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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ADirtyChapCalledWanker's picture

There's definitely deflation, but it's limited to wages and housing prices. Housing, only because of Ben BerPrintMore and Alan DoucheSpan, and wages, well, I'll let you figure that one out. 

But inflation is certainly on the horizon for consumer goods. This is the Keynesians error: they look at prices like one big homogenous blob. Oh, and they trust the CPI. When housing makes up 40% of the basket, of course we're going to have "deflation."

 

Palm oil, bitchezzzzz.

Fiat2Zero's picture

Exactly my thoughts. The central banker density on the boards is seriously high.

I mean yes, we are all afraid of deflation, it is hiding under the bed (scary, very scary). Stocks and houses going down the toilet, we're all terrified.

Please start the fucking printing press already and save us (there, we asked for it, no one will blame you).

Central Bankers, attention - we already know you are going to rev the printing presses to infinity, because you have no other option. So just do it already!

History shows there are no other serious options besides inflating your way out. So please do the honorable thing.

But don't expect anyone to propagate the deflation argument unless you can support it with something other than ivory tower nonsense (and "I'm more Austrian than thou", c'mon).

Making me long for RoboTrader here...

XenoFrog's picture

They have to delay the inflation as long as possible so that the banks can gobble up as much property as possible through foreclosures. We wouldn't want homeowners to be able to pay off their mortgages with a month's salary.

 

silver ++ this week btw. $5 right out of the ground.

Fiat2Zero's picture

Yes, the Devil's Metal. The filthy-filthy Argentium. I never thought hitting REFRESH on my browser on the kitco window would provide quite so much breath taking action, and at 1 pixel per 5 minutes no less.

I was waiting for the multi-hike smackdown after all that jawboning about impending margin increases. I guess the new traders that replaced the pre-crash traders have a teeny bit more pocket change to finance their exploits. I guess they're going to give it one last go before we get to $50 again. I'm betting on an all out last ditch effort at $47...we'll see.

Since you're a fan of the shiny-shiny, check out www.truesilverprice.com

Weimar Ben Bernanke's picture

Looks like Belarus will be absorbed into the Russian Federation.

ADirtyChapCalledWanker's picture

Y'all got it wrong.

 

Biflation, bitchezzzz.

Herbert_guthrie's picture

Belarus is a great example for the rest of the world to see.
Hyperinflation? Deflation?
Who gives a shit?
Throw out the economic theory books boys, this is a worldwide power grab through the "paper for resources" scheme.

ALL currencies are being devalued, at different rates of decline, but all countries will be offered the same great deal in the end.

The usury clan is selling us endless debt, and we are buying, paying them back with our labor, land, resources, liberties, and national sovereignty.

They WILL devalue all currencies, because what they are selling us has no true value. And once they have what they want from us, WE will have no value.

Milestones's picture

Please, what did we have when Nixon took us off the gold standard in 1973?    Milestones

oldmanagain's picture

There is an abundance of ignorance of what is Keynesian.   Moreover, the idea that it is bad econ.  This leaves Keynes being falselyl blamed for the many stupid ideas rotating under the Austrian banner.

Austrian is fight club.  What you have I will take away.  It is a zero sum game.  The oldest, most primitive of economic relationships.  It became obsolete long ago with the first market, or horse drawn plow.  It is primitive man standing before his cave with club in hand screaming at the the thunderstorm.

US Uncut's picture

Isn't that Mish Shedlock's formula? Privatize the entire US to solve all of our problems?

twotraps's picture

Enjoyed reading the comments for and against deflation etc.  Belarus is no USA but you have to admit the speed with which its unfolding is instructive...theory aside, and 'told-you-so' aside, there seems to have been no respect for 3 things; the fragility of the system, lack of control once set in motion, and messing with what is perceived to be 'value'.        I really don't care if you are a man named Kelsey who made it in life, crashed  your car and got divorced....your celebrity lifestyle has nothing to do with me.  the govt. on the other hand.......their celebrity lifestyle living off the Pretend Account is starting to encroach on my life as it messes with 'value'.   The value of the dollar, the value of my house, savings account and investments.  The economics of the govt. are divorced from reality.   

 

What is anyone doing about it?  What steps are you going to take if the hyperinflation scenario takes off? What about deflation?  Where is there a store of value any more?  The  only reality is the balance in our accounts, what are we going to do about it?

pan's picture

Global hyperinflation bitchez!

Crudedon's picture

Seems like the world wont end with a bang like in 2012...instead it will end like a boy who has fallen down a whale and is slowly dying of starvation while his flesh is being eaton by rats.

 

Rusty Shorts's picture

I'm back Bitchez's

Banjo's picture

Here is one way to hedge.

Buy Gold or Silver e.g. 100k

Have 100k Debt.

Have enough Cash to service the debt for 2years.

This is how you hedge for inflation / deflation.

TruthInSunshine's picture

I could legitimately make the case that this court decision simply saps additional units of consumer purchasing power, and discretionary consumer items will take the hit to compensate for this folly and farce of judicial activism crossing over into the political forum (it's appropriate venue), and is therefore deflationary.

I think most would agree that dollars are fungible. All things being equal, for every dollar residents have to pay in additional taxes due to this decision, there's an equivalent amount of loss in purchasing power for retailers, service providers, etc.

AgShaman's picture

Hahaha....welcome to the "Sand Rat's Race".

Welcome to Maximum Potential....."useless feeders" (not my term)

Get inside your cages and go round and round feverishly

Only fools will enter the "Gerbil's Ferris Wheel" and engross themselves with inflation and deflationary arguments. To do so...shows a lack of historical knowledge....

We have been bred to fill the role of slave and serf....we will be delivered both deflation and inflation in conjunctive sequencing...as per our slavemaster's designs.

Who cares what comes next? You're meant to toil endlessly in a confused state of being.

The serfs are becoming "tapped out"....hence, "maximum potential".

Either they must rid themselves of a large portion of "dead societal weight" via population reduction....or the serfs must revolt in the "old school" ways....as in; bleed a little...from time to time....to reset the "Construct"

I'll laugh...every single time 'dunder-muffins' look to bother themselves with what's next....inflation or deflation?

The ponzimonium's been designed and rigged to keep you firmly entrenched in your stations.

Enjoy your woman....enjoy your children....but make no mistake...you'll be introduced to the results of "rigged" games....since lesser men figured out a way to 'lord' over men and women too busy to hold them accountable.

Carbon Penguin's picture

I think that grahp also shows the % of the economy operating in the black market...

Carbon Penguin's picture

I think that graph also shows the % of the economy operating in the black market...

AldoHux_IV's picture

Looks like the IMF is right back to raping and exploiting countries through the use of meaningless debt.  Any country that willingly gives up its state assets deserves to fall into the slavery they are embracing with open desperate arms.

The missing component from the sequence of events is when the masses actually start doing something about how their politicians have sold them into slavery and rape.

Johnk's picture

Hey deflationists - the US dollar is deflating again, down to $1/1530th of an ounce of gold or so.

TruthInSunshine's picture

Yep. That must be the beginning of hyperinflation.

Johnk's picture

Oh everyone's asleep. Fair enough. 

Before I sleep, I will study Newt Gingrich to learn about family values.  Or maybe Sarah Palin on how to raise decent children.  Or maybe I'll just buy more gold.

ebworthen's picture

 

Off topic but "Yo Tyler": 

US orders nonessential diplomats to leave Yemen

http://news.yahoo.com/s/ap/20110526/ap_on_re_us/us_us_yemen

 

The Navigator's picture

TruthInSunshine, Akak, & WonderDawg

I find your arguments on both sides (Deflation & HyperInflation) compelling and insightful. My main concern is in accumulating more PMs. If Deflation wins the day, will PMs drop? Should I anticipate a $3/oz silver price? Or are PMs more correlated to currency concerns, sovereign default concerns?

I ask in all seriousness and am not trying to stir a pot. I would love to come out the other side a winner on my PM purchases and look forward to your comments on where PMs fit in to all of this.

akak's picture

Navigator, if you have read my comments and arguments in this thread, then you likely know or suspect where I already stand on the holding of PMs versus paper assets today.  But for the record, the lesson I have learned in over 30 years of studying economic and monetary history is that when governments arrive at the level of indebtedness at which ours is today (and by "ours" I am not just referring to the USA), then those governments have always, without exception, either defaulted on those debts, trashing their currency (and their people's savings in that currency) in the process --- or they have debased their currency in order to take the "soft default" route, by paying off their debts in devalued paper, also trashing their currency (and their people's savings in that currency) in THAT process as well.

The fact is, it is mathematically impossible at this point for the federal government to ever pay down its debt, or for that matter to even begin to halt taking on MORE and more debt, so we WILL hit a brick wall at some point, whether next week or three years from now.  And all of monetary history suggests that when that happens, our fiat currency's value, and the value of all paper assets and promises denominated in that currency, are going to plunge if not go up in smoke.  Gold and silver, and other hard assets held in one's possession, on the other hand, are nobody else's liability, and will survive such a monetary and economic cataclysm, even if they should temporarily fall in value during the worst of the collapse.

downwiththebanks's picture

While I know that Uncle Sam has been trying to foment a 'Color Revolution' there - a la Serbia, Georgia, Ukraine, etc. - for years, I don't know enough about the economy or the political dynamics in Belarus to comment much on this situation.  

However, I do find it problematic that the only real source for this 'news' item is some guy named Alexei Moiseev, chief economist at VTB Capital.

Relying on a parasitical banker-gangster (who probably JUST NOW lost his ass) to give it to you straight is fanciful.

sbenard's picture

Hyperinflation Hell -- coming soon to an America near you!

Franken_Stein's picture
Hong Kong Merchantile Exchange HKMEx to start trading silver futures in 2-3 months!

 

http://dailypaul.com/165855/hong-kong-merchantile-exchange-hkmex-to-star...

 

Corduroy's picture

Most interesting thread but the situation is really simplez

Wages will remain stagnant for 90% of population

Therefore : House prices will remain stagnant overall

Meanwhile : Commodity prices will increase

Therefore : The cost of production will increase

Meaning : Finsihed goods prices will increase

Therefore : Stagflation

While : CPI baskets and unemployment data continue to be fiddled for as long as possible while Rome burns

Eventually Leading To : Reducing Middle and Lower Class families to compost, cannon fodder, and organ donors

Disguised By : Government work for welfare schemes

Nice !!

FoieGras's picture

Following the early 90s Sterling devaluation the UK economy experienced a revival for a number of years. So unfortunately the historic evidence isn't as clear as some may think.

luciusfargo's picture

I don't understand why Belarus is not a member of the European currency communion. It would fit in perfectly.

Matto's picture

The old inflation/deflation argument. So much is dependent on definitions!

 

We will experience leveraged asset value deflation along with broad money (ie, potential money and near money alternatives) contraction BUT core goods will go up in price while the economy contracts. As the level of money ALREADY in the system is stagnant under default (when the borrower defaults the beneficiary of the original loan 1-2 steps removed doesn't get his account cleared out), only the ability to access more credit is impaired. 

 

Something that took me a long time to work out is that paying off debt is deflationary BUT default is inflationary(monetarily speaking) - while default is economically deflationary it is not monetarily deflationary! Hence you have a smaller economy PLUS the same amount of money.

 

The conceptual problem is that broad money measures are broader than true money in existance and include possible money like assets - as these collapse existing money is not eradicated but reflected in a smaller economy.

 

As an aside - 60% of the worlds money is USD. The cake is already baked my friends, its just waiting for repudiation.

mogul rider's picture

How about this

You sit on the hyperinflate lawn

You sit on the deflation lawn

I'll sit on the fence thanks.

My relatives who have been through both types of events have clearly told me to be liquid because events change so fast many of their friends got stuck in assets they couldn't move.

Do who cares what it is adapt to it

Bubba Schwartz's picture

Bubba Sez:

 

Don't worry, gubmint sez we got no inflation here.

But my gasoline sure seems 'spensive.

But MSN tells me it's OK.  They say on their website that $5 gas means less pollution and shorter lines through airport security!

Hmmmm.  Bubba thinks maybe it's the greenest and cheapest not to have been born at all? 

 

 

MallaKite's picture

Not a chance on this planet that Greece will sell assets.

Its a default. ... Merkel knows it and so do the markets

 

 

Zoran's picture

Sometimes it’s hard to believe this ponzi kept going for as long as it did. It should have popped last time but a round of unprecedented stimulus forced a last gasp of air into the bubble. All they did was kick the can down the road and now the collapse will be even worse. Posters on www.AustralianPropertyForum.com have been predicting this outcome for some time, and now the scale of this coming collapse will surprise the majority of commentators, in the same way the GFC surprised most economists. Of course, there will be revisionists who will claim they predicted it all along but the truth is the majority of economists are blind optimists who couldn't see a coming train before it plows into them!

Zoran

http://australianpropertyforum.com/topic/8722174

The Macrobusiness Bear Forum

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