This article was published by The McAlvany Intelligence Advisor on Friday, February 5, 2016:
The Marxist president (and student of Venezuela’s previous president Hugo Chavez) Nicolas Maduro has just administered the coup d’état: ordering the printing of so many bolivars that his own country’s printing presses could not handle the order. So he went to Germany, France, Canada, and the United Kingdom to place it. The initial supply – five billion of them! – arrived late last year in the holds of 36 Boeing 747 cargo jets, with anotherten billion to arrive later this spring. Just the thing to quench the raging fires of inflation that are suffocating Venezuelans.
In December 2014 citizens of Venezuela paid 2,632 bolivars for a pound of meat. A year later they paid 14,138 bolivars, a 537 percent increase. They paid 3,066 bolivars for a supply of fruits and vegetables a year ago; last month they paid 12,118 bolivars, a 395 percent increase. For milk and cheese, prices increased 371 percent, from 2,084 bolivars to 7,735.
For fish they paid 1,408 bolivars a year ago; a year later the price of fish jumped to 5,940 – an increase of 422 percent. Fats and oils: 335 bolivars to 1,340, an increase of 400 percent. Non-alcoholic beverages? 409 bolivars a year ago; today: 1,123 bolivars, a 275 percent increase.
A year from now Venezuelans will look back fondly at these as the “good old days.”
The inflation that has engulfed Venezuela is running away so fast that observers can’t keep up. The country’s central bank – complicit in the crime – announced that the “official” rate of inflation in the third quarter of 2015 was 141 percent, while the IMF estimated that for 2016 it will be 720 percent. Barclays has already thrown in the towel on Venezuela: it has passed “the point of no return.”
The irony is staggering. The German company contracted to print some of Maduro’s bolivars is none other than Giesecke & Devrient, the same company that printed the banknotes following the First World War that fed Germany’s historic runaway inflation. That was a period remembered as a time when German money had to be carried in wheelbarrows, and was often used as kindling to start fireplaces during the cold German winters of the early 1920s.
What’s happening today in Venezuela is eerily similar: it takes a pack of 100-note bolivar notes the size of a brick to buy dinner in a nice restaurant. An arepa – a cheese-stuffed corn cake – costs 1,000 bolivars. A 2-bolivar note is used to hold a greasy fried turnover because it is worth less than a paper napkin. Even professional kidnap-and-ransom gangs are demanding dollars instead of bolivars in exchange for the release of their victims.
Fueling the runaway inflation is not only cargo planeloads of bolivars being dumped into the country’s economy but the abysmal ignorance of basic economic law that borders on insanity. The president, being a Marxist, blames capitalism, calling it “savage” and the underlying cause of the bolivar’s price “manipulation.” His newly appointed economic czar, Luis Salas, is of a kind – an academic with not an ounce of common sense – who even denies the existence of inflation! Hear this from his feverish scribblings in his 22 Keys to Understanding the Economic War:
Inflation does not exist in real life. When a person goes to a shop and finds that prices have gone up, they are not in the presence of inflation.
Instead, the cause is “speculative-parasitic-vulture capitalism” coupled with a “global war of the planetary plutocracy.” (This writer is not making this up. See Sources below.)
In place of what once was a free market has sprung up a black market, trying to meet the essential needs of Venezuelans that no longer appear on the shelves: toilet paper, aspirin, cooking oil, sugar, and medicines. Doctors’ hands are tied as their hospitals cannot obtain painkillers or even bandages. Patients are advised to bring their own gauze, disinfectants, and bandages when they come in for surgery.
The predictable Marxist response to price rises that flow from a depreciating currency is price controls. In Maduro’s case, however, those price controls are enforced with a vengeance. In November 2013 Maduro sent troops to raid five Daka retail stores to force them to lower their prices to government-mandated levels. When the managers refused, they were arrested and charged with price gouging.
Unbelievably, a month later Maduro’s “High Authority for the Defense of the Economy,” Herbert Garcia Plaza, said that the shelves of the now empty stores would be restocked in short order. A year later, of course, most of them remain empty and closed. The only one that remains open has for sale just a few plates, a small oven, a pot, a blender, and a toaster.
As the runaway inflation continues to destroy the bolivar, making it totally worthless, Venezuelans will be forced to resort to barter. But that won’t work for long because, as Wikipedia notes, “the country is not self-sufficient in most areas of agriculture.” What happens next is left to the reader’s imagination.
Is there a lesson here for America? As Abigail Hall, writing for the Independent Institute, said: “The difference [between the United States and Venezuela] is one of degree, not of kind.”
Wall Street Journal: Inflation-Wrought Venezuela Orders Bank Notes by the Planeload
The New American: Hyperinflation Imminent in Venezuela From Socialist Reforms