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Venezuela's Hyperinflation Crack-Up Boom On Its Way To Outer Space
Submitted by Pater Tenebrarum via Acting-Man.com,
Why Stock Markets Are Not an Indicator of the Economy
In a free unhampered market economy based on a sound monetary system – this is to say a market-chosen monetary system with a free banking industry and no central planning institution that is manipulating interest rates and determining the size of the money supply – the gains and losses of shares prices in the stock market will simply be a reflection of entrepreneurial profits achieved in the past, plus embedded expectations of profits likely to be achieved in the future.
Nicolas Maduro, the hapless president of socialist Venezuela, here seen hung with all sorts of bling supposed to testify to his achievements.
Photo credit: Prensa Presidencial
Under the assumption that such a free market money system would be largely non-inflationary, this mixture of “historical record” and expectations would primarily be expressed by the relative prices of shares. The bulk of the returns achieved by investors would come from dividend payments, as a general inflation of “the market” would be nigh impossible.
And yet, although the stock market as a whole would barely appreciate in price in nominal terms, the gains achieved in real terms as well as real economic growth, would be far stronger than they are under our current, centrally planned system of constant inflation. Moreover, economic progress would be far more equitable as well, as the reverse redistribution of wealth caused by inflationary policy wouldn’t exist.
This is why a rising stock market tells us absolutely nothing about the state of the underlying economy in the present inflationary system. In fact, we once again have a real life example providing ample empirical confirmation of this assertion. Venezuela’s economy is in free-fall. Its desperate socialist government, in an attempt to satisfy the masses of voters who have voted for it in order to receive handouts, is resorting to ever more repressive economic policy and money printing on a truly gargantuan scale to at least keep up the appearance that bread and circuses will continue. It has long lost the last shred of credibility, as shortages of basic goods have become the major hallmark of the country’s economy.
However, amid capital controls and a collapse of Venezuela’s currency on the “black” market, the country’s stock market is soaring:
The IBC General Index in Caracas, monthly, log scale – click to enlarge.
Since the beginning of 2015, the Caracas stock market is up by more than 300% – note that this index was trading at a mere 6 points in 2002 and currently stands at nearly 15,000 points. This is what is indicative of a crack-up boom – as the currency system implodes, a flight into real assets is underway and titles to capital are soaring in value when measured in terms of the currency that is about to cease functioning as a medium of exchange. This is happening in spite of the fact that most of the businesses behind the stocks listed on the exchange are in fact consuming their capital and are no longer making any real profits.
A linear chart of the index shows the size of recent advance even more starkly:
IBC General Index monthly, linear chart – click to enlarge.
Currency Collapse
With oil prices under great pressure, the government of Venezuela can no longer finance its socialist program. Having nationalized countless companies and replaced their managers with cronies of the ruling party, while restricting the remaining private sector in every imaginable way – de facto creating a full command economy that is a mixture of the Marxist and fascist economic models, i.e. a mixture of Marxist state-ownership of the means of production with a fascist Zwangswirtschaft (literally: “coerced economy”) for what remains of the market economy – there is no way for the government to obtain the revenue it needs to keep its socialist system funded.
Consequently, the only source of revenue for the government is the printing press of its central bank, which it is abusing quite liberally. There are several fixed exchange rates for the Venezuelan bolivar, which have long ceased to make even the faintest shred of sense. The reality is better reflected by black market exchange rates. Dolartoday.com keeps data on the black market in US dollars in the border town of Cucuta, which we are charting further below. In recent months, the bolivar has been in free-fall.
Headquarters of the Central Bank of Venezuela in Caracas
Photo credit: Caracasapie
The plunge in the currency’s external value has become relentless:
Black market rate of the Venezuelan bolivar against the US dollar in the border town of Cucuta. The collapse of the currency is accelerating – click to enlarge.
Venezuela’s official inflation data lack credibility, but even so they are giving an idea of how quickly the currency is depreciating internally as well. Below we show a chart of the official consumer price index from late 2007 to the end of 2014, based to 100 in December of 2007:
Venezuela’s official consumer price index between December 2007 (=100) to December 2014. More recent data are not available yet (it is probably no surprise that there is some foot-dragging with respect to these data releases). In December 2014, the official annualized inflation rate had accelerated to a new high of 68.5%. We imagine that even the official rate of change of CPI must by now be well over 100% – click to enlarge.
We don’t know what the actual rate of price inflation is at this time, but it seems likely that is is a multiple of the official rate. The recent increase in stock prices is in fact providing us with a good hint.
Conclusion
Venezuela’s hyperinflation is reaching its final stages. It is probably already far too late for the government to stop the complete collapse of its currency. The bolivar is in the process of transforming from a medium of exchange to tinder for wood-stoves. Venezuelans who had the presence of mind to convert their savings into gold or foreign currency in good time are likely to survive the conflagration intact.
Those who bought stocks on the Caracas stock exchange seem to have successfully side-stepped the effects of the devaluation as well, but they need a plan for the post-inflation adjustment crisis, which will bankrupt a great many companies very quickly. Also, the government can simply close the market down at any time if it doesn’t like what is happening there, so there is the ever-present danger of even more government interference as well.
It is quite fascinating to see that in spite of numerous examples throughout history, governments never seem to learn. They all believe they can somehow overrule economic laws by diktat. This is not only true of Venezuela’s government, but of practically every government in today’s world. Central planning of money has been adopted everywhere. Venezuela merely shows us what the end game for every fiat money system looks like.
At some point the State is overwhelmed by the promises it has made to its citizens. When it can no longer pay by means of confiscating private wealth, the printing press is always the last resort. Recently one actually gets the impression that it is often the first, rather than the last resort.
In developed countries, people believe that the planners have everything in hand, and that their “price stabilization” rules will protect them from such outcomes. However, it should be clear that these rules will simply be abandoned in extremis. The independence of central banks exists only on paper – it will mean nothing in a perceived “emergency”. It is almost comical in this context that gold is being sold while most of the world’s major central banks are seemingly hell-bent on aping John Law’s Banque Générale Privée.
Paper money endorsed by John Law – the grand-daddy of the hoary inflationism that has become the economic orthodoxy of modern times.
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Heading to a western country nearest you.
We live in a bizzaro world. The only free markets are the illegal black markets!
Bet that chart looks different in US$
We the people would never elect a marxist demagogue, nevermind an anti-american one, as El Presidente.
Yep, my first reaction to the pic of Maduro was to imagine Obozo's head in place of Maduro's.
Maduro is reputed to have hundreds of millions in Swiss banks. He's not stupid.
Reputed, no doubt, by the same reputer who swears Putin has $60 billion in Swiss Savings and Loans.
"Since the beginning of 2015, the Caracas stock market is up by more than 300%"
basically, this article is saying to buy venezualan stock markets because they are going to the moon
rigged markets never sleep
TBT...LOL
Am I allowed to say the B-word?
They could have protected themself with it...
Winning dammit!
Welcome to Obamaland
Thankfully I escaped the physical Obamaland, unfortunately there are few places on the planet that I can hide that will allow me to escape the coming hatefest against the USA citizens when the world dollar hoarders lose 25%+ of the value of the stashed USD and their own local currencies are driven into the dry earth of the petrodollar wasteland.
I better stock up on KY this may take a while before it starts and a lot longer before it ends.
Let's admit the good Ole USA is doing its best to take down Venezuela just like Russia and just like we already did to Ukraine -
Financial Warfare andthe Ongoing Worldwide Financial Coup detat
I agree. US dirty tricks again.
You sound like the fellow travelers in the West who blamed every problem in the Soviet Union on "imperialist saboteurs."
While I'm happy to criticize various aspects of US foreign policy, it's ridiculous to blame Venezuela's economic problems on the US. The blame rests squarely on the socialism of the Chavez/Maduro regime: nationalizing industries, heavily regulating/taxing what remained of the private sector, dramatically increasing welfare spending, and then printing money to finance the inevitable deficit (and then, of course, implementing price controls that created shortages). This crisis was 100% predictable from the moment you understood the Venezeulan government's economic policy.
I know that doesn't fit your dogma, that the US is the sole source of evil in the world, and all the countries opposing it geopolitically are therefore models of virtue, but it's the plain and obvious truth.
John, you're going to be very unpopular around here unless you immediately apologize to the America-blamers and Putin-lovers here...
So professor, you don't the US tripled down on their agents and operatives at work in Venezuela.
Even with the short tanker trip from the Venezuelan shore across the Gulf to the refineries in Texas.
And even with this tidbit from wikipedia
But no, you are probably right there is too much residual honor and decency in the Executive and Congress of the US to manipulate things in Venezuela.
No doubt you are right. We used to do those kind of things But not any more.
We are so reformed.
All governments are agents of the tribe. The tribe is headquartered in the US...kinda. Its kind of unfair to blame the US because it is also a victim.
US has not done significant trade with Venezuela in a loooong time. Meanwhile, US sanctions and direct sabotage by US and Israeli spies never stopped Iran, not particularly known to be a socialist utopia, from getting by just fine.
Let's admit the good Ole USA is doing its best to take down Venezuela just like Russia and just like we already did to Ukraine -
Financial Warfare andthe Ongoing Worldwide Financial Coup detat
It's quite clear the US is not behind any plans to destroy the Venezuelan economy. It's working.
Several months ago headlines were made showing people standing outside in line for basic needs like toilet paper. The government response was to make it illegal for people to stand outside.
I kid you not.
They could have tied their currency to gold but it's probably all gone since Hugo was murdered......errr, died of natural causes.
You can't simply say your currency is tied to gold, It has to be proven and the currency has to be defended to that valuation.
It's no different than if they tried to say that their currency is tied to the US dollar.
An inside source told me that his last words were:
"Do I smell sulphur?"
speaking of inside sources, there's still a terrible smell of sulphur after you get off the bidet, according to your henchwomen.
It was already shit when Hugo died, just shit that was temporarily supported by unnnaturally high oil prices (much as the shit that was Greece was temporarily supported by cheap credit thanks to the Eurozone system). Venezuela and Greece built houses of sand; when they melt in the rain, you shouldn't blame the rain.
US tried tying its currency to gold and then printing money too. Turns out, when you print more money, the gold reserves for some reason stay the same size.
However, it's even harde for VZ to do such a thing, since they sold off their gold a while ago.
I would bet that Zion has planes already fueled and ready to fly Venezuela's gold off to "protection" like Libya's and the Ukraine's.
Liberty is a demand. Tyranny is submission..
Smells like a zionist takedown.
There we go. Now that's more like the ZH I'm used to...
They sold their gold a while back. ZH covered it. CNBC did too. http://www.cnbc.com/2015/04/27/gold-surges-worlds-biggest-pawnbroker-mak...
Where's Latin Lover .... and her cadre of up-voting psychopaths .... she never leaves home without them !
Some folks do it for (very little) money and some folks do it for love.
Back on Mule Creek, the privy was what we called the outhouse.
Looks like the same difference with currency.
They should partner with Greece and start printing Drachmas for use in both Greece and Venezuela.
What are the other Choices?
- Use USD
- Use Renminbi
- Use Ruble
- Use Brazil Real
- Use Mexican Peso
- Use Indian Rupee
- Use Australian Dollar
Why these MF'ers aren't hanging from street poles is beyond me.
Pacification through a variety of means. Why aren't you asking the same thing about the US and why hasn't Obama been impeached yet?
There is a lesson for us in this. Many of the "Chavistas" were imported into Venezuela from outside - illiterate peasants who have no concept of economics, but who are instinctive Marxists. Like many on ZH, it's easy to feed them conspiracy theories to deflect blame.
Easier to just blame the joos
Fuck you John Law!
Yes. The only good thing is we can learn about what John Law did, how the government needed his "magical" finance to expand their plans. So it is a well documented example of what not to do.
Maduro .... what passes for a good looking man in Venezuela .... looks like a retarded monkey in the upper circles of Anglo society !
Maduro confirmed the Peter Principle when he was still driving a public bus.
Hyperinflaton, the US Federal Reserve's wet dream.
I'm persuaded by other information privvy to, that this is all according to plan. Venezuelans will be so disgusted by the raw unbridled power of a corrupt socialist kakistocracy...they'll gladly vote, as did Ecuador, to dollarize their economy.
Watch what happens in 1-3 yrs, maybe sooner.
Salah
For that to be true, the dollar will have to still be kicking one to three years from now -- I'm not so sure that is going to be the case.
If you take a fat Koran .... and shoot a hole in the upper left hand corner .... and hang it on a nail in the outhouse .... it's value will be twice that of the Simon Bolivar !
I would agree with you HAD you used almost any book yet the book you chose in your comparison is actually worth less than a single Bolviar IHMO.... and yes I have actually studied it.
Maduro has ramped up a claim to Guyana's territory. The claim is based on its borders on independence from Spain, a concept known as uti possidetis juris. UPJ is 'customary international law' and only applicable to those states that have opted in to use it in ordr to help arbitrate border disputes. Britain, France and Brazil have never opted in to use UPJ and it has 'never' been used in any court or tribunal 'without the consent of both parties.' UPJ does not apply to Guyana therefore Venezuela's claim to Guyana's territory is null and void. Argentina claims UPJ reference its Falklands' claim. For ICJ Judgments and legal opinions on uti possidetis juris click link:https://www.academia.edu/10573590/Falklands_-_Uti_Possidetis_Juris_and_N...
Well you as a Brit should know that the 1899 arbitrarion was unfair and that the British bought the Russian party to turn the decision in their favour, so regardless of uti possidetis juris that tribunal decision became null and void once it became clear that its decision body was bought by one side. In 1966 both Guyana and Venezuela decided to find a peaceful ressolution within the Geneva accord agreement and just withdrawing from that accord will not help Guyana establish its borders internationally. The situation in the Guyana territory in dispute is far more complex than what you make it out to be.
according to the current issue of the Economist, the official rate of the Bolivar is 1/100th of the black market rate (6 to 600)
Well, while the article is to the point and accurate about Venezuela's nightmare. There are still a lot of things that the Venezuelan government has done to destroy any domestic production or value creation and to solely rely on oil revenues something that cannot be compared to the US or Europe. I'm not saying that the Euro or Dollar aren't doomed in the long run but the reasons are somewhat different.
Venezuela is a neo-communist experiment orchestrated by the Castros in Cuba who need free oil from Venezuela to keep their ailing economy alive. As they are clever (much cleverer than Maduro their puppet at least) they realized that he and his cronies aren't going to last and they tried to convince Oberry that it was time to break the ice, which with a little help of the pope worked out just fine for them, now they can wait and watch how Venezuela burns to the ground, if the US embargo gets lifted they will no longer need the Chavistas...it will be moar cheap labour for the US economy and ensure the survival of the Cuban regime beyond the Castro brothers. (just another big Obama fail...).
As for Venezuela the social situation is surprisingly stable albeit tense, considering the grave financial situation the government is in and the lack of basic consumer goods. Because the military is still backing the chavistas in power for now (they themselves are making a fortunes by selling all sorts of goods abroad including gasoline and drugs).
If the government defaults to bigger countries, however, and is cut off from capital markets things will turn sour pretty quickly as even scarce products will become extinct and then Venezuelans only have the streets left to demand change...or they will simply die of starvation, because oil doesn't go down well on our digestive system.
I can assure you that as with Greece so will the Venezuelan dramedy come to an end eventually.
Nah...
As an economic analist you would starve to death... and your "insight" is typically "US citizen type"... The are other motivations for humanit besides greed and exploitation.
Cuba has had blame for so much manufactured garbage piled on their virtual door step, but BIG BAD CUBA taking advantage of poor little Venezuela is the cherry on the sundae....... Sheesh.
How about facts? You say poor little Cuba is innocent, how could they possibly ever control a big country such as Venezuela? But you have nothing to back up your words.
I'm not even a US citizen so no American propaganda there but I know a lot about the situation down there and I've recently been to Venezuela, if you place Cuban inteligent service in important positions during 10 years, and that's exactly what Chavez did, you can undermine your own country. Even more so with a secret service such as the Cuban that for Latin American standards has had plenty of practice back home to control and supress its population...Sheesh yourself.
de facto creating a full command economy that is a mixture of the Marxist and fascist economic models,
As I've said and this is more evidence of the truth, there is really no difference between communism and capitalism. Read-em and weep.
WTF?
Communism = total government control of the economy
Fascism = near-total government control of the economy
Capitalism = no government control of the economy
Communism = total government control of the economy
Wrong. Communism says nothing about control. It says "to each according to his need ... from each according to his ability". Of course, implementation of the philosophy requires control if not everyone buys into the philosophy. And of course those who recommend the philosophy set themselves up as the controllers.
Fascism = near-total government control of the economy
Wrong. Fascism allows private deployment of capital and the means of production. But it does not allow independence of those entities. Those private entities are "dictated to" by the government controllers. The government "does" have total control but is only the controller ... not the operator.
Capitalism = no government control of the economy
Wrong. Capitalism says trading beyond simple barter (i.e. over time and space) can not take place without "backing" or "support" of capital. Thus those who have or control capital control trade. In actuality, with capitalism taken to the extreme we always find it, the government is subordinate (and a tool) of those who control the capital. And those who control the capital use it in an enormously profitable "farming operation" they call the business cycle.
"Wrong. Communism says nothing about control. It says "to each according to his need ... from each according to his ability". Of course, implementation of the philosophy requires control if not everyone buys into the philosophy."
QED
"Wrong. Fascism allows private deployment of capital and the means of production. But it does not allow independence of those entities. Those private entities are "dictated to" by the government controllers. The government "does" have total control but is only the controller ... not the operator."
...which is exactly what I said (near-total government control). As the author of the OP noted, fascism is sometimes called the "coerced economy," meaning that private property is not officially abolished (as it is in communism), but government coerces private property owners into using their property as the government demands, for much the same effect.
"Wrong. Capitalism says trading beyond simple barter (i.e. over time and space) can not take place without "backing" or "support" of capital. Thus those who have or control capital control trade. In actuality, with capitalism taken to the extreme we always find it, the government is subordinate (and a tool) of those who control the capital. And those who control the capital use it in an enormously profitable "farming operation" they call the business cycle."
Capitalism is simply an economic arrangement in which property rights are respected i.e. property owners are permitted to use or exchange their property freely and without interference from the government. See: libertarianism. What you describe (to the extent it is coherent) involves governmental interference in the market, which is by definition not capitalism.
there is no way for the government to obtain the revenue it needs to keep its socialist system funded.
As I've said, governments fund themselves through inflation after they have exhausted their ability to collect taxes. This is only possible with an improperly managed Medium of Exchange (MOE). The USA government is running on fumes playing the same game. They really can't gain from plunder and they've exhausted sources of taxes. They are creating inflation at an astonishing rate through QE and covering it up by lying with their published numbers. Anybody bought a rib eye steak lately? Think it reflects zero inflation? Read-em and weep.
There's definitely some fudging of the numbers, but the US is in a special position. It can effectively export much of its inflation, since the dollars is so widely used abroad. When the money supply increases, price increases occur throughout the area where that money is used, not just in the money's country of origin, Many other countries, as well as international commodity markets, use dollars. This is why de-dollarization (being pursued by China, Russia, et al) is such a threat to the US government, it'll curb their ability to inflate, and thus spend.
There's a similar dynamic within the Eurozone. When the Greek government printed money (it can't directly print - it prints bonds, then sells them to banks, who then pledge them to the ECB in exchange for loans, which are always rolled over - but the result's the same), that devalued the euros not only in Greece but also in Germany, France, Italy, etc. Thus they were able to export some of their inflation, i.e. externalize some of the costs. This is one reason that Greece doesn't really want to leave the Eurozone and go back to the drachma; sure, they could print, but they alone would bear the cost (no other country uses drachma). What they really want is to stay in the EMU, but have the ECB go back to unlimited financing of their deficits, so as to shift some of the burden of their welfare-state onto their neighbors.
^^^
but the US is in a special position. It can effectively export much of its inflation, since the dollars is so widely used abroad.
The US got into this special position by being placed there by those who control the special position. Before the US held this position, it was held by the British. The US is rapidly being moved out of this position ... by those who control this position.
When the money supply increases, price increases occur throughout the area where that money is used, not just in the money's country of origin, Many other countries, as well as international commodity markets, use dollars.
That is to say "when in-progress trading promises increase, prices increase". This is obviously not correct. Prices change with changes in the supply/demand ratio for the object being priced. If supply and demand go up in lock step, no price change happens. Yet trade in the object has obviously changed.
With an "improperly" managed MOE prices also change with changing value of the MOE itself. It happens, not because of more trade ... but because of counterfeiting. Contrasting: A properly managed MOE guarantees zero inflation of the MOE itself so has no-affect-on and no-interest-in prices. Governments can counterfeit without having huge effect when their defaults are small in relation to the total trade using the MOE. If they can get their MOE to be used by more traders, they can counterfeit more without killing their host (the traders and the marketplace). Amazingly, the US dollar has reached the point where the counterfeiting has reached chronic levels even as it takes in the whole world's trade.
What they really want is to stay in the EMU, but have the ECB go back to unlimited financing of their deficits, so as to shift some of the burden of their welfare-state onto their neighbors.
The Euro is a mismanaged MOE. Just like the dollar, government counterfeiting is tolerated. Greece is just one of several countries who "federate" the use of the Euro MOE. They, along with Portugal, Ireland, Italy, and Spain (i.e. the PIIGS) are abnormally irresponsible traders. And here, "they" is the Greek government. They are violating the "federation charter" by counterfeiting more than can be hidden by the so-called business cycle.
Greek traders are renowned globally as great traders. They are predominantly shippers. If Greek traders adopted their own MOE and managed it properly, it wouldn't matter what the Greek government or the EEC did. The Greek traders would beat all competition with "their own money". Governments are irresponsible traders. They make trading promises and never deliver. They just roll them over ... and that's default.
Greek traders need to do the same thing USA traders need to do. They need to abandon the government mismanaged MOE and adopt and protect a properly managed MOE of their own. One that guarantees zero inflation. Let governments continue to counterfeit to their hearts content ... until they drown themselves in their own irresponsibility.
"The US got into this special position by being placed there by those who control the special position. Before the US held this position, it was held by the British. The US is rapidly being moved out of this position ... by those who control this position."
The USD has wide circulation outside the US partially because of natural American economic dominance (it is [or was anyway] beneficial for foreign states to use the dollar in some cases]) and partly because of a deliberate policy of dollarization on the part of the US government, going back to the late 19th century (the latest version of which is popularly known as the "petro-dollar" system).
"That is to say "when in-progress trading promises increase, prices increase". This is obviously not correct. Prices change with changes in the supply/demand ratio for the object being priced. If supply and demand go up in lock step, no price change happens. Yet trade in the object has obviously changed."
^^^gibberish
"With an "improperly" managed MOE prices also change with changing value of the MOE itself. It happens, not because of more trade ... but because of counterfeiting. Contrasting: A properly managed MOE guarantees zero inflation of the MOE itself so has no-affect-on and no-interest-in prices. Governments can counterfeit without having huge effect when their defaults are small in relation to the total trade using the MOE. If they can get their MOE to be used by more traders, they can counterfeit more without killing their host (the traders and the marketplace). Amazingly, the US dollar has reached the point where the counterfeiting has reached chronic levels even as it takes in the whole world's trade."
^^^more gibberish. The only coherent bit is that increasing the money supply causes inflation. Well duh.
"The Euro is a mismanaged MOE. Just like the dollar, government counterfeiting is tolerated. Greece is just one of several countries who "federate" the use of the Euro MOE. They, along with Portugal, Ireland, Italy, and Spain (i.e. the PIIGS) are abnormally irresponsible traders. And here, "they" is the Greek government. They are violating the "federation charter" by counterfeiting more than can be hidden by the so-called business cycle.
Greek traders are renowned globally as great traders. They are predominantly shippers. If Greek traders adopted their own MOE and managed it properly, it wouldn't matter what the Greek government or the EEC did. The Greek traders would beat all competition with "their own money". Governments are irresponsible traders. They make trading promises and never deliver. They just roll them over ... and that's default.
Greek traders need to do the same thing USA traders need to do. They need to abandon the government mismanaged MOE and adopt and protect a properly managed MOE of their own. One that guarantees zero inflation. Let governments continue to counterfeit to their hearts content ... until they drown themselves in their own irresponsibility."
^^^yet more gibberish
You use ridiculous made-up jargon to describe the simplest things. The only thing you're saying that makes any sense at all is that these governments are creating money, which causes inflation: which can be stated succinctly in one plain English sentence, as I just did. You need to drop your "MOE," "trade certificate" babbling and read some basic economics. You'll find that all you've done is reinvent the wheel (poorly).
^^^more gibberish. The only coherent bit is that increasing the money supply causes inflation. Well duh.
But my illustration clearly showed where an increase in money supply yielded no change in inflation whatever. You do not read well. duh!
these governments are creating money, which causes inflation:
You are such a poor reader. I wrote "traders create money". Governments are just traders. But they differ in that the money they create (trading promises they make), they never intend to deliver on ... they just roll them over ... they default. To the chronic degree they do it, it is plain vanilla counterfeiting.
Under a properly managed MOE, defaulting traders incur interest collections equal to their propensity to default. Thus, unless and until they clear their default, their trading promises are uncompetitive and probably unworkable under the interest load. At the limit they claim to deliver on a trading promise and are "billed" 100% of that promise in the form of an interest collection. The net result: they create no new certificates ... the marketplace is automatically protected from these deadbeat traders.
these governments are creating money, which causes inflation: which can be stated succinctly in one plain English sentence, as I just did.
I'm glad I didn't describe it as you did because you describe it wrong. Governments creating money (i.e. making trading promises) does "not" cause inflation. Failure to deliver on those promises and failing to mitigate those defaults with interest collections "is" what causes inflation. Sometimes what looks like gibberish is there for a reason.
Grow up!
upvoted you, but disagree that the USG can't gain from plunder. All those juicy 401(k)s, 403(b)s, etc. are ripe for the picking.
Venezuela is not a canary in the coal mine. They fooled a lot of lefties into thinking they were some kind of utopia. It was always and only because of oil.
The U.S. Is neither an extraction economy, nor dependent on foreign reserves from export sales. Neither is Europe. What we are witnessing in Venezuela is what one can expect to happen when the populace becomes accustomed to money coming out of the ground. They forget how to produce. Are you listening, Russia and ME monarchies?
They will run out of reserves this year, and will move on to gold liquidation. It's going to get real ugly real soon.
Educated Venezuelans were not fooled. They were simply overwhelmed and outvoted by a Free Shit Army comprised of illiterate peasants that emigrated to Venezuala to enjoy the benefits of Venezuala's (formerly) advanced economy.
THere is a lesson for the US in this.
Yep there is the Free Shit Dollar Army in the USA,
Dont be fooled the same thing is brewing in the states. Take away dollar reserve status and we will be staring down the same barrels as Venezuela. The clock is ticking.
Fifteen years ago, I worked with a nurse who left Venezuela for Houston almost at the moment that she graduated from school. She and her husband could see that socialism was not going to be their chosen way of life. They both wanted to work and make their own way and start a family away from the craziness that was already taking their country. At that point, they had already been here for ten years. She had no regrets over leaving.
who the hell designed that building??...looks like the central planners said "...OK, you can spend some money on 3 sides but screw the back wall...nobody will ever see it anyway..."
That is an attached parking deck.
We don’t know what the actual rate of price inflation is at this time, but it seems likely that is is a multiple of the official rate. The recent increase in stock prices is in fact providing us with a good hint.
They write "price inflation" like there was any other kind. This is usually a marker of an article written by a Mises Monk.
Inflation is where the Medium of Exchange (MOE) itself changes value over time and space. The only right value for inflation is zero. This is only concretely reflected in prices if the object being priced has no change in its supply/demand curve and it's cost of production curve.
However, it is trivial to maintain an MOE that guarantees zero inflation ... all the time ... everywhere. Surprisingly to most people who think they know how money works, a properly managed MOE has no concern for prices at all!
It begins by recognizing what money really is: "money is a promise to complete a trade". It is created by traders getting their trading promises certified. These certificates (money) then circulate as the most desired objects of simple barter because they are (1) in free supply; (2) supply and demand for them is in perpetual perfect balance (it's the nature of every trade); (3) they never lose their value over time and space; and (4) due to 1-3, they are accepted everywhere.
When the trader delivers on his trading promise, he returns the certificates and they are destroyed. This proves the zero inflation guarantee. No money exists due to his trade before his promise certification. No money exists due to his trade after delivery.
If the trader does not deliver as promised, interest is immediately collected matching the amount of the default. This proves the inflation guarantee by the governing relation: INFLATION = DEFAULT - INTEREST =zero.
Nearly all traders deliver on their trading promises. "No" governments deliver on their trading promises. They just roll them over ... and that is default. Further, though governments are the worst deadbeat traders, they enjoy the lowest interest load ... exactly opposite as it should be. This is what compromises the natural negative feedback system of a properly managed MOE. This is why governments always cause inflation and thus should never be allowed to create money (i.e. trading promises).
If traders themselves were to implement a properly managed MOE, governments would soon become 1/3 or less their current size ... because that's about the size limit that tax collections will support.
Really very very simple. But to see the real problem, sit back and watch the attacks that what I write here brings on.
It's frightening ... but predictable. Hardly anyone gets it ... or they all get it and benefit from the scam. They all worship at the alter of capitalism as if it was any different than communism.
It appears some don't like being labeled "Mises Monks" considering the down votes without any rebuttal.
Many do confuse price inflation with currency inflation.
Personally I agree with your assertions, especially where you state governments would become 1/3 less. I would suggest it would be 1/2 or more. The U.S government is a prime example. It spends 2-3 times it's income every year. Probably will get worse.This could not happen without money printing (inflation). Also the citizens would stand a better chance of controlling government as their taxes would be badly needed. Off Shoring the nations production could not have happened with an honest money system as it would have crushed the government finances.
This will end badly for everybody. No nation/government is exempt from economic fraud. The U.S may take longer but the old saying applies.
The bigger they are,,, the harder they fall.
"It appears some don't like being labeled "Mises Monks" considering the down votes without any rebuttal."
That is because there is nothing to rebut. His post is gibberish (as in: devoid of meaning) and written in some kind of jargon-language that he must have invented himself, since it comes from no school of economics in existebce. It sounds like the rant of a schizophrenic describing his own delusions in real-time.
Only an inflationary monetary policy could enable a government to engaged in such wasteful spending as installing computers in mental institutions: yet another reason to abolish the central bank.
Cock sucking mulato maricon has destroyed a great nation......and I am not talking about Maduro.
Venezuela merely shows us what the end game for every fiat money system looks like.
This is another marker of a Mises Monk written article. All money systems are fiat in nature (though the Mises Monks always misuse the term). The term fiat, as they use it, means created out of thin air with no backing.
Well, money is a "promise to complete a trade". It always has been this. It always will be this. And trader's promises are created out of thin air ... with no backing ... just trust. If a trader's trust can't be expected, the trader can't expect his promise to be accepted.
This is obvious by examining trade: Trade is three steps: (1) Negotiation; (2) Promise to deliver; (3) Delivery.
With simple barter, (2) and (3) happen simultaneously on the spot. Money allows (2) and (3) to happen over time and space. So money is "obviously" a promise to complete a trade.
Where the confusion (corruption) comes about is with government counterfeiting. Governments make trading promises but they never deliver. They just roll them over ... and that's default. If governments are small, this can be lost in the fuzz of the minority of trades that fail to deliver and have to be mitigated by interest collections.
But when governments get too large, they can't fund themselves with taxes, fees, tariffs, and other forms of highway robbery. Thus, they resort to counterfeiting ... and that results in defaults ... and without equal interest collections, that results in inflation.
For a properly managed MOE the governing relation is: INFLATION = DEFAULT - INTEREST = zero
Too bad the world has never seen a properly managed MOE because they have always trusted the MOE to governments (or to government handlers ... in our case the Federal Reserve).
Such a pitty.
Wrong.
Mises makes a distinction between Fiat money and credit. Fractional lending creates money out of thin air by lending that which the bank does not possess which is ultimately backed by a bank with no reserves. This lending does not subtract savings out of the pool of money except for a small portion of the lenders reserves. It is lending that which is not yours to lend.
Fraud made possible by printing fiat money either by ink or data entry which entitles the user to unearned wealth that they did not hold.
Fiat money would be a fine MOE if angels held the keys to the press. They never do. An IOU that only entiltles you to another colored IOU isn't much of a MOE. If it fails the store of value test, then it will eventually return to it's intrinsic value of 0.
Don't blame Mises for your misunderstanding.
Don't blame Mises for your misunderstanding.
Lots of words, but you just make my case with your denial. There is that "tiny" distinction that bankers should only be able to "back" traders' promises if a saver first "trusts" him with his money. Further, that can only work if the saver leaves his money with the bank during the period over which the bank has lent it out. Of course savers don't do this. In fact, the bank works principally with "demand deposits" ... not savings. That's why bankers claim the "fractional reserve" is necessary ... to smooth out the bumps. But what it really does is give bankers 10x leverage ... turns a 4% spread into a 40% annual return.
Fiat money (i.e. fiat promises to complete trades) "is" a fine MOE. The traders "are" the press. IOUs have conditions. They must be repaid ... and in the vast majority of cases (sans government), they are repaid. If they're not, they're reclaimed with like interest collections.
If, in the mean time, they're used as the most favored objects of simple barter exchange they must be guaranteed to never lose their value. This is what the current mismanaged MOE cannot deliver. It doesn't even try. It thinks 2% is the right value for inflation (and delivers 4% on average). It thinks interest is something to be guessed about in a smoke filled room in London twice a day. And it doesn't measure and/or report defaults at all so there's no way to determine how corrupt the operation actually is. There's no way to actuarially operate it.
But as a Mises Monk, in what you write, you correctly admit you monks want to back trading promises with savings. That said, the obvious follows. If people choose not to save, traders have no choice but to discontinue trade. Remember, the purpose of money is to enable simple barter trades over time and space ... not to give money changers a revenue stream. And stiffling trade is not an acceptable feature of any MOE.
This may be a function of my own ignorance, but aren't you two basically saying the same thing? You both make some good points, but they seem to me to be very similar. By which I mean, whether it is the government or banks creating excess units of exchange that aren't tied to some sort of production/asset/whatever, you still get to the same place, which is devaluation of the unit of exchange and eventually collapse in confidence therein?
By which I mean, whether it is the government or banks creating excess units of exchange that aren't tied to some sort of production/asset/whatever
Thus you reveal you totally miss the point. Money is not a "certificate for an asset". Money is a "certificate for an in-process trading promise". This is not a distinction without a difference. The difference is enormous ... especially to governments and their money-changer controllers.
"the purpose of money is to enable simple barter trades over time and space"
Wrong. Methinks you should look up the definition of "barter" because you clearly do not know what it means.
Wrong. Methinks you should look up the definition of "barter" because you clearly do not know what it means.
Why make me look it up? Why not just tell what you think it is and how I have misunderstood it?
If you missed my explanation and that's the cause of your confusion I'll repeat it now.
Money is "a promise to complete a trade". This is obvious from the three stages of all trades: (1) Negotiation; (2) Promise to deliver; (3) Delivery. In simple barter, (2) and (3) happen on the spot simultaneously. Money allows (2) and (3) to happen over time and space. Thus money is obviously "a promise to complete a trade". Money "becomes" the most valued object of simple barter trade as (1) it is always in free supply; (2) supply and demand for it are in perpetual perfect balance; (3) it is guaranteed to never lose value; and (4) as a result of 1 thru 3, it is accepted universally.
I'm really anxious to hear how that violates anyone's definition of simple barter.
Uncensorable trade. Again, #bitcoin for the win.
This sounds suspiciously like the closet commies who always say it would work if just done properly.
Why is it so difficult to admit that when given the power print it will ALWAYS be abused. It has a 100% failure rate because human nature is human natue.
Squid
Um... no...
Fiat:
"an authoritative decree, sanction, or order:"
"an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it"
Hope This Helps.
...until the emergence of #Bitcoin. It's the most perfect "MOE" humankind has ever seen, because it mitigates the need to trust your trading partner. Both its total supply and rate of issuance of its units are mathematically fixed, and therefore totally transparent, predicable, and not subject to the whims of a centralized authority (it cannot be inflated!). Bitcoin's traits - its very design - also eschew capitalist and communist schema/world-views. I've worked on and around Bitcoin technology for over two years. All of your comments here speak to a deep understanding of this new open-source, cryptographic model of trade. I wonder if you are already intimately familiar with it? If not, I think you'll enjoy this whitepaper (9pg) by its creator. https://bitcoin.org/bitcoin.pdf
Look forward to your reply.
http://bitcoinvenezuela.com/
Big deal.
You are allowed to exchange/cash $300 worth of bitcoin a YEAR, the same goes for online purchases. You can use all the Bolivar denominated bitcoin you want, inside or outside the country (except that nobody will accept it outside the country), but there is no way to exchange those bolivar for hard currency.
The Bolivar is a closed currency. There is no (legal) way to get large sums of hard currency. So all the dimwits saying they should put everything into bitcoin, gold, US dollars are dreaming in technicolor.
The official exchange rate is 1/100th of the exchange rate on the street. The official exchange rate is 6 bolivars per dollar, but on the street, it's 700 per dollar.
That's why there has been such a runup in their stock market. That's one way companies are trying to preserve some of their value.
Disable the criminals by capturing their primary implementers. To convert that CB building into an asylum for the criminally insane cut the phones, chain the emergency exits and capture the rent-a-cops at the entrances. The best part is, all the worst offenders are already inside, waiting to be packed up. Take about 200 men, 300 firearms, 500K rounds, 20 8' lengths of 1/2" #40 chain, 2 boltcutters and 2 cellphone jammers. Cost about $2 million, without sponsors.
There will be no problem until computers run out of computational power.
Yep. Coming to the western world soon. The difference between civilization and anarchy is about 6 meals.
It happens faaaaaaaaaast.
I unfriended Venezuela when the people didn't kill Maduro after Chavez died. Now he's confiscatng food from farmers so they're gonna starve and have no choice but to undertake his demise.
Forget the age old, fake ideological battle in Venezuela and see the bigger picture. Venezuela is being carved from the inside out by the usual puppet masters. It swings back and forth from failed left wing socialism, to failed right wing free market crony capitalism. The loser of the last two presidential elections is a Jew called Henrique Capriles-Radonski and he is the ultimate Washington and Tel-Aviv whore. From the WSJ to New York Times, the man receives glowing reports and is billed as the saviour of Venezuela.
He is a lawyer, who was implicated in the coup attempts against Chavez and Maduro. Radonski is the Venezuelan equivalent of the Washington palm greaser political class, who gets policy changers for the entrenched elite within Venezuela and will be paid handsomely for it post political career. The real losers is the general population of Venezuela, who have faced the same shit choices in my living memory. Radonski real prize is PDVSA and he and his ilk are salivating for it and within 3 years I guarantee it will be privatized for far less than it is worth, with the usual players getting first option at a fixed price, only to flip it 10 minutes later for a ?% profit. The media is in Jewish hands, the political class has a disproportionate number of Jews, yet the Jewish population of Venezuela is 8000 or 0.03% of the population.
L'America Del Sur
On a long enough timeline the survival rate of paper currency is zero.
On a long enough timeline the survival rate of paper currency is zero.
Actually, if they keep the prices of Gold down.... And there is more QE, the US stock market WILL be a hedge against inflation.
history tells us
It's the rich folk of a nation are who usually have that 'presence of mind'.
And in Venezuela, it's the same rich folk who caused hyperinflation through the actions of the corporations and businesses they own.
They had lost control of the economy of their country when their US backed party was voted out of power.
Not to worry though, the results of an election are easily undone by hyperinflation caused by shortages of their products on the shelves of the supermarkets.
When the rich retake the government in Caracas, I hope they call themselves the Toilet Paper Party
"And in Venezuela, it's the same rich folk who caused hyperinflation through the actions of the corporations and businesses they own."
No. It was the actions of corrupt Marxist dictators like Chavez, Maduro and their cronies that caused hyperinflation.
okay
Can you give us some examples of corrupt Marxist dictators' actions that caused hyperinflation. Did they print more bank notes and give them to banks? Or did they give them to poor people? Which is more hyperinflationary anyway?
I don't think Maduro and his buddies are any more corrupt than the crooks you vote for every two years like clockwork. And with each election you think "this time the results are going to be different."
You know what that makes you. (Twirls index finger around ear)
Yes, right, it's the evil businessmen somehow raising all the prices all of the sudden who cause inflation, not the government printing the money!
LOL, it's because of people like yourself (the easily fooled) that governments love inflation-finance, they can tax without appearing to tax.
"it's the evil businessmen somehow raising all the prices"
You mean like this story that coincidently appeared in the papers today to prove my point?
http://www.ijreview.com/2015/07/377262-dot-launches-investigation-5-majo...
And, John, as bad as the American corporations are, the businessmen who own corps in other parts of the world are even worse. In America it's "make a profit by hook or by crook." In Asia or Africa it's "make sure your brother-in-law is Prime Minister by hook or by crook."
John, don't be in love with American Capitalism. It's like bringing home a hooker with the pox to meet your mom and dad.
Except they CAN'T convert their savings "into gold or foreign currency"
Venezuela has a closed currency. They can only convert $300 per year into hard currency or foreign goods, and that includes gold.
Sure there are illegal ways of doing it, but at a HUGE discount. Best to just get whatever hard assets you can withing the country.
Renoirs and Monets are a more refined way, don't you think?
They still kick ass in Miss Universe.
Hyperinflation CANNOT happen in the United States due to our status as the reserve currency.
Hyperinflation has never happened to a CORE country.
Now inflation is a different story.
England had the reserve currency in 1913. They dumped the gold standard in 1931. By 1950 their Retail Price index went up 220%. Sounds pretty hyper inflating to me. And just how many pennies is a U.S. Dollar worth today versus 1913?
What other country we have seen hyper inflation and survive long periods of it? Iran. For 30 years. And it was becoming a problem (prior to P5+1 talks) for US of A.
Venezuela will survive it, as long as they keep their people fed, clothed and sheltered. So in this case, centralization of the economy is clearly going to take place. Unless they want to reverse and hope that private enterprise will do its part, which I highly doubt as it has been proven before they want to try to cause a coup instead of actually building their country.
"It is quite fascinating to see that in spite of numerous examples throughout history, governments never seem to learn. They all believe they can somehow overrule economic laws by diktat."
I think the author needs to learn. An elite with a printing press is not trying to overrule economic laws. They are a group of counterfeiters succeeding every time.
When I first started to read Zero Hedge many years ago, I would guess the IQ of the average poster was around 125-135. Today I would say it is around 108 and I'm being generous. Do people really need a chart to understand how currencies are manipulated? Do people need to be told by the WSJ, FT and any other mainstream paper what a currency is worth? LISTEN! The whole show is fixed and that especially includes currency. The owners of the FED, The Bank of England, The ECB, The Deutsche Bundesbank and the Banque de France, infact own and control the central bank of EVERY country in the world except 5 as of 2015. All FIAT currencies are manipulated and when a country steps out of line, a currency can be crushed and frequently is as a message to others.
How many times have we heard on the media from commentators who say the banksters are holding country to ransom, or threats to crash an economy if tax payer bailouts aren't forthcoming? Power always resides with the banks, because they control money and money is the key. "Give me control of a nation's money and I care not who makes it's laws"- Mayer Amschel Bauer Rothschild; 1796. People must implicitly understand eonomics is not an "EXACT" science and "exact" is the operative word. Here's a definition. Exact science; any scientific field in which accurate quantitive techniques are used and there are accurate means of testing hypotheses and repeating results. I challenge anybody to quantify in a mathematical model, the "Feel good factor", or "Confidence in the market", to name but two. You simply can't, It is mumbo-Jumbo, Hocus-Pocus, in layman terms it is bullshit, it is unquantifiable as an exact science, yet we use these unquantifiable variables in our economic models and the public(including myself once upon a time) believed these economic charlatans. The Greek default should have been the death knell for anybody beliving in economic theory, for Greece and the solutions imposed is proof positive economic theory as we know it is dead.
So why do people buy into the socialist government vs Free market government currency values debate? The only conclusion I have, is they have a mind that can only be described as susceptible to the "Jedi Mind Trick" The money changers don't care nor let such distinctions bother them. Left vs Right to them is a charade, a side-show, a pantomime, smoke and fucking mirrors, to disguise from the real business of the world wide centralised control of money, the slow accumulation of wealth and the control of strategic resources primarily into the hands of the chosen ones.. The tricks and propaganda used to cajole and coerce a government into debt and thus control of its monetary policy and assets is a 250 year old trick.
Adolf Hitler – speech in the Löwenbräukeller 1940; When I came to power, I took over from a nation that was a democracy. Indeed, it is now sometimes shown to the world as if one would be automatically ready to give everything to the German nation if it were only a democracy. Yes, the German people was at that time a democracy before us, and it has been plundered and squeezed dry. No. what does democracy or authoritarian state mean for these international hyenas! That they are not at all interested in. They are only interested in one thing: Is anyone willing to let themselves be plundered? Yes or no? Is anyone stupid enough to keep quiet in the process? Yes or no? And when a democracy is stupid enough to keep quiet, then it is good. And when an authoritarian government declares: "You do not plunder our people any longer, neither from inside nor from outside," then that is bad. If we, as a so-called authoritarian state, which differs from the democracies by having the masses of the people behind it; if we as an authoritarian state had also complied with all the sacrifices that the international plutocrats encumbered us with; if I had said in 1933, "Esteemed Sirs in Geneva" or "Esteemed Sirs," as far as I am concerned, somewhere else, "what would you have me do? Aha, we will immediately write it on the slate: 6 billion for 1933, 1934, 1935, all right we will deliver. Is there anything else you would like? Yes, Sir we will also deliver that" Then they would have said: "At last a sensible regime in Germany."
A leader said this 75 fucking years ago and the accusation is as applicable then as it is today. If he had let the usual suspects gut the country, accepted to borrow their FIAT money and thus indebted his country like the previous government, he would have been portrayed as a good leader. He said no and they set about via the media to vilify him and start a war. Now how many times have we seen this 3 card trick played out in various guises in our living memory? The only difference is the propaganda is more slick, but the public is just as gullible, as witnessed by some of the replies in this thread..
LMFAO!!! What a bunch of stupid fucks.