Hyperinflating Venezuela Used 36 Boeing 747 Cargo Planes To Deliver Its Worthless Bank Notes

Tyler Durden's picture

The weeks ago, when we showed "What The Death Of A Nation Looks Like: Venezuela Prepares For 720% Hyperinflation", we said that after looking at a chart of Venezuela's upcoming hyperinflation...

 

...  a hyperinflation in which the soaring stock market has failed to keep pace with the collapsing currency, thereby mocking all erroneous thought experiments that under hyperinflation being long the stock market is a sure hedge to currency destruction...

 

... we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new currency.

After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices.

This question, as morbidly amusing as it may have been to us if not the local population, became particularly poginant yesterday, when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market.

 

And, as if on cue, the WSJ answered. As it turns out we were not the only ones wondering how the devastated "socialist paradise" gets its exponentially collapsing paper currency, which in just the past month has lost 17% of its value.

The answer: 36 Boeing 747s.

From the WSJ:

Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy.

 

But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar. 

 

The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals.

More planes are coming: in December, the central bank began secret negotiations to order 10 billion more bills, five of these people said, which would effectively double the amount of cash in circulation. That order alone is well above the eight billion notes the U.S. Federal Reserve and the European Central Bank each print annually—dollars and euros that unlike bolivars are used world-wide.

This means that Venezuela's hyperinflation, already tentatively estimated at 720%, will likely add on a few (hundred) zeroes by this time next year. It is also quite likely that Venezuela the country, as we know it now, will no longer exist because once any country is swept up in hyperinflationary rapids two things occur like clockwork: social uprisings and political coups.

But before it gets there, Venezuela's president Maduro will be busy liquidating the nation's roughly $12 billion in gold reserves, which his late predecessor fought hard in 2011 to repatriate back to Caracas. Sadly that gold was never meant to stay in Venezuela after all.

Meanwhile, life in Venezuela is disturbingly comparably to that under Weimar Germany, wheelbarrows of cash and all:

While use of credit cards and bank transfers is up, Venezuelans have to carry stacks of cash as many vendors try to avoid transaction fees. Dinner at a nice restaurant can cost a brick-size stack of bills. A cheese-stuffed corn cake—called an arepa—sells for nearly 1,000 bolivars, requiring 10 bills of the highest-denomination 100-bolivar bill, each worth less than 10 U.S. cents.

 

Rigid state price controls have only made matters worse, economists say, generating a thriving black market for just about every good, from car tires to baby diapers, in which cash is the preferred form of payment.

Adding insult to injury the very process of printing the almost instantly worthless currency costs Venezuela hundreds of millions of dollars.

"The bank-note buying spree is costing the cash-strapped leftist government hundreds of millions of dollars, said all seven of the people, who have been briefed on the deals Venezuela has entered with bank-note producers."

But it gets even more ridiculous for the government where the largest bill in denomination is 100 Bolivars:

The high cost of the printing binge is an especially heavy burden as Venezuela reels from the oil-price collapse and 17 years of free-spending socialist rule that have left state finances in shambles.

 

Most countries around the world have outsourced bank-note printing to private companies that can provide sophisticated anticounterfeiting technologies like watermarks and security strips. What drives Venezuela’s orders is the sheer volume and urgency of its currency needs.

 

The central bank’s own printing presses in the industrial city of Maracay don’t have enough security paper and metal to print more than a small portion of the country’s bills, the people familiar with the matter said. Their difficulties stem from the same dollar shortages that have plagued Venezuela’s centralized economy, as the Maduro administration struggles to pay for imports of everything, including cancer medication, toilet paper and insect repellent to battle the mosquito-borne Zika virus.

 

That means Venezuela has to buy bolivars from abroad at any cost. “It’s easy money for a lot of these companies,” one of the people with details on the negotiations said.

Venezuela's misery means a hefty pay day for those who end up printing its worthless currency, among them, the same company which printed Weimar's own currency:

The huge order for 10 billion notes can’t be satisfied by a single firm, the people familiar with the deals said. So it has generated interest from some of the world’s largest commercial printers, each vying for a piece of the pie at a time when low profits in bank-note printing have pushed many of them to cut back on capacity.

 

According to the people familiar with the deals, the companies include the U.K.’s De La Rue, the Canadian Bank Note Co., France’s Oberthur Fiduciaire and a subsidiary of Munich-based Giesecke & Devrient, which printed currency in 1920s Weimar Germany, when citizens hauled wheelbarrows of cash to buy bread. More recently, the German technology company was the source of security paper for Zimbabwe when it was stricken in 2008 with a hyperinflation episode in which prices doubled daily.

Wait a minute, why not just print a single 100,000,000 Bolivar note instead of one million 100 bolivar bills? After all the savings on the printing, let along the air freight, to the already insolvent country will be tremendous and allow it to pretend it is not a failed nation for at least a few more days? It is here that the sheer brilliance of the rulers of this socialist paradise shines through:

Currency experts say the logistical challenges of importing and storing massive quantities of bank notes underscore an undeniable truth: Venezuela is spending a lot more than it needs because the government hasn’t printed a higher-denomination bank note—revealing a misplaced fear, analysts say, that doing so would implicitly acknowledge high inflation the government publicly denies.

 

“Big bills do not cause inflation. Big bills are the result of inflation,” said Owen W. Linzmayer, a San Francisco-based bank-note expert and author who catalogs world currencies. “Larger bills can actually save money for the central bank because instead of having to replace 10 deteriorated notes, you only need five or one,” he said.

 

The Venezuelan central bank’s latest orders have been exclusively only for 100- and 50-bolivar notes, according to the seven people familiar with the deals, because 20s, 10s, 5s and 2s are worth less than the production cost.

 

Mr. Maduro and his allies say galloping consumer prices reflect a capitalist conspiracy to destabilize the government.

Well, no, but at this point one may as well sit back and be amused by the idiocy of it all. But at least we will give Maduro one thing: he has done away with the pretense that when push comes to shove, the state and the central bank (and thus commercial banks) are two different things: "the president in late December changed a law to give himself full control over the central bank, stripping congressional oversight just as his political opponents took control of the National Assembly for the first time in 17 years."

Finally, while the rest of the world is wrapped up in such deflationary monetary madness as negative interest rates, Venezuela is subject to monetary lunacy too, only of a far more familiar, hyperinflationary kinds:

A color photocopy of a 100-bolivar bill costs more than the note. In an image that went viral on social media, a diner is shown using a 2-bolivar note to hold a greasy fried turnover because it is cheaper than a napkin.

And before we close this latest chapter on our ongoing chronicle of Venezuela's complete economic disintegration, we are delighted to find that Kyle Bass's "nickel" idea has made its way even in this Latin American socialist paradise:

On a recent day, a 46-year-old slum-dweller named Mario walked the streets of a wealthy district of Caracas with a megaphone, calling on residents to sell him their coins, which he gathered into a rolling water cooler. The idea: to melt it down later.

 

“You can make an amazing ring,” said Mario, who wouldn’t give his last name but said he preferred to go by his nickname, Moneda, or “Coins.”

Now if only Venezuela had a way of exporting some of its hyperinflation to the rest of the world, drowning in "deflation" the result of a few hundred trillion in debt. Actually, fear not: ultimately hyperinflation is easy to achieve - Venezuela is a good example of this; what is difficult is to admit when the current system has failed and when importing 36 Jumbo Jets full of cash is the only solution.

With every passing day, the rest of the "Developed Word" gets one step closer to recreating Venezuela's experience.

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Sothis's picture

If any country should experiment with being a "cashless society," it's Venezuela.  What a soup sandwich.

COSMOS's picture

I wonder how much the CIA prints of Venezuelas bolivar and ships across the porous border from Colombia using that money to fund the opposition.  Makes sense to undermine their currency and not use dollars that are in demand there.

LowerSlowerDelaware_LSD's picture

I'm glad that they used made in the USA planes.

Boris Alatovkrap's picture

Amerika is cause inflation in Venezuela so Caracas must buy Boeing plane for currency delivery system - conspiracy to destroy utopian promise of social ideal.

OrangeJews's picture

Por favor, señor , quiero un poco más papel higiénico?

Más papel higiénico ?

Más papel higiénico ?

Más papel higiénico ?

MrSteve's picture

= wheelbarrow, soon a new currency

MalteseFalcon's picture

Why all the paper money?

So inconvenient!

So declasse!

Right, Bloomberg?

thesonandheir's picture

Was in Caracas Airport for a stopover with a suitcase full of cash, left it for a minute to get a beer and the bastards stole it.

They left the Bolivars on the floor and fucked off with the suitcase.

tarabel's picture

 

 

Maybe they can just go Weimar and only print on one side and leave the other side free for more sanitary purposes. Nobody likes green and blue ink on their ass.

Okay, almost nobody.

jaxville's picture

 The other thing to do is stop intaglio printing.  It makes the currency far to rough for comfort.  Nobody likes to wipe their ass with sandpaper.

 

  Okay....almost nobody

newmacroman's picture

Now i see how the dupes happen

newmacroman's picture

Those 747 is return trip bernanke bucs out emergency exits.

Heliocopter 2 small

moonmac's picture

Made in the USA? LOL! Manufactured in the USA with semi finished Chinese parts turned into Domestic product per the Buy American Act.

Stuck on Zero's picture

The CIA doesn't need to print bills.  Maduro is doing that for them.

Speaking of which ... what does Bernie Sanders think of this paradise?

Ignatius's picture

The Brits counterfeited the early American Continental, so I would not be at all surprised to find that the CIA is doing all in its power to subvert the Venezuelan economy which would be consistent with US policy in South America.

Benjamin123's picture

They could start using dollars, or chinese Yuan, rather than BOLIVARS.

peddling-fiction's picture

They have been complaining about Uncle Sam for a while now.

erg's picture

Well, you can always burn it. Cook some rat.

Peter Pan's picture

Why bother with helicopter money when you can have aeroplane money.

Bernanke you have disciples in Venezuela.

erg's picture

I have a friend of a friend that suggests that tulips may be the next new thing.

I've completely changed my saffron/truffle operation to reflect this new paradigm.

I'm sick of being burned by get-rich-quick-schemes but I know that I'm going to get rich with this scheme...and quick. Homers Odyssey

loosh's picture

Those Catapillar front end loaders should come in handy right about now. Wheelbarrows are soooo last depression.

franzpick's picture

Socialism works fine until you run out of other people's 747s.

Memedada's picture

A ‘funny’ paraphrase of this quote: “The problem with socialism is that you eventually run out of other people's money.” - Margaret Thatcher  And we all know Margaret Thatcher was a knowing expert on socialist ideas. She was a passionate intellectual who never underestimated the ideas of her opponents. In other words – she is the right person to go to if you want to understand socialism. /sarc.  Socialism has nothing to do with taxes. Taxes are only relevant if you’re a social liberal who wants to ease the negative social concequences of a capitalist economic = you tax the capitalist economy to create social programs (education, social benefits, health care etc). But that is not socialism. Socialism is radically different to capitalism because the capital is not privately owned = profit, surpluses etc. are not privately owned. Capital can be either socially (a syndicate for instance), commonly (a forest, the sea, landmasses etc.) and/or publicly owned (state-owned). Thatcher’s quote is even more ridicules when you think of her TINA-movement. She is – by any comparison – one of the most guilty persons in relation to the shit-show we’re in today. She was a frontrunner for the finanzialisation of the economy. She sold UK to the banks – and they still own it today. If anyone is using ‘other peoples’ money it’s the banks – well, they create everyone’s money (debt) to begin with…

 

venturen's picture

so your success story is the USSR?

Nick Jihad's picture

Proving once again that there is no leftard quite as 'tarded as a british laboUr leftard.

GhostOfDiogenes's picture

Welp, the ratchet ko$her rockefellers have finally killed Venezuala.

http://youtu.be/7gwcQjDhZtI

Who is the only country left without a rothchild central bank?

Iran?

Pipetex's picture

North Korea?... But you should not try to destabilize that!

Quasi's picture

It's a fallacy that an increase in money supply causes inflation. Inflation necessitates the need for an increased supply.

The Venezuelans (or Germans,or Zims, or Hungarians) didn't print cash and then got hit with hyperinflation, their currency lost its value and then they printed to reflect that.

The real reason the currency is worthless is because the government is worthless. Don't blame the hardworking paper makers.

tarsubil's picture

So why did the currency lose value?

Donald J. Trump's picture

They asked for their gold back.

Benjamin123's picture

That is not the reason but when your only tool is a hammer everything looks like a nail.

Quasi's picture

Because people have no faith in the people backing it, just as I said in the third section of my original post. Money is, and always will be, a confidence game. Money is valuable only because you think you can trade it for something else. If you think you can buy peace and security from a government its very valuble. People buy US property (and the Dollar) from overseas because they know (or think) the US government won't just confiscate it arbitrairly from them like their local government does. If someone steals that property, they know they can seek satisfaction in a comparatively less corrupt court.  Bolivars can't buy you a good, stable government to protect your property right now, no matter how many you have.  Printing more won't help, or hurt, compared to the real problem.

That's why we haven't had massive inflation here in the US despite printing ones and zeros non-stop since 2008. The average ZHer may claim they have no faith in the US Dollar (but don't have a problem being paid in it I bet), but foreigners who have far worse governments know better. The US Dollar is a beacon in the night for those people.  They'll gladly take all that QE Cash; they need it so they don't have to invest in wheelbarrows.

Wannabe_Oracle's picture

1) Actually, I would prefer to be paid other than dollars - then again, I'm not average.

 

2) 'Massive' inflation as compared to inflation, at what point is there a difference... Seems to me it's just 'well I cannot afford that' regardless of price.

 

3) 'stable government' - really, you truly believe the US Gov't is stable... That's a laugher.

 

Stay safe. ./

MisterMousePotato's picture

Those who claim that the dollar is worthless have, apparently, no tax obligations. As long as a Federal Reserve Note can be used to bribe the Internal Revenue Service or the California Franchise Tax Board to leave you alone, they will have value.

zhandax's picture

"Actually, I would prefer to be paid other than dollars"

OK, since gold is probably off the table, in what other toilet paper would you prefer to be paid?  Euros?  Yen?  Yuan?  Kanuk bux?  The GB Pound? 

Even with a faltering regard for technical analysis, I can see that the greenback breaking out of a 30-year falling wedge is likely indicative that the factors that caused that breakout will be in play until the implosion.

tarsubil's picture

Exactomondo, the dollar isn't backed by "faith", it is backed by the threat of force both abroad and at home. Once that threat cannot counter balance the monetary inflation of printing money, then the dollar will die.

Kprime's picture

because the chicken crossed the street

why did the chicken cross the street?

SquadronVBF94's picture

Simply because the people lost faith in its value. After that it becomes a self fulfilling prophecy/nightmare.

Benjamin123's picture

1.-Lack of confidence, backed by decades of high inflation.

2.-The destruction of all domestic producers forces all merchants to bid for dollars and buy overseas.

If Maduro stopped printing bolivars the problem would self correct. Another choice would be to allow the free circulation of foreign currency and the right to price goods in foreign currency. Then within hours inflation would stop, the bolivar would dissapear from circulation and be replaced, de facto, by dollars.

Ecuador, Cuba and Panama did it. Maduro does not want to because a national currency is simbolic of independence despite the fact that Venezuela has never been less independent than now. It was more independent in colonial times when the capital was three months at sea away, in Madrid, and 95% of all of life's affair were local.

EddieLomax's picture

No, inflation means an inflation in the amount of currency flowing through the system, it is that simple.  It makes no sense saying an increase in the money supply necessitates a need for an increased money supply!

Here Venezuala has the same problem that the UK had in the 1960's to create some inflation or Germany had in the 1920's to create hyperinflation.  Simply put the government borrowed money "from another currency" or printed the currency out of thin air, in terms of Sterling or Marks though it just meant that there were suddenly far more of them in circulation than before chasing a number of goods that had not increased.

Banks and Governments are the only institutions that can create inflation because all other transactions are zero sum, ie every import must be matched by an import, while fractional reserve banking or government spending can increase the supply of money.

Memedada's picture

Hmm, inflation is defined as an increase in money supply = there's been hyperinflation in US for a while now.

Prices rising is only a commonplace reaction to inflation – but since the inflation in US (the West) is all created as debt with interest, the interesting consequence is a deflation of many assets (=liquidity is sucked out of the economy to services more and more debt).

Bill of Rights's picture

I read this earlier today, and then bought a quarter oz gold maple .

Yen Cross's picture

  Has the Venezuelan government finally paid their parking ticket for these twonow it's 3 bad boys?

  If you need a "D -check" park your birds in Malaysia.

 I can't even get a reliable currency quote> http://www.xe.com/currency/vef-venezuelan-bolivar

I can't get a quote.

 The Russian Rubble[sp] looks like a 30 year UST compared to this pig.

Benjamin123's picture

You cant from the internet.

To learn the price of bolivars you have to go to the colombian border and smuggle something to the other side (say a truckload of toilet paper). You will be paid in dollars. Divide the cost in bolivars of the toilet paper by the amount of dollars and that is your exchange rate.

tarabel's picture

 

 

Perhaps if it was an ounce of Wonder Bread.

Smegley Wanxalot's picture

You realize, I hope, that your numbers make Wonderbread a far better investment than gold.

Arnold's picture

Imagine what you would pay for a Twinkie Twin Pack.

 

 

Not the San Francisco special.

(get your minds out of the gutter)

Kprime's picture

A dairy cooperative in Italy has raised €6 million after selling bonds guaranteed by huge wheels of Parmesan cheese.

https://www.rt.com/business/331290-parmesan-italy-bank-bonds/