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Venezuela’s monetary craziness

Yesterday I wrote a post about how we are inching closer and closer to outright deflation in Europe. However, for other countries the risk of deflation is not the issue. In Argentina and Venezuela outright hyperinflation is becoming more and more likely.

The situation seems particularly insane in Venezuela. This is from Bloomberg (a week ago):

Venezuela’s annual inflation rate rose more than expected to 54.3 percent last month, the fastest pace in as many as 16 years, as shoppers scrambled for scarce goods ahead of Christmas festivities.

October inflation compares with an annualized 49.4 percent the month earlier and the 52 percent median estimate of three analysts surveyed by Bloomberg. Prices rose 5.1 percent in the month, the central bank said today.

Currency controls have crimped imports in a country that gets about 70 percent of its goods from abroad, pushing up the cost of products that make it into the country. Price increases in the capital, Caracas, are running at the fastest pace since 1997, two years before former President Hugo Chavez came to power.

Anybody with the faintest idea about economics knows that you can only get this kind of inflation if the printing is running too fast. So there is only one way to combat inflation – slow the printing press. It is very simple.

But of course this is not the kind of answer Venezuela’s socialist president Nicolas Maduro would like to hear. Instead he has ordered the army to enforce massive cuts in retail prices. Just see this story:

After taking control of several appliance stores last week, Maduro vowed late Sunday to step up inspections of businesses selling shoes, clothes, automobiles and other goods to make sure they aren’t gouging consumers. He also said he’ll impose limits on profits as the government tries to curb inflation running at 54 per cent.

In eastern Caracas, a five-block line of bargain hunters, some waiting since Saturday, snaked from a JVG electronics store hoping for the chance to buy televisions, washing machines and refrigerators at deep discounts.

“We’ve been waiting for this for a long time,” said Sixto Mesa, a government supporter.

Maduro is gambling that by expanding price controls he can regain support he has lost since winning election in April, as inflation soared to a two-decade high and the U.S. dollar shot up on the black market to nine times its official value.

“We can’t just close the businesses; the owners have to go to jail,” Maduro said in an impassioned speech Sunday night in which he cited Jewish, Muslim and Christian texts to harangue businessmen he accuses of usury. “We can’t allow our hard currency to be used to rob people through the sale of these goods.”

At the same time Maduro is attacking merchants he calls the “parasitic bourgeoisie,” he has vowed zero tolerance for looting. On Monday, police fired shots in the air to prevent crowds from raiding a toy store in the Caracas suburb of Los Teques, with many businesses in the town shuttering early for fear of violence.

Maduro also took his offensive to the Internet, blocking access to seven websites that track the value of the country’s bolivar currency on the black market. The president over the weekend accused the websites of spreading panic and conspiring against his government.

What can you say? Insane…

“The Army just helped me ‘buy’ this nice flat-screen TV…”

Venezuela Frenzied Shopping

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1 Comment

  1. chris mahoney

     /  April 1, 2014

    Lars, My hope is that V’s financial collapse will lead to the total collapse of Cuba’s economy. My worry is that China/Russia will bail them both out. Here is my post on this topic:
    http://capitalismandfredom.blogspot.com/2014/03/the-end-of-communism-in-latin-america.html

    Reply

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