Venezeula

Venezuela: On the Simple Arithmetic of Inflation

As the Venezuelan bolivar collapses, the hype about Venezuela’s alleged hyperinflation becomes more intense. Most of the commentary is literally fantastic, suggesting that the authors are unfamiliar with the subject of hyperinflation and the arithmetic of inflation.

For example, DolarToday.com – which publishes reliable black-market exchange rate data, as well as the Johns Hopkins-Cato Institute annual inflation estimates – claims that the bolivar has depreciated by over 100 percent this month. This is wrong because DolarToday’s arithmetic is wrong. DolarToday’s mistake represents a common error. It fails to transform the bolivar-U.S. dollar exchange rate into dollars and cents. At the start of the month, the VEF/USD black market rate was 1,501.17, and as of November 29th, it was 3,744.52. The correct arithmetic to calculate the deprecation of the bolivar between those two dates is ((1/3,744.52) - (1/1,501.17)) / (1/1,501.17) = 59.9 percent  depreciation. 

The accompanying charts illustrate the correct arithmetic and the linkage between black market exchange rates and annual inflation rates. For Venezuela’s inflation to hit the International Monetary Fund’s (IMF) 720 percent inflation forecast for 2016, the bolivar would need to depreciate by 44 percent from today’s rate of 3,744 to 6,735 VEF/USD. Furthermore, for Venezuela to hit hyperinflation, which is an annual inflation rate of 12,875 percent, the bolivar would need to collapse by 97 percent from today’s rate to 106,565 VEF/USD. 

Socialism Destroys Venezuela as its People Feel the “Bern”

Venezuela no longer can feed or care for its people. Yet many Americans have forgotten what socialism really is. Sen. Bernie Sanders campaigns as if Karl Marx was just another Santa Claus.

Real socialism largely disappeared decades ago. The collapse of the Soviet Union and its Eastern European satellites effectively ended the age of collectivism.

Nevertheless, oil-rich Venezuela since became a flamboyant exponent of socialism. Its travails should remind us how America’s power is built upon a prosperous economy. Prodigal spending at home and promiscuous intervention abroad are undermining our nation’s economic foundation.

Like most Latin American nations, Venezuela never enjoyed a genuine market economy. After years of misrule, Lt. Col. Hugo Chavez attempted a coup in 1992. He failed, but six years later frustrated Venezuelans elected him president, leading to his “Bolivarian Revolution.” Before his death in 2013 he nationalized industries, provided bountiful social benefits, spent wildly on domestic and foreign ventures, turned the state oil company into a fount of political patronage, and imposed price controls.

Chavez’s successor, Vice President Nicolas Maduro, is no more competent but less charismatic. Today the economy is in virtual collapse. With oil revenues declining the regime no longer can mask its many failures.

Syrian Pound Soars, Iran’s Single Digit Inflation, and Other Troubled Currencies Project Updates

Syria: On September 27th, the United Nations Security Council unanimously adopted a resolution outlining the details of the turn over and dismantlement of Syria’s chemical weapons. Syria’s president, Bashar al-Assad, has stated that his government will abide by last week’s UN resolution calling for the country’s chemical weapons to be destroyed. 

Rouhani Delivers Lower Inflation, and other Troubled Currencies Project Updates

Iran: Prior to Hassan Rouhani’s election as Iran’s new president in June, the black-market Iranian rial to U.S dollar (IRR/USD) exchange rate stood at 36150, implying an annual inflation rate of 109 percent (June 15th 2013). Since Rouhani took office, Iranian expectations about the economy have turned positive, or at least less negative, and the black-market IRR/USD exchange rate has strengthened to 29200. In consequence, the implied annual inflation rate has fallen like a stone, and currently sits at 20 percent.

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