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Venezuela Launches First Nuke In Currency Wars, Devalues Currency By 46%

Tyler Durden's picture




 

While the rest of the developed world is scrambling here and there, politely prodding its central bankers to destroy their relative currencies, all the while naming said devaluation assorted names, "quantitative easing" being the most popular, here comes Venezuela and shows the banana republics of the developed world what lobbing a nuclear bomb into a currency war knife fight looks like:

  • VENEZUELA DEVALUES FROM 4.30 TO 6.30 BOLIVARS
  • VENEZUELA NEW CURRENCY BODY TO MANAGE DOLLAR INFLOWS
  • CARACAS CONSUMER PRICES ROSE 3.3% IN JAN.

And that, ladies and gents of Caracas, is how you just lost 46% of your purchasing power, unless of course your fiat was in gold and silver, which just jumped by about 46%. And, in case there is confusion, this is in process, and coming soon to every "developed world" banana republic near you.

 

and just as we (and Kyle Bass) have warned - this is what happens to the nominal price of a stock market as currency wars escalate... how do those US investors who flooded Venezuela with cash feel now? bringing back those VEF gains is going to hurt...

The chart above is a free lesson in nominal vs real: the hardest lesson for some 99.9% of the world's population to grasp. One person who certainly knows how to devalue a currency in real terms FDR, whose 70% devaluation of the USD courtesy of executive order 6102, is merely an appetizer of what is about to be unleashed upon the US.

From Bloomberg:

Venezuela devalued its currency for the fifth time in nine years as ailing President Hugo Chavez seeks to narrow a widening fiscal gap and reduce a shortage of dollars in the economy.

 

The government will weaken the exchange rate by 32 percent to 6.3 bolivars per dollar, Finance Minister Jorge Giordani told reporters today in Caracas. The government will keep the currency at 4.3 per dollar for some products, he said.

 

A spending spree that almost tripled the government’s fiscal deficit last year helped Chavez win his third term. Chavez ordered the devaluation from Cuba, where he is recovering from cancer surgery, Giordani said. Venezuela’s fiscal deficit widened to 11 percent of gross domestic product last year from 4 percent in 2011, according to Moody’s Investors Service.

 

The move can help narrow the budget deficit by increasing the amount of bolivars the government gets from taxes on oil exports. While a weaker currency may fuel annual inflation of 22 percent, it may ease shortages of goods ranging from toilet papers to cars.

 

In the black market, the bolivar is trading at 18.4 per dollar, according to Lechuga Verde, a website that tracks the rate. Venezuelans use the unregulated credit market because the central bank doesn’t supply enough dollar at the official rates to meet demand.

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Fri, 02/08/2013 - 17:46 | 3227279 debtor of last ...
debtor of last resort's picture

Wonder how much gold he took with him to Cuba. Fiat is a cancer, bitchez.

Fri, 02/08/2013 - 17:48 | 3227289 Dre4dwolf
Dre4dwolf's picture

Im sure everyon who lives there can now expect a 50% raise in pay to be able to afford the 50% rise in costs of living.

 

Just like in America where everyone got a 25% raise to be able to afford the 25% raise in cost of living.

 

ooooo..... wait....

Fri, 02/08/2013 - 17:54 | 3227300 Central Bankster
Central Bankster's picture

I was looking at emerging market bond funds for a couple of clients last week.  I saw that the fund held bonds from Venezuela and I thought to myself, "how long until that fascist Chavez devalues the currency overnight, pass".  Shows how these things sneak up when everyone feels complacement.  Needless to say, I warned them away from purchasing a fund stupid enough to buy Chavez bonds.

Fri, 02/08/2013 - 18:25 | 3227330 Yen Cross
Yen Cross's picture

Perhaps you should change your (emoticon). You seem to be a man(woman) with a conscience?

  In any case, you're readable...

Fri, 02/08/2013 - 17:57 | 3227313 IridiumRebel
IridiumRebel's picture

Fuck Yeah! Nuke photos! EVERYBODY DIES!!!!!!!!

Fri, 02/08/2013 - 18:04 | 3227336 Yen Cross
Yen Cross's picture

I/R kicks ass.  IridiumRebel    Tells it like it is!

Fri, 02/08/2013 - 18:26 | 3227342 IridiumRebel
IridiumRebel's picture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I love you

Fri, 02/08/2013 - 18:01 | 3227326 Melson Nandela
Melson Nandela's picture

well with this news maybe i can get a fill of of short 903 bernanke bucks for the there is no future contract on /TF. 

Fri, 02/08/2013 - 18:02 | 3227329 Venerability
Venerability's picture

Not official yet. But strong rumors that Blackrock now owns more than 5 percent of HNR.

Many of us think Pertamina or someone else will take out the entire company, not just Petrodelta, at about $23 a share, the fair valuation now.

For Pertamina, even the Houston headquarters would be smart - a Western Hemisphere launching pad for closer ties to US support and capital.

Fri, 02/08/2013 - 21:43 | 3227894 disabledvet
disabledvet's picture

I like the way you think...

Sat, 02/09/2013 - 19:01 | 3229444 Venerability
Venerability's picture

It's official. They own about 6 percent.

And although it occurred rapidly in stealth fashion, stock price printed at 14.50 overnight.

That is either the price Trapped Warrant-less Shorts have to cover at now.

Or it's the price Market Makers are getting for signficant blocks of shares from Institutional buy-ins.

Or both!

As we know, it also corresponds with the MINIMUM valuation of the Petrodelta deal, minus virtually everything else in the company.

Curb your enthusiasm, because this is still a Farce, not a Market. But lookin' good.

Fri, 02/08/2013 - 18:10 | 3227350 zerotohero
zerotohero's picture

KEEP STACKIN' BITCHEZ

Fri, 02/08/2013 - 18:14 | 3227362 tradewithdave
tradewithdave's picture

The Pirate Bay documentary is up.

tradewithdave.com/?p=15355

Fri, 02/08/2013 - 18:20 | 3227376 Village Smithy
Village Smithy's picture

Just yesterday on the most relevant blog site in the world! http://www.zerohedge.com/news/2013-02-07/lessons-1930s-currency-wars Take special note of the part about "first mover advantage". Tyler rocks it day in and day out.

Fri, 02/08/2013 - 18:25 | 3227390 Hedge Fund of One
Hedge Fund of One's picture

Again?! Didn't they de-value by 50% only 2 or 3 years ago to screw foreign devils who had believed .. er .. invested in Venezuela? Thought it funny that when I linked to this article, the context ad was for ColombianCupid.com - they do "got a lotta nice girls there!" in that part of the world.

Fri, 02/08/2013 - 18:35 | 3227407 Yen Cross
Yen Cross's picture

  Who is they? I'm getting a Spanish slant?  You won't be (be/headed) for sharing some ideas on Z/H.

Fri, 02/08/2013 - 18:40 | 3227414 falak pema
falak pema's picture

krugman is enamoured with compettve deval; he says US do same. If the whole world goes this way there will be no winners; not even the penguins.

Fri, 02/08/2013 - 19:10 | 3227423 NuYawkFrankie
NuYawkFrankie's picture

A common enuf math mistake.... but the actual devaluation rate is 31.7 % and NOT 46%

 

QED: (6.30 - 4.30)/6.30 = 2/6.30 = 0.317 or 31.7%

The error arises in using the OLD rate (4.30) as the divisor - thus not accounting for the extra 2 units (6.30 -4.30) of newly created devalued curreny.

In simpler terms, a devaluation rate of 46% - close on 50% (ie. it now costs TWICE as much)- would bring 4.30 closer to a new exchange rate of 8 and not 6.30 ;)

Fri, 02/08/2013 - 19:13 | 3227491 Tyler Durden
Tyler Durden's picture

Nope. Also, a devaluation of nearly 100% would bring it to $8. Not 50%.

Fri, 02/08/2013 - 19:15 | 3227493 valley chick
valley chick's picture

Tyler ...can you check the address for the article for it is showing 32 percent...don't know if the article was updated and not the address. ;)

Fri, 02/08/2013 - 19:57 | 3227610 Yen Cross
Yen Cross's picture

 Check it yourself/ You self serving douchebag! Tyler has better things to postulate!

Sat, 02/09/2013 - 10:46 | 3228531 valley chick
valley chick's picture

You talking to me Yen? WTF..was trying to help and let Tyler know.  Obviously you can not read as it was directed at Tyler and confident that he does not need you as a mouthpiece to speak for him.

Fri, 02/08/2013 - 19:22 | 3227515 NuYawkFrankie
NuYawkFrankie's picture

I think you'll find that a devaluation of anything by 100% will bring it to ZERO.

Fri, 02/08/2013 - 19:33 | 3227534 falak pema
falak pema's picture

lol, some people need to go back to simple rule of ratios.

6.3/4.3 = 1.465 So this is an increase of 46% in value of USD to Ven.

1/1.465 = 0.683 So this is a decrease of 31% in value of Ven to USD. 

One way up, the other way down. A ratio has two  realities.

Fri, 02/08/2013 - 20:35 | 3227645 NuYawkFrankie
NuYawkFrankie's picture

Say the 1913 USD was 100c and the 2013 USD is only worth FIVE 1913 cents.

How much has the 2013 USD devalued realtive to the 1913 USD?

 

I say 95% (we wont quibble about the fraction)

You would say (95/5) *100 = 1,900%

Alernatively, I might have been "imbibing" too much.

Regardless Mr 'T'  thanks for providing the opportunity to post on the best financial/politico site on the net - bar none. Great job ;)

Fri, 02/08/2013 - 23:48 | 3227899 disabledvet
disabledvet's picture

"same oil...a lot cheaper." God help them if this kicks off a hyperinflation ala Brazil in the 80's.

Sat, 02/09/2013 - 15:13 | 3229002 W74
W74's picture

I got a devaluation of 46.514%

Fri, 02/08/2013 - 19:07 | 3227475 Rustysilver
Rustysilver's picture

NuYawkFrankie,

WRONG.

A percentage increase or decrease in a value is calculated with respect to the intial value not the final value.

Fri, 02/08/2013 - 19:08 | 3227481 DaveA
DaveA's picture

Soon enough, regular Americans will learn what every Turkish, Indian, and Vietnamese citizen already knows: Don't keep your savings in government paper, or bonds payable in such paper. That way, when a government devalues its currency unit, all it's doing is giving pensioners and civil servants a pay cut, which does in fact make the country more competitive.

What if the government mandates that all savings be kept in government paper? Savers won't comply, even if the penalty is death:

https://mises.org/daily/5886/Withholding-Consent-from-the-Khan

Sat, 02/09/2013 - 15:07 | 3228993 W74
W74's picture

Wouldn't it be great if El Bernak was torn to pieces by a mob suddenly cognizant of it's decreased purchasing power and lowered standard of living?  Good article, thanks.

Fri, 02/08/2013 - 19:18 | 3227505 mendigo
mendigo's picture

Manipulator!
Currency manipulator!

Can we start bombing someone now?

Fri, 02/08/2013 - 19:26 | 3227527 Lost Wages
Lost Wages's picture

"There is no currency war. Japan is right to fight deflation by lowering yen. It's actually good for world growth." - Larry Kudlow, Twitter, Today

https://twitter.com/larry_kudlow/status/299934679480537090

Obviously this is a sound economic decision by a brilliant leader. Monday Kudlow can get down on his knees and worship Chavez.

Fri, 02/08/2013 - 19:42 | 3227572 fomcy
fomcy's picture

"Japan is right to fight deflation by lowering yen."

Actually YEN is no where near so called "LOW" USDJPY monthly pivot at (147 + 75 /2 )= 111 and 200 MA on Monthly at 108..

200 MA on GBPJPY is at 180, current price 146... Worried about High Yen??? Bullshit.. Japanese YEN no where near

Middle of it's long term range and just recently come off ALL TIME HIGH (ALL TIME LOW to other currencies)..

Fri, 02/08/2013 - 21:52 | 3227909 disabledvet
disabledvet's picture

spot on. that yen is a case study on why large chunks of the US economy can be broke in a matter of weeks. Governors have a lot of power in the USA though...so you "break the American bank" at your own peril. http://seekingalpha.com/symbol/cfr

Fri, 02/08/2013 - 20:45 | 3227544 just-a-girl
just-a-girl's picture

Slack global demand is leading to currency devaluations.  Good thing the US doesn't rely on export demand. 

The US worker gets their paycheck from government demand for their goods and services so there is no need to worry about being a competitive exporter. 

As long as the Fed keeps buying Treasury debt issuance, we can all sleep soundly.

 

Fri, 02/08/2013 - 19:32 | 3227549 fomcy
fomcy's picture

Yeah, time to some "technical analysis" people come up with Resistant and Support Levels!!
Hello!!!! Anybody out there??? Guess not... :)))) LOL

Fri, 02/08/2013 - 19:41 | 3227569 JR
JR's picture

“A deadly decision was made in late 1999 that assured the demise of the nation, questioned by few, never having sat well with those in possession of an active economic brain stem. The discharge of the bulk of US factories to Asia, mostly to China, sent the legitimate income producing capability away, only to be replaced to a deeper dependence upon asset inflation.” –Jim Willie

Market Oracle today introduces its diamond article by Jim Willie, Shock Year 2013 - Pitched Currency War Among Central Banks, with Willie's  case for why “the crux of the non-US$ trade vehicle devised as a USDollar alternative will be the Gold Trade Note, as follows:

Friend of gold Jim Sinclair, and executive to a mining firm with interests in Tanzania, put it so well. He captures the theme of this article when he said, "It is the constant drop in the dollar's usage as a contract mechanism internationally. No one sees this but it is the Hammer of Thor on the head of the dollar." The rejection of the USDollar in global trade will mean the end of the abused privilege in a currency turned toxic. Its rejection is the marquee event in the financial world for 2013, following isolation. It is unstoppable and all-encompassing, certain to have geopolitical consequences, as it alters the economic and financial landscape in harsh ways much like a band of violent marauders brandishing machetes alter the neckline of their victims. See the Tonton Macoute in Haiti. The greenback is cornered; it is done.

Here are a few excerpts from Willie’s article, a must read. It begins:

“The central bankers and sovereign wealth fund managers are running scared. The Official Monetary & Financial Institutions Forum (OMFIF) is a forum of central banks, sovereign funds, financial policy makers, and market participants. It recently issued a report on the global monetary system, emphasizing the possibility of a major breakdown in international monetary relations as a result of the currency wars, which hinder productivity. It accepts that the present system is collapsing. It argues a formal role for gold is required to play in international finance. But they turn to the despised corrupt savage callous Intl Monetary Fund, and its broken currency vehicle, the discredited discarded SDR basket. They will be swept aside despite eyes partly open."

Says Willie: "The Competing Currency War has reached a new elevated fever pitch, with the major central banks delivering powerful damage to each other while defending themselves...

"The world is slowly coming to the realization that only a Gold Standard can cure the world of its financial cancer from metastasized paper insecurities... Gold is the ultimate currency."

The Jackass call is that "2013 will see the USDollar finally isolated and put in a position for rejection."

Says Willie:The New York and London bankster crowd cannot dictate Gold's new role, when their vaulted gold supplies are being vacated to points in Asia, when their vault contents are demanded in official accounts for return, when their past gold shipments have been contaminated with tungsten. These banksters are being outed as criminals.

“The end to US & UK hegemony is coming. It will arrive like a grand lasso cast around the set of trade partners seeking a fair system. Their proffered solutions will be ignored, like the QE lunacy in the United States and the ESM lunacy in Europe, both discredited totally. The IMF will not play a role in the next chapter. The irony is thick and inescapable. If the Anglo bankers insist on NOT considering, using, and relying upon Gold as a currency of utmost validity, robustness, and strength, then the rest of the world will devise a system for trade settlement that will evolve toward gold itself. The settlement of trade will not therefore pass through either the banking system or the currency marts...

Willie predicts that “the Gold Trade Note will act much like a Letter of Credit, serve as a short-term bill, and maybe even push aside the near 0% short-term USTreasury Bills that litter the banking landscape.” 

http://www.marketoracle.co.uk/Article38893.html

Fri, 02/08/2013 - 20:14 | 3227665 Hulk
Hulk's picture

Scary fucking shit man. But one would have to be blind to not see this coming...

Fri, 02/08/2013 - 22:00 | 3227928 disabledvet
disabledvet's picture

i didn't see this coming. sure there's a black market rate in Venezuala...where isn't there? slowly "the pro-9/11 cabal" is being obliterated. that would be ANYONE who thinks "there's a shortage of oil out there." not saying the price at the pump is coming down anytime soon of course. sure would be nice though. http://seekingalpha.com/symbol/fdx start buying!

Sat, 02/09/2013 - 07:56 | 3228409 css1971
css1971's picture

Um. You do realise that the headlines will read "Who could ever have forseen?"

Sat, 02/09/2013 - 02:38 | 3228292 gwar5
gwar5's picture

 

 

Sat, 02/09/2013 - 02:36 | 3228293 gwar5
gwar5's picture

Hey, you had me at 'Jim Sinclair'...

 

I can only figure the US and EU are sucking up to the MB and a new radical sharia Caliphate in MENA because they are desperate to keep oil settling in USDs. Won't matter.

MSM has been criminally silent on the BRICs relentless pursuit of an alternative WRC. Obama was totally humiliated and cast aside on his recent Asian trip where he basically crashed their meeting to propose his own currency cooperation agreement. China basically told him to fuck off, he and his USDs were not welcome in their future trade scheme.

 

http://www.slate.com/articles/news_and_politics/the_best_policy/2010/11/...

 

Sat, 02/09/2013 - 02:36 | 3228294 gwar5
gwar5's picture

Hey, you had me at 'Jim Sinclair'...

 

I can only figure the US and EU are sucking up to the MB and a new radical sharia Caliphate in MENA because they are desperate to keep oil settling in USDs. Won't matter.

MSM has been criminally silent on the BRICs relentless pursuit of an alternative WRC. Obama was totally humiliated and cast aside on his recent Asian trip where he basically crashed their meeting to propose his own currency cooperation agreement. China basically told him to fuck off, he and his USDs were not welcome in their future trade scheme.

 

http://www.slate.com/articles/news_and_politics/the_best_policy/2010/11/...

 

Sat, 02/09/2013 - 02:36 | 3228295 gwar5
gwar5's picture

Hey, you had me at 'Jim Sinclair'...

 

I can only figure the US and EU are sucking up to the MB and a new radical sharia Caliphate in MENA because they are desperate to keep oil settling in USDs. Won't matter.

MSM has been criminally silent on the BRICs relentless pursuit of an alternative WRC. Obama was totally humiliated and cast aside on his recent Asian trip where he basically crashed their meeting to propose his own currency cooperation agreement. China basically told him to fuck off, he and his USDs were not welcome in their future trade scheme.

 

http://www.slate.com/articles/news_and_politics/the_best_policy/2010/11/...

 

Fri, 02/08/2013 - 19:54 | 3227605 Yen Cross
Yen Cross's picture

 The Huff and Fuckington  post is looking for handouts today!

Fri, 02/08/2013 - 19:56 | 3227609 goldenbuddha454
goldenbuddha454's picture

Goin looooooong that  Arg. Peso/Ven. Bolivar trade.

Fri, 02/08/2013 - 20:01 | 3227626 Yen Cross
Yen Cross's picture

 Have fun with it. South America is the most insestuious place to trade on " Terra Firma"...

Fri, 02/08/2013 - 19:59 | 3227618 JeremyWS
JeremyWS's picture

Just to clarify if it hasn't been done so already but the USD appreciated 46% vs. VEF but the VEF depreciates 32% vs. the USD. 

USDVEF went from 4.3 -> 6.3 // (6.3-4.3)/4.3 = 46% BUT

VEFUSD went from (1/4.3) -> (1/6.3) or from 0.23.. -> 0.158 therefore (0.158-0.23)/0.23 = 32% fall. 

Simple!

Fri, 02/08/2013 - 21:05 | 3227792 alfbell
alfbell's picture

 

 

I think a cool thing to do (as an American citizen) would be to go "global mobile" and surf the currency wars. Just keep moving to the country where the USD has the most purchasing power and gets the most bang for the buck. Live well, live cheap. And just keep moving to whichever country serves that purpose. I remember when I was in Mexico City about 20 years ago. Breakfast cost me 25 cents/USD. A 3 course lunch or dinner was $1.50/USD. I remember once when in Venezuela 6 of us went out for dinner in a very nice restaurant and had a 3 course meal (steak, prawns, lobster) and alcohol, were waited on hand and foot by 3-4 waiters, there was live music too (a pianist) and I think the total bill came to $11/USD. I remember 3 course lunches and dinners in Bogota for $2/USD as well.

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