Monetary Apocalypse Now: Venezuela

While the world watches Greece’s economy approach the cliff-edge, and Europe’s banking elite employ more and more desperate accounting tricks to magically conjure Eurozone solvency – we would like to point our readers’ attention to Venezuela, which provides a useful illustration of what happens to all fiat currencies on a long enough timeframe.

The Venezuelan bolivar is collapsing.  Their rate of inflation reached an escape velocity of 500% on June 1.   [ Sadly, 500% is now “so last week”, with this week’s rate of inflation now standing at 510%.  ]   The bolivar has lost more than 60% of it’s value since the start of 2015.

This is how money dies.

Getting reliable economic data regarding Venezuela’s economy is no easy feat, but Steve Hanke, co-director of the Institute for Applied Economics has put together a series of estimates which paint a grim picture of Venezuela’s ongoing monetary viability:

20150528_inflation

They’ve gone plaid

 

(via Cato)

 “Using black-market exchange rate data that The Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year, I estimate Venezuela’s current annual implied inflation rate to be 510%. This is the highest rate in the world.- Steve Hanke

While Venezuela now tops the chart of world inflation rates, what is noteworthy is that Venezuela’s rate of inflation did not always make it the problem-child of Latin America.   From the 1950′s through 1980, Venezuela’s inflation rate was within the moderately respectable single digits.  Starting in the 80′s the ramp began, with the jump to hyperspace occurring only this year.

For anyone who thinks inflation is a gradual process, the hockey-stick above should serve as a useful wake-up call.

According the official definition of “hyperinflation”,  Venezuela is somewhat remarkably,  not quite there yet — but at the current rate-of-change will likely be there this year.   The official definition of hyperinflation is a rate of 50% or more per month.  We happen to think that definition is painfully forgiving, but with our current gang of monetary mandarins preaching the “benefits” of inflation, such lax definitions are probably to be expected.

Which raises the (rhetorical) question:   With all that “stimulus”, shouldn’t Venezuela’s economy be improving?

 

 

  • EpicG

    Coming soon to a currency near you.

  • Sensei

    I think I see another IMF default on the horizon. No wonder Lagarde was so scared of a rate hike.

  • Jerom

    WTF How is 510% inflation not considered hyperinflation yet????

  • Telluride

    Venezuelan chicks are hot. There’s an upside in here somewhere.

  • Bronson

    That’s a 10 year gap between “high inflation” and “hyperinflation” (Maybe not according to the official definition, but according to everyone else’s). That’s a good time interval to keep in mind. Things can go from bad to worse pretty quickly. I’d love to see the inflation rate broken down year by year for the past 5 years to see how rapidly the hockey-stick effect happens on a year-by-year level.