Venezuela said it will introduce new large-denomination bolivar notes as hyperinflation renders most bills worthless, forcing citizens to turn to the U.S. dollar for everyday transactions.
The country’s central bank posted a statement on its website Friday saying it would begin circulating the new 200,000, 500,000 and 1,000,000 bills to “fulfill the current economy’s requirements” without providing further details. The 1,000,000 note -- the largest in the nation’s history -- is worth only $0.53 cents.
As Venezuela’s economy shrank for a seventh straight year in 2020, the government turned a blind eye to a growing number of dollar transactions, kick-started by rolling power outages that prevented credit and debit card purchases and fostered the use of cash. About 66% of transactions across the country are estimated to be made in foreign currency, according to Ecoanalitica.
While the dollar has gained ground, Venezuelans continue to rely on bolivar bills for public transportation and to purchase subsidized fuel. The Caracas subway recently issued an electronic payment system after it routinely stopped charging passengers due to cash shortages.
President Nicolas Maduro has said he plans to move to a fully digital economy this year, following three years of hyperinflation that have prompted the nation’s mint to issue higher-denomination notes that are quickly rendered all but useless. Inflation soared 3,000% in the last 12 months, according to Bloomberg News’s Cafe con Leche Index.
In October, Venezuela imported banknote paper with plans to issue a 100,000 bill that quickly became outdated. It last issued new bills in 2019, after chopping five zeros of the previous bills in circulation in 2018.
I don't understand hyperinflation. Doesn't it become obvious that you should stop printing money when the cost of printing the money is higher than the value printed on the notes?
If you’re a dictator looking to hold on to power, and you have no ability to borrow money (can’t pay in bolivar because it quickly becomes worthless, can’t pay in foreign currency because your inflation rate effectively makes the loan’s interest rate high), why not print? It may not help your citizens, but you can keep your army fed enough to stay on your side.
Ofcourse, the countries placing sanctions are never to blame..
Take North Korea for example..
I like to imagine this is how it plays out in the people heads: "like, it's so sad that the people there suffer.. our hearts go out to them..
should we lift sanctions..? Hell no, let them burn to the ground, let them realize who they're messing with.."
Every nation with it's own currency and a central bank can print money.
Other banks can even create money from thin air through lending. How much depends on the equity quote.
Usually these situations arise out of rock & hard place trade offs. The Weimar Republic printed money to pay foreign war debts that they otherwise couldn’t raise taxes for. If Germany failed to pay France its entirely reasonable France could go to war.
If The Venezuelan government can’t pay foreign or domestic obligations then they need to print money or default. They may not have the ability to default.
the real question is, why does the counter-party accept the inflating currency, knowing that the value of it is falling like a rock? why not demand real goods and assets over worthless paper?
(i have some (likely half-baked) ideas, but throwing the question out there for discussion)
They owe $100 but don't have $100. They find someone willing to exchange $100 for 100 Bolivars. But instead of using Bolivars the government has on hand (reserves), they print them. This devalues the Bolivars, meaning the next time they try to buy dollars, they'll have to put up more Bolivars than before.
The counterparty in this case, is anyone who thinks they can buy something with Bolivars equal to $100 worth of goods. Chances are that they can. But they have to act quickly before another devaluation.
This is overly simplified but covers the gist of it.
Depending on the nature of the debt there is also the possibility that it’s denominated in local currency e.g. pension obligations. In such a case the counter party may not have a legal recourse other than accept the inflating currency.
putting aside the currency exchange mechanics, my question is more that if a sovereign debtor wants to give me a trillion bolivars of debt payment, but has a 1000 pounds of ready coffee beans, i'd demand the coffee beans rather than the bolivars because that won't devalue in the global economy nearly as quickly.
certainly this can only work if the country has enough various goods worth more in other currencies than they have debt in their currency. it's almost like an arbitrage, but it's not entirely riskless (which by definition, arbitrages are).
^ counter-parties can balance their books in this manner and are likely to do it more efficiently than loan officers. Hypothetically, your example can be performed at an arbitrary scale with the only constraint being how fast the currency devalues prints and how fast you can turn bolivars into coffee beans, gold, or other hard goods.
additionally, the government may not have rights to the beans. In cases where governments can expropriate assets and goods from individuals, they have used them to directly raise foreign currency. A notable example of this is the Ukrainian famine.
adding an extra zero to the face of the note costs nothing, and thus, it's never possible for the cost of the printed note to be higher than the face value!
> to blame socialism than it is to blame America’s sanctions on Venezuelan oil
Bolivar hyperinflation pre-dates U.S. sanctions [1]. (It also pre-dates Chavez and Madura, though not to its recent degree.)
The sanctions don’t help. But China, and to a lesser degree Russia, were for a long time willing to run the sanctions [2]. Even they gave up on Caracas after Maduro’s incompetence led to falling oil production.
America is one country that has less than a quarter of global gdp. Every country in the world needs oil products and plenty of them don’t care about US sanctions.
Venezuela killed the goose that laid the golden eggs by not only nationalizing the oil industry, including Petrobras’ which isn’t exactly a manifestation of American imperialism, but staffing the seized operations with corrupt cronies instead of people that knew anything about the oil industry.
HN’s politics tend to range from neoliberal to (crypto)fascist. You’re more likely to get downvoted for criticising imperialism than for praising Milton Friedman or Pinochet.
It’s not surprising considering the class composition and overall material position of its audience.
That's a common misconception, but it is entirely a function of the political passions of the observer, leading to false feelings of generality. Observers with opposite passions see precisely the opposite—and I do mean precisely.
I'm confused. "That post" is the OP or your comment?
I was responding to your claim about HN being politically biased. One data point doesn't demonstrate anything about that; people post all kinds of things. However, one post can easily trigger feelings of bias, and frequently does. I believe that's because we're all inclined to put weight on the data points we dislike, and meanwhile don't notice so much the ones we like or agree with. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
What I'm saying—perhaps I didn't read you correctly or didn't express it clearly—is that your perception that HN is massively biased towards the right-wing is (a) untrue, and (b) a consequence of your own political feelings. People with opposite feelings look at exactly the dataset and derive precisely the opposite perception. There are dozens of examples of this at https://news.ycombinator.com/item?id=26148870, and countless others floating out there. What's most remarkable is how such comments, though making opposite claims which cannot both be true, resemble each other perfectly in every other respect. That is evidence that some common mechanism is producing them. I don't know if it's the notice-dislike bias or some other mechanism, but it definitely isn't accurate assessment.
Your post listed a bunch of political positions and tropes from two rough areas: far right and centrist. It’s true that the two camps are particularly upset at each other in the US over pointless culture differences despite having little disagreement materially.
You didn’t list any examples of anyone even railing against left or far left positions, either real or perceived. No seizing of means of productions, forming worker’s councils, arming the working class, general strikes, abolishing private (not personal) property, black nationalism, revolution, etc. Not even just trade unions.
You can argue all you want that the two camps you described both perceive HN to be biased against them, but both you and them entirely ignore the existence of actual communists. The range of your comparisons stops well before going that far left. So how can you even analyse whether HN is biased towards the (global) right if your range of politics doesn’t even extend to the left past the US mainstream?
Aren't you assuming your conclusion? There are many socialists, social democrats, and other leftists here. If you call 'centrist' anyone who isn't an 'actual communist', ok, but that's nonstandard. By the same logic, someone on the right could argue that HN consists of 'far left' and 'centrist'.
If your complaint is that HN is skewed to non-communists, that's obviously true, but not interesting—what large population sample isn't? Actually there are indeed 'actual communists' on HN—not many, but we have our share. Who's ignoring their existence? I think they're interesting!
I didn’t say that there are no communists, I’ve seen a few comrades. However I’ve mostly seen liberals (conservative or otherwise), quite a few fascists (sometimes mask-on) and sometimes socdems (who are centrists). Rarely socialists, communists or even just genuine anti-imperialists, and generally more downvoted than the fascists.
Surely a fellow Marxist would understand the overall ideological superstructure of western imperialist societies and furthermore the material base of a community focused on yeoman dreams at best and bourgeois domination at worst?
I wasn’t even complaining, just pointing out fascists are more welcome here than anti-imperialists. After all, the post by an anti imperialist that I replied to is now removed.
> fascists are more welcome here than anti-imperialists
Alas, we're going in circles now. That's certainly not true and a classic example of overgeneralizing from skewed data.
Can you really not understand why we'd moderate a comment like https://news.ycombinator.com/item?id=26368582 without appealing to ideology? It plainly violated the site guidelines, and the account had been breaking them aggressively (and surely on purpose) even after repeated requests to stop.
That's bog-standard moderation based simply on trying to keep the forum alive for interesting conversation, as opposed to flamewar and scorched earth. Interesting HN conversations can and do contain interesting comments with anti-imperialist ideas...but this case was obviously not that.
The only data I have is what I’ve seen. What quotes you provided described the two sides of the US political spectrum, which is widely understood to be significantly skewed to the right with respect to the rest of the world.
Moderation policy is itself an ideological choice. Seeking civility and avoiding meta-commentary doesn’t affect all political stances evenly.
That's true, although seeking civility is not the issue here. We dropped that language years ago because it leads to wrong associations.
The issue is that we don't want the site to burn itself to a crisp (the well known default outcome of internet forums). If you've got a better idea how we can achieve that, I'd love to hear it.
They fscked themselves, they would be as they are even if they were the single country of the planet. Unfortunately they are not, and Brazil and Colombia have received millions of Venezuelan refugees.
What's discouraged here is the content-free dunk. Making a substantive point about why sanctions exist, or how Venezuela would be doing great without sanctions, or an argument for lifting sanctions unilaterally, would be received much better.
I mean sure, if the "failed policies" are opposing US imperialism in Latin America, inviting a huge backlash of sanctions, several US-sponsored coups, etc.
This has everything to do with American excetionalism. We have funded four failed coup attempts because the leaders won’t play ball with American ideology. Just like us funding the coup in Iran which let islamist extremisrs overthrough a democracy because they would no longer let us control their oil resources.
If Venezuela and Iran could sell openly on the free market, texans, alaskans and opec oil riches would plummet.
As I explained to you recently, you can't post flamewar comments like this to HN. This is not because of what you happen to be for or against. It's because we don't want this site to descend into internet forum hell.
I don't think this is hard to understand—the bulk of the community understands it and supports it, including the portions of the community who may agree with you politically. I also don't think it's hard to do, if you've read https://news.ycombinator.com/newsguidelines.html and actually want to use HN as intended. If you keep posting like this, that must mean that you're choosing not to use HN as intended, and we ban that sort of account.
Edit: there is a second issue. Your account is clearly using HN primarily for political and ideological flamewar. That's also not allowed, as I've explained many times [1]. The primary use of this site needs to be for intellectual curiosity. Since those two modes don't work together, we ban accounts that violate this rule, regardless of which politics or ideology they're battling for.
The entire point or posting this article is to shame Venezuela. “See those ignorant socialisrs! Hahaha!” And you know this. You cancel any comment which goes against the conservative/libertarian status quo. Pointing out the hypocrisy of free market capitalism only being for people who suck the dick of American ahthority is ban worthy then go ahead and cancel me.
My conscious is clear and my hands are blood free. You cannot say the same.
Since you're responding with more of what I asked you to stop, I have to conclude that you don't want to use HN as intended, and have banned this account. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future. They're here: https://news.ycombinator.com/newsguidelines.html. Even the worst article doesn't justify setting fires and provoking war in the threads. This place is fragile and needs to be protected.
"You cancel any comment which goes against the conservative/libertarian status quo" is a tad silly, since anyone who glances at HN can easily see otherwise. Passionate partisans on all sides feel that the site is against them, but that's a function of their passions, not a real assessment. We hear the same kind of thing from the other corner:
"HN socialist apologia", "the mods are SJW", "socialist-leaning mods" ,"Hacker News the SJW Hole", "you can't be anti-liberal here", "radical leftists appear to have taken control", "tends to be more liberal so you will be downvoted", "a liberal echo chamber identical to all other social media", "this SJW cesspool", "it's ALWAYS the case in HN that any opinion that's not 100% politically correct && strictly SJW standard compliant is suppressed", "HN in turn, are left leaning, socialist Democrats", "you fucking insane sjw", "leftist filter bubbles", "left-wing propaganda", "leftist totalitarianism prevalent on HN", "anti-western and extremely anti-capitalist", "Dang is a totalitarian liberal thought policeman", "banned every single prominent right winger", "extremely left-winged", "most people on HN are liberals", "socialist hell-hole", "this site leans left", "leftist bots", "always politically left", "skews quite left", "Obviously this website is rigged for the liberal agenda", "the level of wokeness is just absurd", "leftist ideological echo chamber", "run by radical leftists, so no surprise", "You aren't allowed to go against the propaganda arm of the Democratic Party", "ideas here are ignored, down voted, flagged, shadow banned if they question the left ideology", "a very anti-libertarian echo chamber", "a heavy socialist lean, you are not allowed to have a differing perspective", "only liberals are allowed to express their political opinions on HN", "capitalism bad", "flaaaaaming, communist level liberal", "shows how much of a leftist website this is", "dang is an SJW cunt"
You can't eat gold, can't burn it for heat, nor drink it, nor smoke it. I've always wondered in a global Weimar-type scenario what gold would do for you? It will probably help in 5-10 years as things calm down but it's going to be a bumpy ride for a while and shiny pieces of metal aren't going to keep you alive. Why would anyone trade gold for food when their family is hungry, too?
I would guess its not total societal collapse but economical collapse. No matter what, humans must interact and commerce will exist. It’s usually in forms of bartering when the financial system is in crisis and physical gold historically, has been the best medium for bartering.
The medium of exchange has to be something everyone, or at least most people, have access to. That's not the case with gold. If the financial system tanked tomorrow, assuming you could still access a brokerage account to trade gold, you'd have an extremely hard time finding enough people that already have gold in order to be paid for things.
No, people would have to converge on something else, something more accessible. The clear choice would be bottle caps.
From an individuals perspective it doesnt matter if other people have it or not. If you have something and others think it is of value, you can trade with them for things you want.. I'm talking about maintaining physical gold.. point is, no matter what people coverge to, you'll still have plenty of 'that' stuff.. it's about stashing value in a place that the govt can't dilute away by making more of the same thing..
You have to get things started though. What would be a good estimate of the #of people that actually own gold in their portfolio, considering most people have a 401k or some other retirement plan? 1%? 5%? How do you get the ball rolling on that? Because the vast majority will have to go about life using some other medium of exchange to get things done. Gold isn't going to get there very easily when there's only a few dozen people in town that have any, and it's in a commodities account that may also be part of the collapsing financial infrastructure.
And that group will be even smaller than the group holding it as a commodity, meaning there would be practically no one to trade with as the massive majority of the population has to figure out some alternative. I wouldn't be able to take your gold and be confident that someone else would accept it as payment when I needed to buy something, because maybe they don't have any surplus they can gamble on gold and instead of getting something they directly need in exchange.
Whatever the population rallied around as a medium of exchange would have to be accessible, ubiquitous, and hard to duplicate. Gold hits 1 out of 3, because once the financial system collapses no one without gold will be able to use their inflated $1,000,000 bills to buy it directly, leaving only that tiniest minority with actual gold and a vast majority that can't wait for gold to bootstrap itself into a reasonable medium of exchange.
Want to make sure you can retain your wealth & have it back after we rebuild from a financial collapse? Sure, have some gold. But if you want to to have an immediate ability to acquire things during that collapse, gold won't help. If your heat goes out a month after financial institutions collapse, No HVAC engineer is going to fix your boiler for gold unless they already have enough people giving them food and other services for their work that they can risk taking something in return that doesn't have an immediate use.
I'm not saying gold couldn't be a medium of exchange. Obviously it has in the past. I'm saying that current ownership patterns don't make that practical, especially in the short term, say 1-2 years, after a serious financial collapse.
Part of currency's value derives from social consensus that the 'thing' is of value in general to everyone..
'USB C' why you obsessing over a bunch of wires man, who cares...? The value is of the consensus..
The value of facebook is not it's software. It is it's user base.
If you can point me in the direction of a better metal that is as widely accepted across all countries as a store of value, I would be happy to learn about it...
Valuable things are equally valuable when things go south.. a home, jewelry, nice things don't suddenly lose value.. for example, your family may not have enough to eat but a guy next door that has too much food that's going to rot will happily trade with you, because he needs to buy a bunch of stuff from someone and that other guy will probably not take payment in food but may trade it with gold...
You need social consensus of value and there is a very real need to be able to abstract value into 'x' valuable thing. So you can freely buy and sell without having to worry about if the guy will accept/need what you want to give him..
Gold sucks in being able to make precise payments and swings madly in value relative to currency, that's why it's only insurance for things going super south..
Gold gives you the ability flee and still have some form of wealth people in other countries are willing to accept. No one took weimar marks, no one takes bolivars. They will happily take your gold.
PHYS is a physical gold etf run by Sprott (who I trust). Is it also worth holding actual physical gold on premises? Seems like a hassle, and if I can convert PHYS to / from USD, is it worth it?
If we're in a wold where the exchanges are all down, or Canada seizes Sprott's gold, then I'm not sure that having physical gold is going to make my life significantly better.
Well, I didn't know the acronyms you'd mentioned.. I guess it depends on individual preference, but I don't know, I'd probably rather have some nice shiny metal by my side rather than not have it.. gives the future me a few more options..
My significant other and I have consciously invested in a remote countryside property with adjacent agricultural land. Great holiday house. Decent returns as a holiday rental. Comfortable to live in if everything goes poof.
I've been pretty much following Lyn Alden's newsletter and Fortress model portfolios, which consists of international ETFS (VWO, VPL) energy and metal commodities (RDS.B, SCCO, GOLD, FNV, WPM), and IVOL. Uranium ETFs like URNM might be worth a look if you expect extensions on reactors/new reactors to continue.
I'm looking forward to being a millionaire. Just wish that the luxury would come with it...
Which brings up an interesting point about how language shapes our idea of value, even after the baseline meaning has eroded. There are lots of words in English like that now, but numerical terms are interesting because the math doesn't change, but the value does.
Highly unlikely we see hyperinflation in America any time soon.
I think we’ll see inflation. But the U.S. is more than capable of, and has the cultural components for, implementing policies that cut the money supply. An independent Fed capable of raising rates, debt able to be peacefully wiped out through legislation and bankruptcy courts are some of the things America has that Venezuela didn’t.
Maybe, maybe not. Reserve currency status keeps borrowing rates low. But it also forces a current account deficit. How those balance with respect to domestic money supply is complicated, and not necessarily one sided. Plenty of economists recommend abandoning reserve currency status to balance our monetary policy.
Other things the US has which Venezuela doesnt: a diverse economy able to direct the increased money supply towards productive businesses, entrepreneurs willing to invest in fixing supply shortages because they don't fear the government will seize their assets, substantially more transparency and trust in the currency, and a lack of need to continue printing money just to pay off supporters and generals. Lack of sanctions helps a bit too.
You're downvoted, but I think this is a fair point. If I were in a banana republic, I'd rather have bitcoin than my government's fiat. I'd rather have silver / gold than either, though, or at least some combination of all the above.
> strongest case certainly seems to be for funding illegal activities and capital flight
A currency with built-in functionality to track everything, forever and making that data public seems to be good for funding illegal activities?
I would like to think just cash in various currencies would be the best for that. Washing cash is not exactly a new thing and sometimes boring technology is best.
I should have said "engage in illegal activities" to be more precise.
If I wanted to, right now, buy drugs online, engage in illegal online gambling, ransom someone's data, etc it will most likely be done in BTC or maybe Monero.
It’s ok. The type of HN users who downvote comments like this do not offer anything. The downvote literally means nothing apart from their tribalistic “bitcoin bad” unfounded assertions. It’s very easy to not care.
Meanwhile, people in Venezuela who diverted some assets into bitcoin can actually transact for food or medicine at prices less volatile than the local fiat currency, even including high transaction fees and verification times. Things they can’t do with precious metals held by custodians that transact in the fiat currency, let alone the fiat itself.
But by all means, let’s hear some more specious “Bitcoin mining uses X amount of (largely renewable) energy and I personally happen to think X is too large for what I perceive to be no benefits” diatribes.
If those things were as convenient as using actual US cash then I'm sure they would use it. Crypto and commodities have a huge UX problem to overcome. So right now in Venezuela I would much rather have traditional US cash than anything else.
@Travis_Kling: "Bitcoin is a non-sovereign, hard-capped supply, global, immutable, decentralized digital store of value. It's an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally."
But it's not practically usable for transactions, which means if the economy tanks tomorrow and you have bitcoin, you won't be able to spend it. In fact the increased demand to spend it combined with fixed amount of transactions allowed would mean all of the new demand would cause massive inflation in bitcoin transaction fees as more and more people need to use it.
This isn't anti-crypto. This is anti-bitcoin as a practical asset if things hit the fan.
? it seems like you are expecting bitcoin to achieve the same ease of use as a payment processor like Visa, but that is not and never has been the goal or point of bitcoin. “Ease of use” is a relative term. Bitcoin is deeply impractical compared with fiat currencies backed by strong governments. Who cares? It is deeply practical when compared to fiat currencies for unstable or severely corrupt governments.
Why would that be, they can just buy it like anyone else? Buy it for today's exchange rates, hold it for how long you want, and convert then it back to pay the local bakery at any future date.
(Just like if they'd buy Euros or USD, I should add. Not as if this is a good reason for Bitcoin to continue existing.)
You'd be selling crypto at a very beneficial rate for you and if you need to make sizable transactions in "worthless paper" within a fast enough timeframe anyway, it works out.
> a growing number of dollar transactions, kick-started by rolling power outages that prevented credit and debit card purchases and fostered the use of cash
Generally this kind of inflation happens when a country has extensive debts that must be repaid in a foreign currency. When a country owes debts that must be repaid in its own currency, printing more money reduces the debt and makes it easier to repay. But when the debt is in a foreign currency, printing more money makes it harder to repay, leading to a vicious cycle. That’s what’s going on here. Same as in Weimar Germany. Except we are making the problem much, much worse through sanctions which harm a lot of vulnerable people, including many children.
This is what happens when you destroy a productive economy through price fixing, extreme taxation, and extreme redistribution policies which then leave you with no other choice but predatory loans on international markets that of course you cannot repay because you’ve destroyed your economy.
Although debts in a foreign currency can certainly make things worse (like in the 1997 Asia crisis), when we see hyperinflation, it’s often due to a collapse in supply.
If the country isn’t making what it needs to either consume locally or export in exchange for foreign goods, it’s operating in something like siege conditions and of course prices are going to go through the roof as people (and often the government) try to outbid each other for what little remains.
Venezuela’s exports of everything but oil collapsed in 2008. By 2012, 96% of exports were oil. Then the oil industry collapsed due to severe underfunding.
(Of course at this point, due to sanctions, trade is even harder, but the crisis started before that.)
Sure, it helps to borrow in your own currency but when you are the reserve currency. You are essentially using the goodwill/confidence bestowed by the world to solve your domestic problems. The goodwill is finite and there is no free lunch. When more money is printed, it is a hidden tax on everyone holding dollars. Not sure how long other nations will be happy diluting their own wealth because the US decides it needs to print more..
Its like a run on the bank. Great till everyone thinks everything is okay, but the moment confidence shakes in the bank, and bam you've got a collapse on your hands.. unlike a bank, if countries start dumping the dollar there is no higher authority that can step in and pause things for a bit so everyone settles down...
This is a reasonable take. We should be careful to not overplay our own hand in terms of how much money we create because while you can pay back your debts with printed money, it may make people reluctant to lend to you again (interest rates might go up).
The US has been trying to reduce the usage of the USD as a reserve currency (it's the largest such currency but not the only one) due to it not having any real benefit to the US while exposing its economy to the effects of financial crises around the world.
---
Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”?
> A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies...
> The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult.
---
The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy
> This safe-haven bid for US dollar assets means that the US dollar often behaves in ways that seem counter-intuitive relative to US economic fundamentals. As Figure 2 shows, the US dollar appreciates in response to economic policy uncertainty. A 1 per cent increase in the Global Economic Policy Uncertainty Index raises the real value of the US dollar by 0.2 per cent, controlling for relative interest rate, inflation and economic growth differentials with the rest of the world.
> The appreciation exacerbates trade tensions between the United States and the rest of the world by weighing on US export competitiveness, setting in train a protectionist spiral.
Yes, I am convinced that the US doesn't like the fact that it can generate wealth without any real assets backing it. Earlier, kings had to raise taxes to go to war. There were repercussions of war. Now, the US can do multi decade long wars, with 0 consequences on it economy. I'm sure they don't like that too.. I'm as convinced as listening to some celibity on oprah saying all they want is to be a regular person and they don't like fame..
What do you think they're going to say? We love that we can print as much funny money as we want and we're proud it's our top export to the world?
I am sure they also think it is a huge burden that the whole world money routing is done through american systems. That is too much of a burden to implement and enforce sanctions. They probably want to 'get rid' of that too..
After the exceptional leadership in the 2008 crisis, I believe everything Ben Bernanke says..
Does anyone know if crypto is useful in Venezuela? Essentially, is it a terrible idea to hedge that crypto is better or as good as gold during crisis? I just want to put a safety nest somewhere so my family doesn’t starve when the time comes.
There is a strong Venezuelan presence in the Nano community.
Gold vs. cryptocurrency is somewhat controversial. Gold is stable and has a long history of value. Cryptocurrencies are volatile and speculative in comparison. Gold is secure, but a private key or seed is easier to cross borders with.
Both have their advantages. Be wary of absolutists.
> is it a terrible idea to hedge that crypto is better or as good as gold during crisis?
Cryptocurrencies are still too volatile and untested. Maybe Bitcoin behaves like gold during a crisis, or maybe it's everyone's play money and when times get tough everyone will sell their Bitcoin first. We just don't have historical precedent for it.
Presumably it's a general question and they're not actually from there or they'd know whether cryptocurrencies are used as payment method there (or I misunderstood the question).
I worked at an oil company from 2013 through 2018. A large contingent of the staff were ex. PDVSA employees (Venezuelan nationals) and we're heavily into crypto. I know a number of them told me that you could send $20-$100 of bitcoin to an address and they would go buy groceries or whatever necessities that were controlled by the government for your family.
I know by 2018 they straight up had an app where you could just order anything entirely in crypto.
Yes, yes it is. You can look at my previous comment history here on HN but I live in Venezuela and crypto is a very real lifeline for me as I'm considered persona non grata for the rest of the international banking system.
My only recourse to keep money that won't devaluate in a matter of days if not hours is to either have it in cash (dangerous and need to know the "right people"), make use of foreign currency-denominated accounts in national banks which would be an extremely foolish endeavor for reasons that should be patently obvious, a tiny amount of frankly dodgy international banks that still do business with Venezuelans... or crypto. In spite of the wild price swings, crypto remains the most reliable alternative among everything I've mentioned.
Venezuelan here. It's not useful because you need actual money to buy food. People want US dollars because they trust them and can use them to buy things inside and outside the country. Crypto adds an additional layer people don't understand and doesn't directly translate to something you can use in shops or for your business.
Several years ago I bought a couple of the $100 Trillion Zimbabwe bills off eBay and got them framed as a gift for my banker brother-in-law. The owner of the frame shop was concerned about having money of that denomination on the premises, but I pointed out that I was going to pay him more for the frame than the bills were worth.
Before people rush to defend Venezuela's honor or whatever, government officials aren't even blaming foreign debt or sanctions (which would have been terrible excuses anyway).
They've repeatedly reprimanded businesses for raising prices or increasing pay, and have already tried passing weird consumer laws to try to curb prices. These are 19th century understandings of inflation - it's pretty clear that either the powers in charge reject reality or frankly don't care enough about their citizens to even lie believably.
They are a late 20-century understanding of inflation, if we take as our pragmatic yardstick actions by the chief executive of the world’s most powerful state:
Thing is, the lies are believed, by many. From link above, Nixon’s Treasury Secretary:
>Connally [August 12, 1971]: ”To the average person in this country this wage and price freeze–to him means you mean business. You’re gonna stop this inflation. You’re gonna try to get control of this economy. ...
You say 19th century as if most 19th century people didn't understand inflation. They did, they just couldn't win an actual argument with the people causing the inflation. Just like the 21st century in Venezuela.
Oh, and a quick followup: I don't think most Venezuelans have been actually voting for this system since 2005 or so, and those that do have basically been blackmailed into it.
Hyperinflation has always been caused by a deficit of production. The 1rst cause of this is the reapeated lack of investment in productive industries. I'm not talking about services here, i'm talking about energy production and farming mainly. A drop in production always create inflation, printing money often create some inflation. Printing money while your production drop? Yeah, bad recipe.
People are so distracted by the gradual erosion of wealth caused by the magic money printer that they fail to appreciate the risk of rapid devaluation triggered by political and social disintegration.
Check out what happened to the exchange value of the ruble after the collapse of the USSR, and that wasn't even caused by losing a war.
The last two decades, and especially the last year, should be telling us that our political, financial, technological and social systems and supply chains have become brittle.
I'd guess that the probability of a USSR-style collapse of one or more large western nations in the next five years is in the low double digits.
It’s because Venezuela has external debts, which must be repaid in an external currency. Printing money as a way of paying those debts is ill advised, because since the debts are in an external currency, they become harder and harder to pay. But Venezuela appears to be doing just that, probably out of desperation. They could just default, but they have refused to do so, perhaps because they are worried about even more sanctions or a possible coup.
Edit: they are in default on many of those debts, and that’s why the sanctions happened, which caused further damage. And we already tried to coup them. And now confidence in the currency has been lost, causing the death spiral to accelerate. Sorry, had my timeline wrong
Generally yes. But if you're a world reserve currency like the US Dollar or the Euro, then a lot of the bills are used outside your borders. In places like Cambodia, it can become an unofficial second national currency.
Even if this explanation is correct (fraught), the idea that the value of your currency is entirely out of your hands is really bad. There have been indebted countries with no trading partners being bombed on all sides that have managed to have a stable currency.
Where did I say currency value was entirely out of their hands?
Look, I’m not defending Chavez (he was the one who took out the loans) and I’m not defending money printing as a way to pay debts, but that’s what happened. They got huge loans from the IMF, and then when the price of oil tanked unexpectedly they tried to print their way out of it. Then they defaulted on most of those debts, and the USA slapped sanctions on them and tried to coup their government. None of that helped.
> Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output... A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
Increasing the money supply by a great deal doesn't always lead to inflation, but nearly every case of extreme inflation coincided with a large increase in the money supply.
The government printed too much money, effectively making it worthless. It's like trying to get more pizza out of a pie by slicing it into more slices. This also increases transaction costs and destroys value. To give a silly example: imagine if you're running a store and the price of your goods changes every hour. You'd have to pay someone to constantly go around w/ a price change gun and update the prices in a continuous loop
I think the complication to this is that Venezuela probably didn't print that much more money, but their economy shrank and their failure was not printing less.
So it's more like you are slicing a pizza into 8 slices but each slice is now the size of a postage stamp.
inflation is never a monetary phenomenon, always an overspending problem, the supply of money only matters insofar as it is being spent on output -- if the gov't prints $trillion and buries it in the desert, the price of goods isn't going up
Hyperinflation as always coincided with a drop in production, rather than an increase of the money supply. Governments (and old economists) often seems to think that fludifying the economy is what it take for people to create again but never work, and the problem worsen.
MMT response to hyperinflation will be: tax more, Gvt borrow more, and guaranty more jobs (as job security is supposed to protect against inflation in MMT). I don't know if it will work, but i think its time we tried this instead of printing more money.
> Increasing the money supply by a great deal doesn't always lead to inflation, but nearly every case of extreme inflation coincided with a large increase in the money supply.
Increasing money supply though is an effect of another cause:
> In this paper I will argue why the common misconception that “inflation is always and everywhere a monetary phenomenon” cannot be used to explain most historical hyperinflations. I will argue that “money printing” is often the response to exogenous and unusual events and not the direct cause of the hyperinflation.
I don't think that stuff is very satisfying as an explanation, even though it sounds like the standard "common sense" explanation.
Why is inflation supposed to be such a problem, if stock splits aren't? Cutting a pizza into more slices doesn't make it bigger, but doesn't make it noticeably smaller either. Changing prices isn't that hard now we have computers, and most people don't keep their savings in cash, either electronic or paper.
I'm not saying inflation is not a problem, but I think the standard explanation has a lot of holes. One has to come up with a more subtle analysis.
And also, how come you quote Friedman as saying that money supply growth causes inflation and then you say no it doesn't, although it's correlated? Do you think that inflation causes the money supply to grow? Or is it a third "X factor"?
ELI5: The government is printing too much money, so it's not worth anything.
ELI10: Venezuela's economy shrank, then they played funny business with their exchange rate to pretend business was usual. But now almost nothing is for sale in Bolivars, so if the government wants to pay people (something like 40% of their GDP was government spending), they have to pay people more to chase fewer goods. Which makes people raise prices. Which makes the government have to pay more.
The USA is wrecking their economy to bring in their right-wing dictator/coup attempter/puppet. Generally the US works very hard to eliminate any sort of socialist government worldwide, particularly a democratically elected and supported one like Maduro's.
Were there sanctions against the Venezuelan government by the US? Absolutely yes.
But a big part of their problems are self-inflicted. When they nationalized several foreign-owned industries (beyond oil), that severely reduced confidence in doing business in the country. Most of the industries taken over were "western" (US, French, British), but they also took over steel mills owned by Argentinians, and homes owned by wealthy Venezuelans were turned into a government-run resort area.
Ford still has a vehicle assembly plant in Valencia [0], but production is spotty due to parts shortages. And I suspect that the currency exchange rates aren't helping matters.
[0] Disclaimer: My grandfather (a lifelong socialist and union man) helped open the plant in the early 1960s.
The US is imposing not just US sanctions but a blockade on Venezuela, with one goal to block Covid vaccines from coming in (unless Venezuela bows down to a list of US demands). The US, UK etc. have pilfered Venezuelan money deposited in US and UK banks, also removing funds for vaccine purchase. It's akin to what the US did to Iraq in the 1990s (prior to the two invasions and current occupation of that country).
The UK sanctions are against 36 named individuals. If Venezuela is claiming the army chief's personal offshore bank account being frozen is stopping them accessing funds for public healthcare, the problems with its economy obviously start at home...
When the money was frozen, UK PM Boris Johnson said "we may have to tighten the economic screw on Venezuela". So the Prime Minister of the UK seems to have a different opinion on this.
Did he mean (a) let's pressurise the Venezuelan government to step down by freezing the personal wealth they've chosen to stash overseas or (b) let's deprive their health service of funds, which are obviously in the UK, for very normal reasons?
Well we could always look at the names of the 36 people sanctioned...
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[ 2.6 ms ] story [ 211 ms ] threadVenezuela said it will introduce new large-denomination bolivar notes as hyperinflation renders most bills worthless, forcing citizens to turn to the U.S. dollar for everyday transactions.
The country’s central bank posted a statement on its website Friday saying it would begin circulating the new 200,000, 500,000 and 1,000,000 bills to “fulfill the current economy’s requirements” without providing further details. The 1,000,000 note -- the largest in the nation’s history -- is worth only $0.53 cents.
As Venezuela’s economy shrank for a seventh straight year in 2020, the government turned a blind eye to a growing number of dollar transactions, kick-started by rolling power outages that prevented credit and debit card purchases and fostered the use of cash. About 66% of transactions across the country are estimated to be made in foreign currency, according to Ecoanalitica.
While the dollar has gained ground, Venezuelans continue to rely on bolivar bills for public transportation and to purchase subsidized fuel. The Caracas subway recently issued an electronic payment system after it routinely stopped charging passengers due to cash shortages.
President Nicolas Maduro has said he plans to move to a fully digital economy this year, following three years of hyperinflation that have prompted the nation’s mint to issue higher-denomination notes that are quickly rendered all but useless. Inflation soared 3,000% in the last 12 months, according to Bloomberg News’s Cafe con Leche Index.
In October, Venezuela imported banknote paper with plans to issue a 100,000 bill that quickly became outdated. It last issued new bills in 2019, after chopping five zeros of the previous bills in circulation in 2018.
Take North Korea for example.. I like to imagine this is how it plays out in the people heads: "like, it's so sad that the people there suffer.. our hearts go out to them..
should we lift sanctions..? Hell no, let them burn to the ground, let them realize who they're messing with.."
No, because who's doing the printing doesn't care. They're printing it (the government) to pay their own debts
If The Venezuelan government can’t pay foreign or domestic obligations then they need to print money or default. They may not have the ability to default.
(i have some (likely half-baked) ideas, but throwing the question out there for discussion)
They owe $100 but don't have $100. They find someone willing to exchange $100 for 100 Bolivars. But instead of using Bolivars the government has on hand (reserves), they print them. This devalues the Bolivars, meaning the next time they try to buy dollars, they'll have to put up more Bolivars than before.
The counterparty in this case, is anyone who thinks they can buy something with Bolivars equal to $100 worth of goods. Chances are that they can. But they have to act quickly before another devaluation.
This is overly simplified but covers the gist of it.
certainly this can only work if the country has enough various goods worth more in other currencies than they have debt in their currency. it's almost like an arbitrage, but it's not entirely riskless (which by definition, arbitrages are).
additionally, the government may not have rights to the beans. In cases where governments can expropriate assets and goods from individuals, they have used them to directly raise foreign currency. A notable example of this is the Ukrainian famine.
yes, but it doesn't cost 1M bolivars to print a 1M bolivar note. you just stop printing the 10 bolivar notes.
Yes it is more politically correct to blame socialism than it is to blame America’s sanctions on Venezuelan oil.
So much for free market capitalism?
Bolivar hyperinflation pre-dates U.S. sanctions [1]. (It also pre-dates Chavez and Madura, though not to its recent degree.)
The sanctions don’t help. But China, and to a lesser degree Russia, were for a long time willing to run the sanctions [2]. Even they gave up on Caracas after Maduro’s incompetence led to falling oil production.
[1] https://en.m.wikipedia.org/wiki/Hyperinflation_in_Venezuela
[2] https://www.reuters.com/article/us-venezuela-oil-deals-speci...
Venezuela killed the goose that laid the golden eggs by not only nationalizing the oil industry, including Petrobras’ which isn’t exactly a manifestation of American imperialism, but staffing the seized operations with corrupt cronies instead of people that knew anything about the oil industry.
It’s not surprising considering the class composition and overall material position of its audience.
https://news.ycombinator.com/item?id=26148870
I was responding to your claim about HN being politically biased. One data point doesn't demonstrate anything about that; people post all kinds of things. However, one post can easily trigger feelings of bias, and frequently does. I believe that's because we're all inclined to put weight on the data points we dislike, and meanwhile don't notice so much the ones we like or agree with. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
What I'm saying—perhaps I didn't read you correctly or didn't express it clearly—is that your perception that HN is massively biased towards the right-wing is (a) untrue, and (b) a consequence of your own political feelings. People with opposite feelings look at exactly the dataset and derive precisely the opposite perception. There are dozens of examples of this at https://news.ycombinator.com/item?id=26148870, and countless others floating out there. What's most remarkable is how such comments, though making opposite claims which cannot both be true, resemble each other perfectly in every other respect. That is evidence that some common mechanism is producing them. I don't know if it's the notice-dislike bias or some other mechanism, but it definitely isn't accurate assessment.
You didn’t list any examples of anyone even railing against left or far left positions, either real or perceived. No seizing of means of productions, forming worker’s councils, arming the working class, general strikes, abolishing private (not personal) property, black nationalism, revolution, etc. Not even just trade unions.
You can argue all you want that the two camps you described both perceive HN to be biased against them, but both you and them entirely ignore the existence of actual communists. The range of your comparisons stops well before going that far left. So how can you even analyse whether HN is biased towards the (global) right if your range of politics doesn’t even extend to the left past the US mainstream?
If your complaint is that HN is skewed to non-communists, that's obviously true, but not interesting—what large population sample isn't? Actually there are indeed 'actual communists' on HN—not many, but we have our share. Who's ignoring their existence? I think they're interesting!
Surely a fellow Marxist would understand the overall ideological superstructure of western imperialist societies and furthermore the material base of a community focused on yeoman dreams at best and bourgeois domination at worst?
I wasn’t even complaining, just pointing out fascists are more welcome here than anti-imperialists. After all, the post by an anti imperialist that I replied to is now removed.
Alas, we're going in circles now. That's certainly not true and a classic example of overgeneralizing from skewed data.
Can you really not understand why we'd moderate a comment like https://news.ycombinator.com/item?id=26368582 without appealing to ideology? It plainly violated the site guidelines, and the account had been breaking them aggressively (and surely on purpose) even after repeated requests to stop.
That's bog-standard moderation based simply on trying to keep the forum alive for interesting conversation, as opposed to flamewar and scorched earth. Interesting HN conversations can and do contain interesting comments with anti-imperialist ideas...but this case was obviously not that.
Moderation policy is itself an ideological choice. Seeking civility and avoiding meta-commentary doesn’t affect all political stances evenly.
The issue is that we don't want the site to burn itself to a crisp (the well known default outcome of internet forums). If you've got a better idea how we can achieve that, I'd love to hear it.
Sanctions affect your level of wealth, sanctions have nothing to do with the mismanagement of the economy.
I'm not sure what your point here is -- the sanctions have been extremely damaging to Cuba as well and are also immoral acts of US imperialism
If Venezuela and Iran could sell openly on the free market, texans, alaskans and opec oil riches would plummet.
I don't think this is hard to understand—the bulk of the community understands it and supports it, including the portions of the community who may agree with you politically. I also don't think it's hard to do, if you've read https://news.ycombinator.com/newsguidelines.html and actually want to use HN as intended. If you keep posting like this, that must mean that you're choosing not to use HN as intended, and we ban that sort of account.
Edit: there is a second issue. Your account is clearly using HN primarily for political and ideological flamewar. That's also not allowed, as I've explained many times [1]. The primary use of this site needs to be for intellectual curiosity. Since those two modes don't work together, we ban accounts that violate this rule, regardless of which politics or ideology they're battling for.
[1] https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
My conscious is clear and my hands are blood free. You cannot say the same.
"You cancel any comment which goes against the conservative/libertarian status quo" is a tad silly, since anyone who glances at HN can easily see otherwise. Passionate partisans on all sides feel that the site is against them, but that's a function of their passions, not a real assessment. We hear the same kind of thing from the other corner:
"HN socialist apologia", "the mods are SJW", "socialist-leaning mods" ,"Hacker News the SJW Hole", "you can't be anti-liberal here", "radical leftists appear to have taken control", "tends to be more liberal so you will be downvoted", "a liberal echo chamber identical to all other social media", "this SJW cesspool", "it's ALWAYS the case in HN that any opinion that's not 100% politically correct && strictly SJW standard compliant is suppressed", "HN in turn, are left leaning, socialist Democrats", "you fucking insane sjw", "leftist filter bubbles", "left-wing propaganda", "leftist totalitarianism prevalent on HN", "anti-western and extremely anti-capitalist", "Dang is a totalitarian liberal thought policeman", "banned every single prominent right winger", "extremely left-winged", "most people on HN are liberals", "socialist hell-hole", "this site leans left", "leftist bots", "always politically left", "skews quite left", "Obviously this website is rigged for the liberal agenda", "the level of wokeness is just absurd", "leftist ideological echo chamber", "run by radical leftists, so no surprise", "You aren't allowed to go against the propaganda arm of the Democratic Party", "ideas here are ignored, down voted, flagged, shadow banned if they question the left ideology", "a very anti-libertarian echo chamber", "a heavy socialist lean, you are not allowed to have a differing perspective", "only liberals are allowed to express their political opinions on HN", "capitalism bad", "flaaaaaming, communist level liberal", "shows how much of a leftist website this is", "dang is an SJW cunt"
(pilfered from https://news.ycombinator.com/item?id=26148870)
The dollar is still king, as this article demonstrates. When the world flees to safety, the dollar is almost always the currency it flees into.
That said, I really don't know how this current US money-printing episode ends. It's hard to imagine it ends well.
I've been DCAing into PSLV, PHYS, and SPPP as a kind of hedge. I'm curious what others are doing?
No, people would have to converge on something else, something more accessible. The clear choice would be bottle caps.
Its like keeping a gun, you hope it never gets used but when you need it, you're glad you have it.
Whatever the population rallied around as a medium of exchange would have to be accessible, ubiquitous, and hard to duplicate. Gold hits 1 out of 3, because once the financial system collapses no one without gold will be able to use their inflated $1,000,000 bills to buy it directly, leaving only that tiniest minority with actual gold and a vast majority that can't wait for gold to bootstrap itself into a reasonable medium of exchange.
Want to make sure you can retain your wealth & have it back after we rebuild from a financial collapse? Sure, have some gold. But if you want to to have an immediate ability to acquire things during that collapse, gold won't help. If your heat goes out a month after financial institutions collapse, No HVAC engineer is going to fix your boiler for gold unless they already have enough people giving them food and other services for their work that they can risk taking something in return that doesn't have an immediate use.
I'm not saying gold couldn't be a medium of exchange. Obviously it has in the past. I'm saying that current ownership patterns don't make that practical, especially in the short term, say 1-2 years, after a serious financial collapse.
Obviously preparing for food and other necessities should have a separate plan..
'USB C' why you obsessing over a bunch of wires man, who cares...? The value is of the consensus..
The value of facebook is not it's software. It is it's user base.
If you can point me in the direction of a better metal that is as widely accepted across all countries as a store of value, I would be happy to learn about it...
Valuable things are equally valuable when things go south.. a home, jewelry, nice things don't suddenly lose value.. for example, your family may not have enough to eat but a guy next door that has too much food that's going to rot will happily trade with you, because he needs to buy a bunch of stuff from someone and that other guy will probably not take payment in food but may trade it with gold...
You need social consensus of value and there is a very real need to be able to abstract value into 'x' valuable thing. So you can freely buy and sell without having to worry about if the guy will accept/need what you want to give him..
Gold sucks in being able to make precise payments and swings madly in value relative to currency, that's why it's only insurance for things going super south..
If we're in a wold where the exchanges are all down, or Canada seizes Sprott's gold, then I'm not sure that having physical gold is going to make my life significantly better.
The HN discussion is relevant as well: https://news.ycombinator.com/item?id=26062255 .
My significant other and I have consciously invested in a remote countryside property with adjacent agricultural land. Great holiday house. Decent returns as a holiday rental. Comfortable to live in if everything goes poof.
Which brings up an interesting point about how language shapes our idea of value, even after the baseline meaning has eroded. There are lots of words in English like that now, but numerical terms are interesting because the math doesn't change, but the value does.
I think we’ll see inflation. But the U.S. is more than capable of, and has the cultural components for, implementing policies that cut the money supply. An independent Fed capable of raising rates, debt able to be peacefully wiped out through legislation and bankruptcy courts are some of the things America has that Venezuela didn’t.
which i haven't understood to have any real negative side effects so far. Why is it a bad thing?
If you had to flee your country gold/silver will be far more trouble than BTC.
A currency with built-in functionality to track everything, forever and making that data public seems to be good for funding illegal activities?
I would like to think just cash in various currencies would be the best for that. Washing cash is not exactly a new thing and sometimes boring technology is best.
If I wanted to, right now, buy drugs online, engage in illegal online gambling, ransom someone's data, etc it will most likely be done in BTC or maybe Monero.
Meanwhile, people in Venezuela who diverted some assets into bitcoin can actually transact for food or medicine at prices less volatile than the local fiat currency, even including high transaction fees and verification times. Things they can’t do with precious metals held by custodians that transact in the fiat currency, let alone the fiat itself.
But by all means, let’s hear some more specious “Bitcoin mining uses X amount of (largely renewable) energy and I personally happen to think X is too large for what I perceive to be no benefits” diatribes.
Would love to see an updated map, but I'm not sure I understand how I could update the data behind it.
This isn't anti-crypto. This is anti-bitcoin as a practical asset if things hit the fan.
Precisely which economy? The world?
You're going to have a lot more problems than just spending money if the world economy crashes.
(Just like if they'd buy Euros or USD, I should add. Not as if this is a good reason for Bitcoin to continue existing.)
https://www.google.com/amp/s/markets.businessinsider.com/amp...
Printing money does cause inflation, proportional to the amount printed. But hyper inflation is caused by money printing to pay external debts.
In Venezuela's case, they haven't even been paying their debt, so it's hard to make the case that it matters here.
If the country isn’t making what it needs to either consume locally or export in exchange for foreign goods, it’s operating in something like siege conditions and of course prices are going to go through the roof as people (and often the government) try to outbid each other for what little remains.
Venezuela’s exports of everything but oil collapsed in 2008. By 2012, 96% of exports were oil. Then the oil industry collapsed due to severe underfunding.
(Of course at this point, due to sanctions, trade is even harder, but the crisis started before that.)
Its like a run on the bank. Great till everyone thinks everything is okay, but the moment confidence shakes in the bank, and bam you've got a collapse on your hands.. unlike a bank, if countries start dumping the dollar there is no higher authority that can step in and pause things for a bit so everyone settles down...
---
Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”?
https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d...
> A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies...
> The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult.
---
The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy
https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t...
> This safe-haven bid for US dollar assets means that the US dollar often behaves in ways that seem counter-intuitive relative to US economic fundamentals. As Figure 2 shows, the US dollar appreciates in response to economic policy uncertainty. A 1 per cent increase in the Global Economic Policy Uncertainty Index raises the real value of the US dollar by 0.2 per cent, controlling for relative interest rate, inflation and economic growth differentials with the rest of the world.
> The appreciation exacerbates trade tensions between the United States and the rest of the world by weighing on US export competitiveness, setting in train a protectionist spiral.
What do you think they're going to say? We love that we can print as much funny money as we want and we're proud it's our top export to the world?
I am sure they also think it is a huge burden that the whole world money routing is done through american systems. That is too much of a burden to implement and enforce sanctions. They probably want to 'get rid' of that too..
After the exceptional leadership in the 2008 crisis, I believe everything Ben Bernanke says..
There is a strong Venezuelan presence in the Nano community.
Gold vs. cryptocurrency is somewhat controversial. Gold is stable and has a long history of value. Cryptocurrencies are volatile and speculative in comparison. Gold is secure, but a private key or seed is easier to cross borders with.
Both have their advantages. Be wary of absolutists.
Cryptocurrencies are still too volatile and untested. Maybe Bitcoin behaves like gold during a crisis, or maybe it's everyone's play money and when times get tough everyone will sell their Bitcoin first. We just don't have historical precedent for it.
Compared to 1000% monthly inflation?
I know by 2018 they straight up had an app where you could just order anything entirely in crypto.
My only recourse to keep money that won't devaluate in a matter of days if not hours is to either have it in cash (dangerous and need to know the "right people"), make use of foreign currency-denominated accounts in national banks which would be an extremely foolish endeavor for reasons that should be patently obvious, a tiny amount of frankly dodgy international banks that still do business with Venezuelans... or crypto. In spite of the wild price swings, crypto remains the most reliable alternative among everything I've mentioned.
They've repeatedly reprimanded businesses for raising prices or increasing pay, and have already tried passing weird consumer laws to try to curb prices. These are 19th century understandings of inflation - it's pretty clear that either the powers in charge reject reality or frankly don't care enough about their citizens to even lie believably.
They are a late 20-century understanding of inflation, if we take as our pragmatic yardstick actions by the chief executive of the world’s most powerful state:
https://www.econlib.org/archives/2016/12/nixons_wage_and.htm...
Edit:
>lie believably
Thing is, the lies are believed, by many. From link above, Nixon’s Treasury Secretary:
>Connally [August 12, 1971]: ”To the average person in this country this wage and price freeze–to him means you mean business. You’re gonna stop this inflation. You’re gonna try to get control of this economy. ...
Oh, and a quick followup: I don't think most Venezuelans have been actually voting for this system since 2005 or so, and those that do have basically been blackmailed into it.
* https://clintballinger.wordpress.com/2021/01/12/the-myth-of-...
People are so distracted by the gradual erosion of wealth caused by the magic money printer that they fail to appreciate the risk of rapid devaluation triggered by political and social disintegration.
Check out what happened to the exchange value of the ruble after the collapse of the USSR, and that wasn't even caused by losing a war.
The last two decades, and especially the last year, should be telling us that our political, financial, technological and social systems and supply chains have become brittle.
I'd guess that the probability of a USSR-style collapse of one or more large western nations in the next five years is in the low double digits.
Edit: they are in default on many of those debts, and that’s why the sanctions happened, which caused further damage. And we already tried to coup them. And now confidence in the currency has been lost, causing the death spiral to accelerate. Sorry, had my timeline wrong
https://en.wikipedia.org/wiki/International_use_of_the_U.S._...
Look, I’m not defending Chavez (he was the one who took out the loans) and I’m not defending money printing as a way to pay debts, but that’s what happened. They got huge loans from the IMF, and then when the price of oil tanked unexpectedly they tried to print their way out of it. Then they defaulted on most of those debts, and the USA slapped sanctions on them and tried to coup their government. None of that helped.
> Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output... A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
Increasing the money supply by a great deal doesn't always lead to inflation, but nearly every case of extreme inflation coincided with a large increase in the money supply.
The government printed too much money, effectively making it worthless. It's like trying to get more pizza out of a pie by slicing it into more slices. This also increases transaction costs and destroys value. To give a silly example: imagine if you're running a store and the price of your goods changes every hour. You'd have to pay someone to constantly go around w/ a price change gun and update the prices in a continuous loop
So it's more like you are slicing a pizza into 8 slices but each slice is now the size of a postage stamp.
MMT response to hyperinflation will be: tax more, Gvt borrow more, and guaranty more jobs (as job security is supposed to protect against inflation in MMT). I don't know if it will work, but i think its time we tried this instead of printing more money.
Increasing money supply though is an effect of another cause:
* https://clintballinger.wordpress.com/2021/01/12/the-myth-of-...
Amongst others, the above article cites Roche:
> In this paper I will argue why the common misconception that “inflation is always and everywhere a monetary phenomenon” cannot be used to explain most historical hyperinflations. I will argue that “money printing” is often the response to exogenous and unusual events and not the direct cause of the hyperinflation.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
Further, Friedman, as a Monetarist, assumed the velocity of money is/was constant, which is definitely the case:
* https://fred.stlouisfed.org/series/M2V
Keynesians generally say that V is not constant, and the evidence supports their view.
Why is inflation supposed to be such a problem, if stock splits aren't? Cutting a pizza into more slices doesn't make it bigger, but doesn't make it noticeably smaller either. Changing prices isn't that hard now we have computers, and most people don't keep their savings in cash, either electronic or paper.
I'm not saying inflation is not a problem, but I think the standard explanation has a lot of holes. One has to come up with a more subtle analysis.
And also, how come you quote Friedman as saying that money supply growth causes inflation and then you say no it doesn't, although it's correlated? Do you think that inflation causes the money supply to grow? Or is it a third "X factor"?
ELI10: Venezuela's economy shrank, then they played funny business with their exchange rate to pretend business was usual. But now almost nothing is for sale in Bolivars, so if the government wants to pay people (something like 40% of their GDP was government spending), they have to pay people more to chase fewer goods. Which makes people raise prices. Which makes the government have to pay more.
https://en.wikipedia.org/wiki/International_sanctions_during...
But a big part of their problems are self-inflicted. When they nationalized several foreign-owned industries (beyond oil), that severely reduced confidence in doing business in the country. Most of the industries taken over were "western" (US, French, British), but they also took over steel mills owned by Argentinians, and homes owned by wealthy Venezuelans were turned into a government-run resort area.
Ford still has a vehicle assembly plant in Valencia [0], but production is spotty due to parts shortages. And I suspect that the currency exchange rates aren't helping matters.
[0] Disclaimer: My grandfather (a lifelong socialist and union man) helped open the plant in the early 1960s.
https://venezuelanalysis.com/news/15086
Well we could always look at the names of the 36 people sanctioned...