Welcome To Hyperinflation Hell: Following Currency Devaluation, Belarus Economy Implodes, Sets Blueprint For Developed World Future

Tyler Durden's picture

"A ‘91-style meltdown is almost inevitable." So says Alexei Moiseev, chief economist at VTB Capital, the investment-banking arm of Russia’s second-largest lender, discussing the imminent economic catastrophe that is sure to engulf Belarus following the surprise devaluation of the country's currency by over 50%, which we announced on Monday. "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production
" Moiseev concludes. Ah: "privatization" as Greece is about to learn, the lovely word that describes a fire sale of assets to one's creditors, courtesy of a "globalized" new world order. Ironically, this is precisely the warning that will be lobbed at each country in the developed world, as the global race to devalue currencies, first against each other on a relative basis, and ultimately against hard currencies, or on an absolute basis, as the world realizes that there simply is not enough cash flow to cover the interest payments on a debt load, in both the public and private sectors, that continues to rise at an astronomic rate, even as the world prepares to exit from the latest transitory, centrally-planned bounce in the Great Financial Crisis-cum-Depression that started in earnest in 2007 and has been progressing ever since. Ultimately, Belarus will succumb to hyperinflation, as will each and every other government seeking to devalue its currency (hint: all of them): "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production
,” VTB’s
Moiseev said. The ruble will slide to 10,000 per dollar, he
added." Of course, this is the primary side effect of attempting to avoid formal bankruptcy through currency devaluation. And all those who continue to believe deflation is an outcome that will be allowed by the Fed, need to look just to the former Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency.

First look at the Belarus Ruble chart below: this is what always happens to every country that resolutely continues to live outside its means. Always.

And here are some additional observations from Bloomberg on the country that everyone in the media continues to ignore, yet which will very soon be the model for virtually everyone else engaging in central planning warfare.

The Belarusian central bank let the managed ruble weaken by 36 percent versus the dollar on May 24 as demand for dollars and euros from importers and households threatened to derail an economy already laboring under a current-account deficit equal to 16 percent of gross domestic product. Russia and other former Soviet partners last week agreed to give Belarus a $3 billion loan and urged President Aleksandr Lukashenko’s government to sell $7.5 billion of assets to replenish the state’s coffers.

Finance ministers from former Soviet nations agreed in Minsk on May 19 to give Belarus up to $3.5 billion over three years, with the first $800 million payment expected in the week after a separate meeting on June 4, Russian Finance Minister Alexei Kudrin said in Moscow yesterday.

The Nationalnyi Bank Respubliki Belarus set its official dollar-ruble rate at 4,931 for today’s trading, from 3,155 on May 23, according to its web site. Trading of foreign currency between companies, banks and individuals needs to stay within a 2 percent range of the daily rate, the regulator said May 23, when it announced the devaluation and reintroduced restrictions lifted on the interbank market on April 19 and for households on May 11.

Devaluing the currency will only worsen the situation for Belarus, VTB’s Moiseev said.

“The main problem is that the economy produces goods which consist of little else than a combination of imported spare parts,” he said. “So devaluation only makes things worse.”

Belarus’s economy effectively collapsed in 1991 as the disintegration of the Soviet Union eliminated natural markets for the country’s exports of farm machinery, textiles and agricultural products.

The catalyst for the country's imploding economy: socialism and price controls. Sound familiar?

Lukashenko reintroduced controls on prices and the currency and re-nationalized some companies and infrastructure after coming to power in July, 1994, on a platform of “market socialism.” The nation’s economy returned to growth in 1996, according to World Bank data.

At the Minsk Refrigerator Plant Co. shop in the capital today, about 20 people queued in drizzling rain to use their rubles to buy fridges. While the shop didn’t open on the day of the devaluation, most of the models in the store already had ‘Sold Out’ stickers on their doors.

“I came on Saturday and it was a nightmare, the store was stormed by people who wanted to spend their rubles because of rumors about the devaluation,” said Nikolay, a 74-year-old pensioner who declined to provide his last name. His entire savings of 6 million rubles now buy one fridge compared with three before the devaluation, he said.

The people are not happy...

The devaluation lifted the local price of automobile fuels as much as 24 percent, according to Belneftekhim, an industry group for the country’s oil sector. Last night, about 50 people protested the price increase in the car park of a Minsk hypermarket.

“I can’t describe how I feel without using obscenities, this is all our government’s fault,” said Sergey, a 32-year old attending the protest who works for a computer importer. “The whole world tells them, guys, you have economic problems, you should do something, and all they did was live off getting more and more loans.”

Who can blame the country if it devolves into civil war: as a result of Monday's decision the average salary was "1.6 million rubles
in April, according to the government statistician. Converted
into dollars, it fell to $325 after the May 24 devaluation, from
$507 a day earlier, using central bank exchange rates."

Naturally, the IMF wuz here:

Both the IMF and the EBRD have blamed Lukashenko’s spending before last year’s presidential election for much of the economy’s woes. Lending was increased by 38 percent last year and public-sector salaries rose by about 50 percent, the Washington-based IMF said in a March 9 report.

Belarus got a $3.5 billion bailout loan from the IMF during the global credit crisis and the country has more than $2 billion of ruble and dollar debt outstanding. Foreign-currency reserves hit a 1 1/2-year low in March.

“The ruble is probably still too strong, but devaluation hurts the average consumer through imported inflation and deteriorating purchasing power,” Sanna Kurronen, an economist in Helsinki at Danske Bank A/S, said by e-mail yesterday. “There is really no easy way out of this economic distress and the only way is to do a major reform in the country.”

Here comes hyperinflation...

The price of children’s diapers has “gone completely insane” in Minsk, said Natalia, a 24-year-old mother also queuing outside the refrigerator store. “I used to buy a pack for 69,000 rubles, now they cost 140,000,” or almost half the 343,260-ruble monthly child benefit paid by the government, she said.

“We have become paupers,” said Tatiana, a 70-year-old woman in the line who also declined to give her last name. “We have been squeezed into a corner by this devaluation.”

Belarus’s dollar debt has been buoyed by news of the Russian loan, with the yield on the government’s debt due 2015 dropping four basis points to 9.881 percent by 6:35 p.m. in Minsk, the lowest since March 14. Dollar-denominated notes due 2018 yielded 10.38 percent, down six basis points.

The country has raised its refinancing rate twice since April 20 to 14 percent, the highest in Europe. The central bank also stopped selling foreign currency out of its reserves in March and will continue to stay out of currency markets, spokesman Anatoly Drozdov said by phone in Minsk yesterday.

...And following that, complete socio-economic collapse

Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added.

Unemployment was 0.7 percent in December, according to government data. Inflation accelerated to 14 percent in March, the fastest since April 2009 and more than neighboring Russia’s 9.6 percent in April. Imports into Belarus exceeded exports by $7.3 billion at the end of 2009, according to the latest annual data available.

Russian media are creating a “flurry” of speculation about the nation’s asset sales so they can “make good at our expense,” Lukashenko said today in Astana, the capital of Kazakhstan, according to comments reported by state news agency Belta. “But we will not throw anything to anybody for nothing.”

Note the parallels to Greece, which would follow the same fate if it were to make the choice of returning to the drachma.

Alas, there is nothing left to add: this is the future, and it is coming to a developed country near you.

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Weisbrot's picture

like the posting said "

The price of children’s diapers has “gone completely insane” in Minsk, said Natalia, a 24-year-old mother also queuing outside the refrigerator store. “I used to buy a pack for 69,000 rubles, now they cost 140,000,” or almost half the 343,260-ruble monthly child benefit paid by the government, she said.  "

just helps to prove that welfare suckers help to bring down an economy,  free money isnt free its costs nations, AND fiat currency can not be trusted.

 

 

 

 

MarketTruth's picture

"In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

The above was said by Alan Greenspan, 'Gold and Economic Freedom' in 1966.

Transformer's picture

And what good will privatization do?  That is just more raping and pillaginig by TPTB.

macholatte's picture

Who can blame the country if it devolves into civil war...

 

There you have it. Frustrate the people until they explode and begin killing themselves. Naturally, the perpetrators will have escaped. The bureaucrats will look at each other and declare they are blameless.

Wash - rinse - repeat

If ignorant both of your enemy and yourself, you are certain to be in peril.
Sun Tzu

 

disabledvet's picture

actually that does improve profitability immediately.  perhaps the policy instead is "we'll cause a war in Europe"..."hopefully."

DK Delta's picture

I thought I smelled a rat!

Caviar Emptor's picture

Thanks for that quote. It expresses in literal terms what we all here know and sense on a more gut level: it's war out there, war on wealth and savings. What more expeditious way to destroy middle class wealth than to have biflation aka the Fed having it's cake and eating too: debasing the dollar while short-circuting a domestic inflationary spiral ?

Popo's picture

Hyperinflationist claptrap.  If anyone here is actually drawing parallels between the economy / political structure / military / resources / monetary system / etc.   of Belarus and the United States,  my advice is close your browser and go outside.   Get an ice cream and go to the zoo.   Economics isn't your bag.

 

 

mynhair's picture

I want rent from the Usurper for using the WH!  Not more words....just words.

http://www.youtube.com/watch?v=8M6x1H08aFc

plocequ1's picture

Just dont touch my NFLX shares, Bitchez. 

mynhair's picture

CRM, pig!  With a dash of LNKD.

JW n FL's picture

O.T.

Wiki War: Israel, Palestine dig digital trenches http://t.co/8kkWqsz

akak's picture

First look at the Belarus Ruble chart below: this is what always happens to every country that resolutely continues to live outside its means. Always.

A point which the historically ignorant deflationary unicorn hunters ALWAYS fail to grasp.

Or, in other words, bankruptcy NEVER leads to one's credit rating rising.

mynhair's picture

Yes, everyone should know by now that only rabbits shit skittles.

CPL's picture

Then why do they taste so awful?  I'm sure if I keep eating them I'll find that promised rainbow

jomama's picture

probably the HFCS, the carcinogenic dyes, or maybe the partially hydrogenated oils?

WaterWings's picture

You have to keep all the UPCs and mail for it. No photocopies accepted.

jomama's picture

i always thought they should put the trix rabbit on the cocoa puffs box...

Muir's picture

"A point which the historically ignorant deflationary unicorn hunters ALWAYS fail to grasp."

I strongly recent the reference to unicorns.

Not one Unicorn has ever harmed me, and I would take no pleasure in seeing any harmed.

Thank you very much.

frippy's picture

How does one "recent" a reference to unicorns?

I've always wanted to try that.

EscapeKey's picture

Monetary Regimes and Inflation - Peter Bernholz (the motherfucking bible on inflation):

http://www.goldonomic.com/Monetary_regimes_and_inflation.pdf

5.2 HYPERINFLATIONS ARE CAUSED BY GOVERNMENT BUDGET DEFICITS

Freewheelin Franklin's picture

I thought Palyi's An Inflation Primer was the "Bible" on inflation.

 

http://mises.org/books/inflation_primer_palyi.pdf

Josh Randall's picture

The formula is being used again in plain sight

Temporalist's picture

Marc Faber on Bloomberg discussing the delayed but ultimately imminent QE∞

Updated:

Faber Interview About China, U.S. Economies

http://www.bloomberg.com/video/70183756/

Muir's picture

"And all those who continue to believe deflation is an outcome that will be allowed by the Fed..."

__

Yes?

Did you call Tyler?

How may I help?

-

mynhair's picture

Tyler:  Stop bouncing.  Do you know who I am?

Au_Ag_CuPbCu's picture

I may be mistaken, but I have a hard time envisioning endless FRN printing and deflation in the long run.  We may have a deflationary collapse along the way (stock market cave-in and further deterioration of RE) but I think Heli-Ben is going to do anything he can to avoid allowing our banksters' balance sheets to implode.

 

Ropingdown's picture

QE 1,2, and the Stimulus were loudly signalled as a chance for banks to rebuild their balance sheets.  They haven't taken it all too seriously, though manufacturers have.  Even manufacturers with huge cash are issuing bonds.  BB has been trying to keep deflation at a slow pace, invisible to most.  The main game is to get people to ignore the fact that US standard of living and job security are steadily declining.  The mass of people have been bought off with the sop of civil service jobs, refundable tax credits, and other delaying gimmicks, giving the corporations and private equity more time to move out of the US, spread their assets as protection against any one nation's tax attack.  It has worked.  I would say people with serious assets are in the process of doing the same thing.  Gold?  If it's left in one jurisdiction, it provides only a little security.  This is the meaning of globalization (and I'm not even against it): Globalize so that no one set of voters or politicians can break you.

Muir's picture

++++++++++++++++++++++++++++++++++++++

++++++++++++++++++++++++++++++++++++++

mt paul's picture

there are piles of ballast stones

littering beaches of the fiat countries..

 

reballasting the boat again honey....

have fun .got your cigars ..

Peter_Griffin's picture
by Ropingdown

 

QE 1,2, and the Stimulus were loudly signalled as a chance for banks to rebuild their balance sheets.  They haven't taken it all too seriously, though manufacturers have.  Even manufacturers with huge cash are issuing bonds.  BB has been trying to keep deflation at a slow pace, invisible to most.  The main game is to get people to ignore the fact that US standard of living and job security are steadily declining.  The mass of people have been bought off with the sop of civil service jobs, refundable tax credits, and other delaying gimmicks, giving the corporations and private equity more time to move out of the US, spread their assets as protection against any one nation's tax attack.  It has worked.  I would say people with serious assets are in the process of doing the same thing.  Gold?  If it's left in one jurisdiction, it provides only a little security.  This is the meaning of globalization (and I'm not even against it): Globalize so that no one set of voters or politicians can break you.

 

 

Mission accomplished.  It's my biggest gripe with people who I can talk to on a personal level.  They continue to cooperate and fund the system that is wrecking other folks lives.  Problem is, in my opinion, nobody wants to take the time to put themselves into other people's shoes, to much t.v. to catch up on after slaving at the job all day. The tea party would be a shinning example of this dislocated reality, people putting big banks and corporations ahead of fellow citizens.  I think many American's have lost their feeling of unity, while loosing their individuality at the same time.  Robot country.

Were funked, lets start this game over fresh for future generations who will know, for a short time at least, it pays to watch the politicians and propaganda.

disabledvet's picture

"that'll be $650 for the four tires that cost you only $325 four years ago."  "but i was told you were trying to hide my loss of my standard of living?"  And yes "i do need drive to live."

trav7777's picture

if the Fed permits deflation, the USG undergoes fiscal collapse.

IT IS AS SIMPLE AS THAT.  If the Fed won't make "money" available, the Congress will DISSOLVE THEM.

Robslob's picture

So for every citizen that had 10 ounces of gold is suddenly Rich!!!

Debtless's picture

So how do you figure that? explain.

Hugh G Rection's picture

The primary commodities of Belarus, Slavic women and blow, will be undervalued against Au... he's rich

I think I need to buy a gun's picture

if i'm doing the conversion right its 4,700,000.00 for an ounce of gold in Belarus

Debtless's picture

The way i see it a little shitty 250sq. m home in Belarus costs 66,9751,161 BYR

This person's gold may cover 4M BYR of that 66M BYR. 16.xx% of it - or about 160 oz of gold per small shitty house. Which is slightly below what our average in america might be for gold/house price. He's FAR from rich.

But what he did do was preserve his purchasing power - unlike his goldless neighbor...who is shitting now that his paper worth has been decimated overnight. 

 

If you're not rich, gold might never MAKE you rich - just protected against paper games.

IMHO

 

fiddler_on_the_roof's picture

I guess you meant 16 oz, not 160 oz.

Debtless's picture

i'm sorry - yes, 16 oz for a small,... house. my original math was 10oz for 4.x M BYR - when actually 1oz is 4M BYR.

I am a Man I am Forty's picture

no, they just preserved their wealth, everyone else is just poor

Bam_Man's picture

In the land of the blind, the one-eyed man is king.

Calculated_Risk's picture

"in the land of the blind the one eyed man is king"

legal eagle's picture

So, if a week ago a Belarusian hooker was 400 rubles, today she is 700 rubles.  If I paid 1/4th ounce of gold a week ago, I would pay ---- ounce of gold today?  Not a trick question.

mt paul's picture

if you work for IMF

it's free ...

till it ain't