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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Derpin USA's picture

Victims of their leaders. Forgive the people, for they know not what they do. They will revolt, they will die, but....

What? Is their humanity greater than the destructive force of greed? Time will tell. I wish the Belarussian people the best. Have strength in the face of evil.

mynhair's picture

They are bitching about the cost of Pampers?  Send them to CA.

Have no old clothes to use and wash?  They sound like a pack of dufus Libs!

Bubbles...bubbles everywhere's picture

“But we will not throw anything to anybody for nothing.”

 

Early stages of denial. Give them time, they'll be eating cats like in Argentina.

Bubbles...bubbles everywhere's picture

Lol...just sayin, I would stay away from Belarus if I was you.

mynhair's picture

No chance of going there.  I don't do TSA, and the sailboat has a frozen thru-hull on the engine intake.

Sean7k's picture

What? You never had a gato taco in Tijuana?

mynhair's picture

Is that like a waitress sandwich Libs love?

CPL's picture

I believe most men call them "meat curtains".

Pic related...

http://content.nastyshit.com/media/pictures/d6d0183569f8954fd7b5ce1cdeb7...

 

One good wind, the sails would fill and launch her across the ocean on fortunes luck.

 

 

Husk-Erzulie's picture

errrrm...I take it back.

CPL's picture

Can't believe anyone actually clicked on it, the link was auspicious in the first place..  LOL!  That's my night right there.

 

Fair winds fair traveler on the fix sails on thy maiden bidden to thee.  Especially on her meat curtains.  :D  Yarrr!!  You could put a pearl necklace on her booty me thinks!

Flakmeister's picture

Is this a Minsky Moment?

 

Kudos to anyone who gets it....

the PTB's picture

The chain of events is plausible, but not falsifiable.

I am a Man I am Forty's picture

someone needs a good ass kicking over this

theprofromdover's picture

There are not so many parallels with Greece.

If I were Greece, I would fancy my chances going it alone with the Drachma. I wouldn't sell any of my assets, and would tell the German, Italian & French banks to go whistle for their bounty. I would invite back all the Squidmen who expropriated the ports, airports, transportation systems, and I would lock-em-up just for the fun of it.

Greece has a much more viable economy the Belarus. It does much more than 'assemble foreign parts'

Foreign currency from Tourism, the embarrassment of seeing how old-enemy Turkey is marching ahead of them in manufacturing, and a solid agricultural export sector will all help the Greeks wake up from 50 years of tax-free laziness.

Pity all the rich Greeks spirited their Euros out of the country a long time ago.

 

Sean7k's picture

Have to agree, now how will they get that gold back from New York?

CPL's picture

On a planet of "first world" nations that are broke ass pirates, who would you trust to ship it?

Rynak's picture

piratebay, lol.

This is only meant partially as a joke..... in a social setup like this, the biggest "outlaws" sometimes become the most trustworthy middlemen.

ArsoN's picture

Experienced Russian oligarchs must be salivating.  Probably cheaper to bribe and buy everything at "auction" than research.  

DK Delta's picture

very good observation

G. Marx's picture

That actually deflation you're seeing, just ask Mish.

BlackSea's picture

It is. Ironically, deflation in dollars for now.

strannick's picture

'Nations of the world. You must sell everything you own. Bailing out your bankers doesnt come without a price'

Or you can just stand up like Iceland and just say no way.

Quantum Nucleonics's picture

Only by the grace of Russia has this country (via cheap oil and gas) made it this long. Lukashenko is a regular on the top 10 list of dictators and despots.

magpie's picture

Centralization of power during Crises; Countries losing their economic and political independence.

Remains to be seen how long the imperial centres survive their crumbling peripheries.

frippy's picture

Belarus?

"Andrei Arlovski's gonna be pissed."

"Oh yeah? Well maybe Andrei's just gonna have to stay home tonight!"

Rynak's picture

Welcome to germany during the introduction of the euro.

Robslob's picture

So in a currency "devaluation" the debts stay the same and the currency goes to half...nice...!

RobotTrader's picture

Such a tiny little country.

Market cap of LULU or LNKD probably exceeds the entire country's GDP.

The whole country could evaporate and have no impact on world stock markets.

Just like if LNKD filed BK tomorrow, it wouldn't matter to the S & P 500.

akak's picture

And if you, RoboLemming, were hit and killed by a car tomorrow, it would make not one iota of difference to anyone or anything --- except for making this forum that much less polluted with your shallow stockpumping bullshit.

 

Trillax's picture

Amen. I sometimes wonder if he is a litmus test for market sentiment. I mean really, how much else to pulse put vs. call than create a false persona on a frequented message board and judge reaction.

Oh, I'm sorry, that still requires people outside of institutions buying/selling and the average 'Joe'; forget the decisions of 401(k)'s that 'Joe' doesn't want to bother with. Not to mention the PTT and other market manipulators.

Go find some bitch that used to be a dude around the FOX plaza Momo, because anyone with half a human brain cell isn't buying your shill.

ArkOmen1's picture

Now this is an omen, for sure. Don't think it can't happen here!

akak's picture

Didn't your momma ever tell you not to sniff GLUU?

Maybe you should run upstairs and ask her why.

Muir's picture

 

Updated Monday, March 28, 2011 8:46 pm TWN, By Douglas Busvine, Reuters

 

Belarus devaluation would be 'good idea': IMF

 

MOSCOW -- Belarus would be well advised to devalue its currency to tackle unsustainable external deficits resulting from excessively loose economic policy, the International Monetary Fund (IMF) said.

It is not too late, however, to stabilize the economy of the former Soviet state by cutting the budget deficit and hiking interest rates, IMF Belarus mission chief Chris Jarvis told Reuters.

“We do think a devaluation would be a good idea,” Jarvis said in a telephone interview late on Thursday.

“That said, a devaluation is not the only way that Belarus could adjust. An alternative would be to impose tighter fiscal, monetary, credit and wage policy.”

__

posted no comment Muir

 

 

Robslob's picture

No wonder these bastards hate gold and silver so much!

 

 

bugs_'s picture

listen to the russians comrade

magpie's picture

Ah well, there are probably people in Greece who would have greeted them as liberators from the ECB / IMF yoke, but same old same old privatize this seize that...

oblom's picture

"Unless Belarus heeds Russia's call for mass privatization of state assets..."

Fuck him in the right ear. Another wannabe empire building slave.

downwiththebanks's picture

Yep - this is all based upon the word of a parasitical Banker-Gangster who probably lost his ass when the devaluation was announced.

medicalstudent's picture

hypermarket?

 

felicitous.

DK Delta's picture

I talked about the potential for an oscillation between staflation and deflation with Reggie Middleton in my recent interview with him on Sound Money 91.5FM NYC. Here is the link:

 

http://coveringdelta.wordpress.com/2011/05/25/sound-money-podcast-interv...

mynhair's picture

When the price of what you own goes down, that's deflation.  When the cost of what you need goes up, that's inflation.  Who owns jack anymore?

Douchinger loses.

Rainman's picture

And the world's best performing currency last year was ..?? +drumroll

The Mongolian tugrit....rose 15% against the dollar...beats dollar, Euro and Ren 

Home to the Dyu Tolgoi mine....one of the world's largest untapped copper and gold deposits.

It's all good when you live on top a mountain of metals.

XenoFrog's picture

It's a beautiful country. Just a shame it's stuck between two large countries that will just invade the minute it becomes politically viable and the resources are needed.

spekulatn's picture

Market Socialism Bitchez!!

superman07's picture

there will be a second crash, a oh shit point where the deflationary forces will be so large, and so complete they will not be able to pump the fiat fast enough. Further attempts at monetary easing will further prop some assets, primarily held by the rich, when others become virtually useless. this time it will be different, and the same depending on the historical view one will choose to subscribe to.

there will be certain levels of stagflation this generation never thought possible on our soil. Strong men implimenting martial law and punative taxation. then and only then in the final desperate hour the elites will hit the doomsday printer power button. In the attempt to prop up some type of last ditch growth they will lose the confidence of the few left listning to them and there will be blood in the streets. You can bet on everything from gold consfication to continued conflict in order to keep people from seeing the true nature of our problem.

Complete and utter corruption of the banking and political class.

Rusty Shorts's picture

 - couldn't have said it better.

Village Idiot's picture

Ah, Belarus.  Maker of fine instruments of death.  Pick up a 1MOA spec-ops scope for your AK while they're half price.