself.
- squeeeeeeeeeee 9y agoSocialism in practice.
- liberte82 9y agoYeah, Europe's economy is really falling apart.
- Quarrelsome 9y agoSocialism != Social Democracy Its a common misconception. Europe does Social Democracy but most governments do not exercise the sort of direct control you see in purely Socialist governments.
- craigsmansion 9y ago> Its a common misconception. No. It's a particular American hang-up where everything related to "socialism" must be portrayed as "communist" and bad.
- AnimalMuppet 9y agoEuropean socialism works. Bolivarian socialism totally does not. I think the critical difference is that Bolivarian socialism believes something that European socialism does not. It's something like "all profitable companies are stealing from their workers" or "companies don't deserve profits" or something in that neighborhood. Therefore Bolivarian socialism regarded it as justice to expropriate profitable companies, so that the profits would go to the people via social programs. But they didn't know how to run those companies that they took over. And even for the companies that they didn't take over, the expropriations that they did destroyed incentive to invest any further in Venezuela. The net result was that there wasn't enough money coming in to fund the social programs. European socialism, in contrast, merely taxed profitable companies, and only taxed a fraction of their profits - something around a third is typical, I think. This left employment, profits, and tax income operating normally. The lesson seems to be that if you go into socialism with too much of a victim mentality, placing too much of the blame on "them", then you take so much that you destroy the economy.
- staplers 9y agoJust a reminder that this is a demonstration of how government-issued fiat currencies are also "not based on physical reality" as many point out for cryptocurrencies.
- curtis 9y agoIt's true that fiat currencies only work well if they are managed well. And what we're seeing in Venezuela isn't even poor management anymore. It's more like you took a stack of paper currency and intentionally set it on fire.
- staplers 9y agoTo clarify, currencies can be based on physical reality (paper gold) and you can extend this logic to include a government's GDP of physical goods and management of that GDP. However, that maintains the majority of value for government currencies is tied more to intangible concepts like management and policy rather than goods.
- tanderson92 9y agoIronically lighting cash on fire is deflationary.
- curtis 9y agoIn hindsight, maybe that wasn't the best example...
- bmelton 9y agoWhat's the BTU of a dolar-sized piece of paper? What's the burn duration? At what inflation point is it more practical to burn bolivars for heat than it is to buy oil/fuel/wood with bolivars?
- matthewmacleod 9y agoI literally don't think I have ever seen someone say that the issue with cryptocurrencies is that they are "not based on physical reality".
- curtis 9y agoIs anybody even using bolivars in Venezuela anymore? I've been assuming people are using dollars and euros as much as possible.
- codelitt 9y agoCapital controls make that pretty difficult. There are government set controls on whether you can purchase foreign currency and even then to how much you are allowed to buy. I remember back in like 2011 Kirchner did this in Argentina while I was living there. There was out of control inflation and capital controls. The government also covered their ear and said "lalalalala I don't care what the world markets say, our currency is worth $x.) If you were traveling, you could get foreign currency, but you had to apply for it, prove you were traveling, and then accept that the government would allot how much they thought you needed on your trip. I had a friend get $75 per day for their trip to the states. This creates the black market (or in Argentina, the "dolar blue") where the government said that the exchange was 5:1, but economics and the black market said 15:1 (at one point). Moral of the story - you can not just ignore basic economic principles and dictate the value of your currency. Focus on building a strong and diverse economy and promoting a free market.
- corpMaverick 9y agoMexico did this in the 1980's. It didn't work. It is strange that countries make the same mistakes over and over. I suspect that the Netherlands went through this centuries ago.
- talmand 9y ago"Those who cannot remember the past are condemned to repeat it." -George Santayana But I guess there's an element of "they did it wrong, we'll do it right" or "it'll work for us this time" or "this time is different because of x" and so on.
- corpMaverick 9y agoIt is probably out of the desperation. Hoping for a miracle. They don't realize until it is too late that is much, much easier to avoid Hyperinflation (by having responsible policies) than to fix it.
- mc32 9y agoBorrow huge amounts of money from the banks and buy land... Unless the government is apt to expropriate, then, yeah, just buy anything that stores value.
- daodedickinson 9y ago>Unless the government is apt to expropriate ...how do you think Venezuela got here?
- cptaj 9y agoThey are very apt to expropiate. They've notoriously fucked up most industries that way. They also encourage "invasions" of unoccupied properties. Furthermore, credit is a joke now. The average venezuelan credit card now issues somewhere around $5 of credit. Buying real estate through credit is similarly ridiculous. (Source: I live here)
- hndamien 9y agoThey should just buy up as much (insert whatever cryptocurrency they can buy a lot of here) and announce they are switching to this as a national currency.
- NaliSauce 9y agoApparently World of Warcraft gold is more valuable at this point than the Venezuelan bolívar fuerte: https://twitter.com/KalebPrime/status/952648572729724934 https://twitter.com/KalebPrime/status/952648572729724934
- daodedickinson 9y agoHasn't it been so for like a year now? At least half a year?
- NaliSauce 9y agoSeems like the bolivar's and wow gold's value were on par around june/july 2017 (provided that these tweets are accurate): https://twitter.com/KalebPrime/status/877070731942789121 https://twitter.com/KalebPrime/status/877070731942789121 https://twitter.com/KalebPrime/status/885997066140475395 https://twitter.com/KalebPrime/status/885997066140475395
- maximumkek 9y agowhy is HN so against socialism?
- mustaflex 9y agoshouldn't Venezuela be one the richest country in the world? As far as I know they have the biggest oil reserves in the world.
- dragontamer 9y agoVenezuela is so poorly managed they were losing money at $150/barrel of crude oil. Last year, oil has been $30 to $50 per barrel. `nuff said. Its an issue of poor governance. Venezuela was heavily dependent on high-priced oil to keep their finances together, and it all collapsed as oil prices dropped.
- kaycebasques 9y agoWhat were they spending their money on?
- dragontamer 9y agoUnfortunately, I don't know. I'm an outsider from the USA. So I don't want to get much deeper into the details and pretend I know a lot about Venezuela. But clearly, they're doing something wrong down there. They are a very oil-rich and resource-rich nation. So they should have the money to do this correctly, even as Oil Prices have dropped.
- cptaj 9y agoThat's what corruption will do to you.
- contravariant 9y agoI believe this is what economics call Dutch disease. And corruption probably, although that might not be unrelated.
- freeone3000 9y agoThere's still oil! They could still be rich! They fucked it up.
- technofiend 9y agoSo what's left? Moving to a commodity-backed currency? Pinning it to another major currency? Bloomberg states the problem but doesn't even talk about whether Zimbabwe fixed their problem and if so how so, much less what options are available to Venezuela. I mean sure I can Google it but it's surprising for Bloomberg to publish such a weak article. It's what I'd expect from USA Today.
- ghaff 9y agoZimbabwe effectively just abandoned their currency and let people use other currencies.
- Const-me 9y agoThe same happened here in 1990-s. That’s how we ended up using euro despite not being in the EU: https://en.wikipedia.org/wiki/Montenegro_and_the_euro https://en.wikipedia.org/wiki/Montenegro_and_the_euro
- gtirloni 9y agoBrazil had an interesting take on conquering hyperinflation that might apply to Venezuela too (although their current situation is much worse): https://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil https://www.npr.org/sections/money/2010/10/04/130329523/how-...
- jeffdavis 9y agoThat may work when inflation itself is the problem, but the country is otherwise holding together. Venezuela has serious problems. One neat trick won't save them.
- gtirloni 9y agoCompletely agree. As I said, Venezuela is in a much worse situation. They first need to figure out a government.
- 9y ago
- panarky 9y agoThere's not much difference between an inflation rate of 440000% and 880000%, it just means that the bolivar doesn't work anymore. Money is a purely social construct. It's only worth something when people collectively believe and trust that it's worth something. It's a popular idea that dollars and euros derive their value because taxes are paid in that currency, or because it's backed by the state's military power. Venezuela shows that neither of these are the source of the currency's value. Collective belief is a pretty fragile foundation to build an economy on, hard to build and easy to destroy. Another term for "collective belief" is "consensus". We're witnessing a disintegration of political and economic consensus not only in Venezuela, but also in the US. What happens to the dollar when public consensus, trust and collective belief is weakened? This is why I find the decentralized, trustless consensus of cryptocurrencies to be especially attractive at this moment in history.
- qaq 9y agoHow is this a valid argument against "because it's backed up by the state's military power"? In relation to USD US can and does project military power globally to protect and or advance it's economic interests. How Venezuela's case is a valid precedent to prove this premise wrong is very hard to see.
- realusername 9y agoThe day Americans stop believing in the dollar, the exact same thing could happen (However I don't see how that would be the case now).
- otakucode 9y agoIt wouldn't make sense for Americans to stop believing in the dollar most likely... but if they were to do so, I'm sure those insurgent terrorists would find out exactly what military might is backing the dollar in short order. Also, don't see how it would be the case that Americans or others lose faith in the dollar? Imagine tomorrow that it is revealed that the most core systems in the financial and banking industry were hacked 10 years ago and have been extensively manipulated by, say, Goldman Sachs. Or Walmart. Or whoever. Basically, any bank who says "there are 2 billion dollars in that account" fundamentally can't prove it. What then? When Walmart says 'we made $5 billion last year' and the rest of the world says 'prove it, and no we don't trust your funny-money IT systems'... what do we do then?
- ctdonath 9y agoInteresting how Venezuela is being touted by both capitalists and socialists as a prime example what's wrong with the other.
- crdoconnor 9y agoWhereas it's more of a prime example of what's wrong with the resource curse.
- jeffdavis 9y agoDo other resource-cursed countries also manage the country so poorly? Usually they at least keep the golden goose alive. In Venezuela, the oil industry was badly damaged through mismanagement.
- crdoconnor 9y agoYes. Look at most of Africa, the middle East, Russia, etc. Norway is the only exception I'm aware of.
- talmand 9y agoHave there been socialists blaming capitalism? I've only seen socialists, who previously touted the shining beacon of socialism in Venezuela, now claiming it wasn't true socialism.
- jimmywanger 9y agoThe socialism playbook is to blame capitalism "foreign economic sanctions" and "economic warfare". It's what the Russian premieres did, what Castro did, what Chavez did, and what Maduro is doing. Also they claim that domestic capitalists are hoarding and causing the system to collapse.
- ctdonath 9y agoYes, I've chatted with several hardcore socialists who decry Venezuela failing because it is (they allege) a capitalist state.
- topspin 9y agoVenezuela has been defaulting on debts since November and the last junk debt traders have finally walked away. No more credit. Venezuela has apparently sold off the last of whatever national assets buyers were interested in; they worked through their gold reserves in 2016-2017 and nothing new is on the table aside from a dubious cryptocurrency scheme and some clapped out PDVSA oil rigs. Venezuelan oil production is collapsing for lack of operating capital and Venezuelan tankers are being seized in foreign ports by creditors. This is cutting off the last meaningful source of foreign currency. At some point, probably in the next several weeks, the subsistence diet of the Venezuelan military is going to fail and the "Bolivarian revolution" in Venezuela will finally end. But only after having stunted at least one full generation of children.
- qwerty456127 9y agoSo where is the new cryptocurrency they promised to issue? They absolutely should switch to cryptocurrency, a highly unstable currency is much better than a currency that is stable in its hyperbolic devaluation and can actually boost the economy. Why don't they do?
- lawlessone 9y agoThat was called the petro or something, i think it was only meant to be for oil trading and not a national currency.
- qwerty456127 9y agoIt was meant to be backed by oil and to back the paper bolívars in its turn and I believe they really should start this ASAP. The only alternative is switching to Brazilian Reals, US Dollars or something like that but who is going to give those to them? A cryptocurrency done right can create worldwide-tradeable, hard-to-constrain value and liquidity immediately from nothing but the potential and I can hardly understand what are they waiting for. Is the ruling establishment there just so power-mad they won't give up the printer even in face of ultimate economic collapse?
- freeone3000 9y agoThey don't need actual dollars, just issue a currency with the exchange rate pegged to another one.
- qwerty456127 9y ago... and screw it again a week later.
- gus_massa 9y agoHi from Argentina! We tried that too almost at the same time that Brazil tried the Real. If you are lucky and it is well done, you can convince people that "1 (ARG)Peso = 1 (USA)Dollar". It worked for 10 years ... (1991-2002) https://en.wikipedia.org/wiki/Convertibility_plan https://en.wikipedia.org/wiki/Convertibility_plan The main problem is that you must reduce the government deficit (that is usually not popular) or get external credit (but you must not be angry with the international banks).
- cs702 9y agoNothing new under the sun. As a first-order approximation, all currencies in history have ultimately disappeared or stopped working as currencies, from Roman denarii to Italian Florins to Brazilian Cruzeiros to Rwandan Dollars to Venezuelan Bolivares.[a] Currently there are 190+ countries on earth, most of which have their own currency. Only a fairly small number of those currencies are widely considered stable. The rest are probably destined for the dustbin of history. [a] https://en.wikipedia.org/wiki/List_of_historical_currencies https://en.wikipedia.org/wiki/List_of_historical_currencies
- owebmaster 9y agoSadly, HN has a fetishe over Venezuela.
- sctb 9y agoCould you please start commenting civilly, substantively, and on topic, like we've asked many times? We ban accounts that continue to break the guidelines. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- owebmaster 9y agoIsn't it a great discussion to start? Why do people here get so envolved with Venezuela problems and not Colombia, Brazil, Paraguay? I'm latino and this is a sensible subject to me.
- dang 9y agoThreads are super sensitive to initial conditions. If you start it in a snarky or dismissive way we're much more likely to end up in a flamewar. So it's important, when raising a question like that, to express yourself thoughtfully and make clear that your interest is genuine.