No Inflation Friday: Dollarized Panama Issues Price Controls For Basic Goods

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man

Dollarized Panama Issues Price Controls For Basic Goods

Less than four weeks after starting his new job, Panama’s President Juan Carlos Varela already has a serious challenge to deal with: empty grocery shelves.

This is largely a self-inflicted wound that was bound to happen.

Fresh on the heels of his victory in May, the then President-elect announced that one of his first orders would be to regulate prices for staple food products.

He followed through on his promise, establishing price controls on certain brands of roughly two dozen items like chicken, rice, eggs, and bread.

And within a matter of weeks, many grocery store shelves are already empty, at least for the regulated items.

It’s not quite Venezuela or Cuba where it can be downright impossible to buy a roll of toilet paper. But it’s more proof that price controls almost always backfire.

The larger issue here is why the Panamanian government is controlling prices to begin with. The answer is simple: inflation.

According to the Panamanian government, the price of basic foods rose 4.1% from April 2013 to April 2014.

Over the last five years, in fact, food prices have risen more than 24%.

And when average wages are little more than a few hundred dollars a month, a 24% increase in food prices really hurts.

Now, inflation isn’t a particularly unusual phenomenon in Central America, or in developing countries in general.

But what sets Panama apart is that the country is dollarized.

In its entire 111-year history as a sovereign nation, in fact, Panama has never issued its own currency.

Locals and foreigners alike pay US dollars for goods and services across Panama just as you would in Houston, Jacksonville, or Las Vegas.

This means that the country is subject to all the whims and consequences of US monetary policy; when the Fed conjures money out of thin air, the negative effects are quickly exported to Panama.

Yet while it suffers all of the downside of quantitative easing, Panama enjoys very little of the upside.

Of the jobs that the Fed claims they have created by printing $3.7 trillion over the last few years, zero of those have ended up in Panama.

Not to mention, the Panamanian government doesn’t have an endless supply of foreigners lining up to buy its debt.

So to get a true sense of US dollar inflation… and where it’s headed in the Land of the Free… one only need look at dollarized countries like Panama.

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Thecomingcollapse's picture

Inflation, but they tell me there is no inflation!?! 

casey13's picture

There seems to be something about selling goods at a loss that turns people off.

SumTing Wong's picture

We have freezers stocked, pantry is full, and the gardens are bursting at the seams. I'd suggest it for everyone. 

We've got chickens already, and this is easy for any of you to do. Fresh, good eggs every day. We'll slaughter the meat birds later in the fall, and I've got to get the fences up so that we can have cows and pigs and goats...if we can still afford the cows by the time I can get the work done. Damn, have you looked at the prices of cows recently...over $2 a pound on the hoof. Add in fattening them up, then have them butchered...see how much meat you have, and the price may just come to $7-$8 per pound, including the stuff that us just ground beef!

Well done, Federal Reserve. Well done. 

knukles's picture

So you don't think that Water Rationing in California's Agricultural areas and ObamaCare will work?
Well, Americans are exceptional and ....

SWRichmond's picture

Price controls are a guaranteeed way to keep the shelves empty.

BuddyEffed's picture

Just another strategic world location showing signs of instability.

Stuck on Zero's picture

Obama says everyone in Central America is now a refugee and will receive free airfare to the U.S. where they can live a life of ease on welfare.

 

BigJim's picture

Yeah, its amazing. How many examples from history do these fuckers need before they understand? In a competitive market, the price reflects input costs, risk, and interest rates. If you insist a businessman makes a loss, he'll just shut up shop.

slightlyskeptical's picture

Breed a few of them and in a few years your meat will end up being free.

Rinzler's picture

How do you junk a post like this?  Ass-clowns.

Peak Finance's picture

Chickens are fun, and very friendly if handled from when they are young. They cost only 2 - 3 bucks each ( 2 - 3 bucks for a good breed, shit genetically fucked breeds like Cornish X Freaks can be had for 1.25 or less) They eat table scrapes and cheap feed, and require little space and are so easy to care for!

I have 8 laying hens, they provide all of the protien needs for me, my mom, and 6 dogs!

My only problem is predation, I live in a really rural area with lots of beasties about. 

I don't freeze ANYTHING becuase if the power goes out, it's either a total loss, or, you spend too much in generator fuel costs to keep the freezer going than the food is worth. Keep everything "on the hoof" so to speak. 

SumTing Wong's picture

People don't realize the other great thing that chickens provide...fertilizer. And they'll provide a LOT!

willwork4food's picture

You guys are my heros. My wife & I planted rasberrie bushes, blueberrie, plums & peach trees, tomatoes, hot peppers, basil, lettuce, beans, cucumbers. Most of which came around this year.No animals yet..I have never done that because slaughtering it would proly make me puke for a week. Call me a pussy. Go ahead.

TheMeatTrapper's picture

I'm always well stocked with meat, but I'm learning some invaluable lessons on gardening this year. Raising fresh salad greens in 100 degree heat is a challenge to say the least. I'm having to order seeds from Cambodia and Thailand to experiment with tropical greens. 

I think when I'm done in another year or two I'm going to make a "survival garden" video and sell it. Finding crops that will grow unattended, won't get devoured by bugs and will produce year after year is a challenge. 

 

JoeSoMD's picture

In our area it is $4 a pound on the hoof.  Staggering.

Aremo's picture

Careful - I understand that if you go co-op the government will show up and make you destroy all your eggs, pour your milk in a ditch, and shoot you if you don't comply.  Monsanto will not get such treatment of course and you'll find a large selection of packaged corn syrup for your larder available for purchase.

Rinzler's picture

Coming soon to a market near you.

Amazing that these guys run the same frakking plays every game without a thought that this play has never, ever worked.

Seize Mars's picture

No, it works every time.

Works, that is, if your goal is to destroy people and dominate them.

Anusocracy's picture

If you are totally unneeded, you have to create a situation where you are needed.

Government breaks your leg, then offers itself to you as a crutch. - Harry Browne

syntaxterror's picture

Works wonders for Jeff Bezos who has a net worth of $30 billion.

Kirk2NCC1701's picture

Wait a doggone minute Black... Only last year (April 2013) at your Offshore Summit, Panama was one of those great places to go to.

Why is it that every place you recommend turns to shit after you do so?  TPTB must really hate you or your clients.  At this rate... please recommend the US next.

Buck Johnson's picture

That wave of inflation is on it's way back into the US.

 

 

CrashisOptimistic's picture

US 10 yr now 2.468%.

When you have buoyant growth, you get demand for loans, and when there is demand for something, the price of it (the interest rate charged) rises.

So guess what? THERE IS NO BUOYANT GROWTH.

The economy is weak and getting weaker.

Dr. Engali's picture

The ten year yield will head even lower before this is all over with. We will have 1% treasuries and bread will be $20 a loaf.

syntaxterror's picture

But those 2.5% bonds will triple in value once the 10-year goes down to 1%. Translation: expanded Ferrari and Super Yacht collection for Bill Gross.

CrashisOptimistic's picture

Yup.

And every CNBC mantra is "bonds are only 2.5%, is that all you want?  You can have much more in stocks."

I do believe the typical intermediate term bond ETF probably has outperformed stocks in total of capital gains and monthly interest payout.

JustObserving's picture

They need to hire a few economists from the US BLS and vanquish inflation once and for all.

astoriajoe's picture

those guys can wield a keyboard.

MarkD's picture

And hand out EBT cards.

You get free food...... and you get free food..... everyone gets free food

Matt's picture

I don't know why they wouldn't issue cards to give a limited quantity of staples at a subsidized price, unless they (Panamanian government) could not afford to do it.

I guess the flip side is, if you let stores set their own prices but gaurantee to subsidize it a certain amount or down to a certain effective price for consumers, how would you prevent stores from abusing the system and raising prices excessively?

MachoMan's picture

I guess the flip side is, if you let stores set their own prices but gaurantee to subsidize it a certain amount or down to a certain effective price for consumers, how would you prevent stores from abusing the system and raising prices excessively?

In a nutshell, this is the U.S. economy.

willwork4food's picture

Abusing the system? as in trying to get more money for their products? Isn't that what everyone in business does? If they are getting a subsidy from the .gov and others are abusing the system there would be other companies coming in to accept lower profits and wipe the others off the map. THIS is what true capitalism is.

The Longest Call's picture

Couldn't agree more.  Price controls?  Really?  That's a bit drastic.  They just need some creative accounting.

XitSam's picture

What they need is a good slogan, like Whip Inflation Now!

Or Panamanian Inflation So Sorry!

TheRedScourge's picture

"But it’s more proof that price controls almost always backfire."

 

Not almost always, ALWAYS. Either they set the price control too loose and it doesn't affect the market at all, or they set it too tight and they kill the production of that item. If they set it on the border of too tight, they kill off the high cost producers of that item.

XitSam's picture

Price controls and the three bears

Chief Wonder Bread's picture

Coming soon to your local supermarket.

darteaus's picture

Following the Venezuelan economic model.  Of course, this time it's different!

NOTaREALmerican's picture

Ok,  interesting article but it doesn't really explain why there's inflation in Panama.  

buzzsaw99's picture

the oligarchs control supply so as to jack prices higher. crony crapitalist swine.

Matt's picture

From the Article:

"when the Fed conjures money out of thin air, the negative effects are quickly exported to Panama."

So one of two things (or both) is happening in Panama:

1. USD are losing purchasing power

and/or

2. The price of food is increasing due to some reason other than inflation

The government tried to "solve" the problem by setting prices, so the stores, who would lose money at the new prices, stopped carrying the items with price controls on them.

Loophole's picture

Another reason we will see the dollar's status as the world's reserve currency disappear. Foreigners are tired of being robbed this way.

Dubaibanker's picture

How come no mention here on ZH of the biggest currency experiment in Ecuador by ditching the USD and creating the first ever legal digital currency?

Ecuador Embraces ‘Electronic Money,’ Misses the Whole Point

Since 2000, USD has been the defacto currency in Ecuador. However, this will change this weekend when the new digital currency backed with the assets of the Ecuadorean Central Bank will be launched.

Ecuador President met the Chinese President last week and China has been investing billions in Ecuadorean oil projects.

Let us see what happens on the weekend and over the coming weeks...after a small country takes a giant step away from the USD.

knukles's picture

Fucking Great Idea.... Oh Jesus H Christ

Backed by the assets of the Ecuadorian Central Bank?
Horeshit collateral

And all electronic?
Hacker's paradise

Doomed.   Fucking Doomed I Say, Doomed

That's about (no, sorry an even dumber fucking idea) that fiat currency alone.

A Nanny Moose's picture

Backed by horseshit? At least horseshit has productive uses, and is renewable.

Dubaibanker's picture

It is still linked to the USD but with an as yet undetermined rate.

It is confusing as to why are they creating this currency. Perhaps to move away from the USD and have a 'local' currency internally in the country but for the parameters of comparing it to any other country's FX rates, it is being linked to the USD. They are not using the word pegged.

Dont know what the ultimate formula and concept will be and its impact and its usage can only be known when all the information is available, hopefully soon.

Matt's picture

"The bill then outlines a plan for the creation of a national electronic currency backed by the Banco Central de Ecuador, which will be pegged at a yet unknown rate to the US dollar."

 

If you have a purely digital national currency, there can be no bank runs. The reserves are probably the US dollars, which are presumably non-redeemable. All transactions can be tracked and taxed. The taxes can be remitted back to the gtovernment to spend instantly, or within a few days if you allow time for transactions to be reversible. 

lasvegaspersona's picture

Ultimately what the world needs is/are secure reliable media of exchange.

If people did not save the currecny and only used it for trade then we would not get hyperinflationary levels of currency.

Ultimately these age old problems will be resolved. The ECB is leading the way by using gold on it's balance sheet marked to market. If the Euro gets rejected (and becomes less valuable due to overprinting) gold will rise in Euro terms. The citizen holding gold will be protected.

THIS is the biggest part of the ECB/ Euro that is never mentioned....not by Sprott/ Turk/ Schiff/ Willie/ Faber/ KWN/ Rickards/ Kirby  ...no one...yet there it is on the balance sheet month after month...ever wonder why they did it that way?...it is worth wondering about.

Rather than just calling the Euro just another evil fiat currency...think deeper. It was developed by 2 Nobel Laureates and several intellegent economists inspired by Triffin (actually he worked on it) and Rueff and others. It was created for a reason, one that is about to become more obvious and (unfortunately) soon.