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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Shell Game's picture

Whatever happened to the possibility, nay, likelihood, of regular, old-fashioned, high-but-not-hyper inflation?

High but not hyper-inflation?  Really, Akak?  Tell me, how do TPTB make that knife's edge work?  Where in history, under similar debt and econonomic conditions as we are currently in, has a regime ever stopped at high inflation and kept their currency intact w/o going HI?

A: never.

In all probability HI is the endgame, son.

 

akak's picture

Well, Shell Game, I could point to the UK and USA in the 1970s as an example of high inflation that did not progress to hyperinflation, or France in the 1920s, and there are other examples as well.  Partly, it of course depends on just how one is willing to define "hyperinflation" --- is it an annual rate of 20%?  50%?  100%?  500%?  I don't honestly know just where to draw the line.

But you are correct, rising inflation has led to hyperinflation and/or currency collapse far more often than it has been nipped in the bud.

DK Delta's picture

Yes, but during those periods there wasn't the same amount of debt in the system

akak's picture

Debt is NOT money!

Just because our fiat currency is issued as debt, that does not imply the converse is also true, that ALL debt is equally money.  That seems to be the argument you are making, but if so, forgive me but I find it absurd and untenable.

DK Delta's picture

dude, what are you talking about. I already explained myself thoroughly further up in respond to your post. 

forget the difference between money and credit for now and just understand that when you take out a loan to buy something, that you affect the price of that something - namely, you drive the price UP

Therefore, MONEY AND CREDIT/DEBT as i have said before, is the basis for inflation or deflation. contractions in both are deflationary and expansions in both are inflationary

what on earth don't you understand about this?

akak's picture

DK, you are correct --- "when you take out a loan to buy something, that you affect the price of that something" --- but I find your argument simplistic and erroneous, as there is NOT a one-to-one direct relationship between credit and actual money, and you can NOT treat them as totally fungible and functionally equivalent within the broad economy.

If you believe that a crash in the levels of credit/debt within our economy foretell a resultant crushing deflation, then you will have to show me the crushing inflation that we must have correspondingly suffered in the last ten or fifteen years.

I am honestly not trying to be belligerent with you, but my point is simply that the collapse of an asset bubble does NOT constitute deflation, in the same way that the blowing of that asset bubble does not constitute inflation.

TruthInSunshine's picture

by akak
on Wed, 05/25/2011 - 19:22
#1310872

Debt is NOT money!

 

akak, in a fractional reserve banking system, debt = money.

I think this is the impediment, for whatever reason, that even some very intelligent people who understand finance, get hung up on, and while treating 'money' as a inflationary/deflationary catalyst (depending on expansion or contraction), don't similarly treat 'debt' as an inflationary/deflationary catalyst (depending on expansion or contraction via issuance or destruction, in exactly the same manner as money, which it is).

It's actually very basic. How many people here know that loan forgiveness is a taxable event, which requires the filing of a 1099 in the U.S., and that the amount of money forgiven is treated as ordinary income for tax purposes?

akak's picture

I disagree.

Yes, our "money" (fiat currency) is issued as debt.  But that does not automatically make the converse true, that ALL debt is therefore money.  The two are NOT functionally equivalent within the economy.

Fiat2Zero's picture

Pretty much everyone on ZH understands this. I think the point is that not all money is debt.

Shell Game's picture

...it of course depends on just how one is willing to define "hyperinflation" --- is it an annual rate of 20%?  50%?  100%?  500%?

Yes, yes, yes and yes - a parabola.  Honestly, I don't know how one draws the line. The difference between inflation and HI is that inflation is currency debasement, while HI is currency collapse.  When the tipping point arrives it will be a waterfall effect, nothing gradual about it.  It will look different, feel different, it will be different.

Can't have a sustained period of increasing inflation, with double digit unemployment, dropping tax revenues and a decimated economy before that tipping point comes knocking..

litoralkey's picture

Comparing anywhere to Belarus is a stretch.

Belarus is truly a special case, the last Soviet dictatorship in Eurasia.  It has not reformed or significantly altered it's economy since Gorbachev took the helm in Moscow...

Next winter is going to be a disasterous if Russia and Ukraine refuse to transfer petro and LNG.

Belarus couldn't pay for it's energy costs in 2008, how can they afford to pay for it now?

mynhair's picture

Belarus has cute hookers.  Does LA or NYC?

NidStyles's picture

Pics or it didn't happen.

trav7777's picture

how many more countries are going to be busted out by this jew confetti?

States like Colombia are funny; the Spanish banks own the nation and charge the natives rent, essentially.

Now when Spain goes under a bigger fish will acquire their assets.  Like a big game of Monopoly.  All for PAPER.

Times like this you should thank your lucky stars you are in the FRN zone.  Our day will come but it's fixing to be one of the last days.  In the meantime you can acquire vicarious shares of other people's nations.

The entire system of debt is an attempt to get something for nothing.  This is the crux of why usury is historically reviled and usurers hated.

mynhair's picture

Why do you insist on confusing NYJoos with Israel?

NidStyles's picture

Not much considering the popularity of dual citizenship these days. Honestly citizenship is such an idiotic idea in the first place. That's what creates these endless manipulations and wars.

Robslob's picture

Only trav7777 can say it "like it is"...

zaknick's picture

@Trav7777

States like Colombia are funny; the Spanish banks own the nation and charge the natives rent, essentially.

Please elaborate.

Blue Vervain's picture

Times like this you should thank your lucky stars you are in the FRN zone.  Our day will come but it's fixing to be one of the last days.  In the meantime you can acquire vicarious shares of other people's nations.

Interesting point - surely the economy that holds out the longest against hyperinflation wins all assets?

Texas Gunslinger's picture

@trav7777

It is well known that you hate jews and blacks and a whole variety of others.  

However, do you think a christian who issues a loan to another christian is guilty of sin, and do you think christian bankers will go to hell if they don't repent? Furthermore, if you sign for a mortgage or use a credit card, are you equally complicit in violating the commands of Jesus Christ, especially if a Christian banker is issuing the loan?  

The rules are somewhat murky:

Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury  

Deuteronomy 23:19 

Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury

Deuteronomy 23:20

What in tarnation is meant by "thy brother"?  Does this imply that usury is only a sin if a Christian loans to another Christian, whereas loaning to a non-Christian is permissible?  Why would Jesus allow Christians to be parasitical on non-Christians? This seems very unJesus-like. 

So many questions, so few answers....

akak's picture

Hey Redneck Repugnicant, you were much more amusing in your latest sockpuppet persona when you were pretending to be a semi-literate rube whose greatest financial concern was the rising price of dog food at Wal-Mart.

Texas Gunslinger's picture

OH MY GOODNESS, ARE YOU A REAL PIRATE??

!!!!

 

 

akak's picture

Aye, matey, and we pirates do not look kindly on scalliwags comin' into this forum and pretendin' to be fellow bucaneers, when we know that they really be the King's minions instead, here on a mission to convince us to walk the plank under our own volition.

oddjob's picture

All religions are to be equally hated, anybody that takes direction from fictional characters are weak minded idiots.

takinthehighway's picture

So...what do you believe in?

trav7777's picture

judaism is the clan religion of jews, the ethnicity.  Most of the jews do not follow the tenets of judaism.  Hell, look at all the raving homo jews out there like Dave Geffen or the guy who invented "racism" as a term.

The situation in media and finance does not break down along religious lines.

Green Leader's picture

Do you believe there were negroes, aztecs and eskimos in the Ark of Noah?

akak's picture

Of course!  But they had to sit in the back of the ark.

Shell Game's picture

+1  Now that shyte was funny.

takinthehighway's picture

TG, you're mixing the Old and New Covenants.

The examples you cite are but two of over 600 laws prescribed under the Old Covenant.

Jesus replaced all that with two commands:

1) Love the Lord your God;

2) Love your neighbor as yourself. (Can also be stated as "Do unto others as you would have them do unto you"..)

Living in this way will keep you from doing wrongly in your dealings with others.

 

Green Leader's picture

That's not correct.

Please read & study the letter to the Hebrews by Apollo. It's good read--YAH ordered me to read it.

trav7777's picture

you're not dumb enough to think this trollbait shit is gonna work, do you?

A littany of non sequiturs

akak's picture

Really --- RNR is just becoming a parody of himself at this point.

Like HamyWanger, but on meth and hopium.

Tonesvette's picture

As long as we hold the world at the barrel of a gun, can't the Fed just keep up the charade ?

We'll never wind up like Belarus because if you don't take our Treasuries, we'll destabilize your government.

I'm looking for China to step up and side with whomever our whipping boy of the week is. When China says, "Enough", then you will begin to see the dollar truly slide. But given all China has invested in US, will they shoot themselves in the foot this way?

China recently supported Pakistan against further US harrassment. Maybe that's the gauntlet we all want thrown down so our long PM trade really begins showing dividends.

 

 

Dr. Acula's picture

>we hold the world at the barrel of a gun

>we'll destabilize your government.

Ridiculous. We're bankrupt. We can't even defeat a bunch of Afgahni goat herders.

We can't keep our buddy Mubarak in power or save him from his death sentence.

 

trav7777's picture

bullshit..we could level Afghanistan.  We just cannot "nation build" and "hearts and minds" our way to a victory.  If we get truly bloodthirsty, look out.  Our ability to destroy things is unmatched.

DoChenRollingBearing's picture

+ 1

Adios m0therfuckers who serilously messes with Team USA, but what comes after Team USA?

downwiththebanks's picture

"We" - Uncle Sam - already has leveled it.  Over and over again.  But 'winning' isn't the objective in Afghanistan.

Creative destruction, baby!  That's Capitalism.

Uncle Sam wants control of the drug trade, and it wants a dagger to use against Pakistan as it kills women and children there.

Rynak's picture

Thinking that you can "win" and economic war against china, is like those studies back then, who claimed that a global nuclear war can be won: Both will be devastated... M.A.D.

AUD's picture

I was too young to take much notice at the time but based on my studies since, this is all very Asian Financial Crisis-esque. I noticed on the financial news last night that Asian markets are down big time & there is trouble on the docks here, very 1997-98. There was also much trouble in Central Asia at the time, coming out of some kind of EU debt crisis in the early-mid '90's.

The big difference now is the USD itself is fraying at the edges. It would seem the stakes are far higher now.

Cthonic's picture

The stakes are the same; yet the breakdown in the suspension of disbelief appears to be autocatalyzing.

Muir's picture

"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."

 

 

 

Ohh, stop it with the Socialist boogy-man scare tactics.

Nixon imposed price controls and said bye-bye to gold.

Stupidity transcends all "ism'"s.

This is just gratuitous political baiting to the ignorant or very young.

 

Sean7k's picture

Based on what happened in Weimar, employment can become full in an hyper-inflationary economy. Exports become increasingly cheaper for other nations to buy. No, it doesn't end well, but the first stages can be livable. 

The only ones that do well are the ones with hard currency and have the ability to keep and receive creidts outside of the country. Oh yeah, and farmers. The middle class will be devastated and state workers will starve. The intelligensia will be impoverished.

ssp2s's picture

Better go back and see how the Weimar farmers fared once the urbanites began trolling the countryside.

Sean7k's picture

Like I said, it didn't end well. Still, the farmers did well overall. They learned how to protect themselves after the first few attacks.

I think I need to buy a gun's picture

we really don't produce much so exporting will be for the few....maybe crops

 

I really don't want weimer thats a disaster for even us that are prepared

cxl9's picture

state workers will starve

For this alone, it will be worth it.

 

US Uncut's picture

Where is the rolls' eyes emoticon?