Monday, December 28, 2015

Venezuela Hyperinflation

While we were focused on dumping Boehner, refugee resettlement, the Omnibus Bill, the prospect of sovereign suicide with TPA and the Republicans in Congress voting like Democrats, Venezuela got worse. See articles below:

Venezuela Is Adding More Zeroes to Its Currency to Deal With Hyperinflation, By Noris Soto and Nathan Crooks, August 26, 2015

Venezuela is preparing to issue bank notes in higher denominations next year as rampant inflation reduces the value of a 100-bolivar bill to just 14 cents on the black market.

The new notes -- of 500 and possibly 1,000 bolivars -- are expected to be released sometime after congressional elections are held on Dec. 6, said a senior government official who isn’t authorized to talk about the plans publicly.

Many Venezuelans have to carry wads of cash in bags instead of wallets as soaring inflation and a declining currency increase the number of bills needed for everyday purchases. The situation is set to get worse. Inflation, already the fastest in the world, could end the year at 150 percent, said the official.

The government stopped releasing regular economic statistics in December, when it reported inflation had reached 69 percent.

A customer would need at least 1,280 bank notes to purchase a 24-inch Samsung television on sale at a mall in eastern Caracas for 128,000 bolivars. Some banks, meanwhile, have reduced daily withdrawal limits at ATMs because of shortages of the highest denominated notes.

Exchange Rates
The country is not planning to change it’s three-tiered exchange rate system in the short term, said the official, adding that the government is working on plans to increase dollar revenue by developing mining and petrochemical projects and reduce its dependence on oil.

One dollar is currently worth 725 bolivars on the black market, which Venezuelans use when they can’t get government approval to purchase foreign currency at the three official exchange rates of 6.3, 12.8 and 200.

Venezuela’s monthly minimum wage of 7,422 bolivars equates to about $37 at the weakest legal exchange rate and is only $10 at the black market rate.

A unified exchange rate would not be possible until the economy becomes more diversified and domestic production rises, said the official.

Press officials at the central bank and finance ministry declined to comment when contacted by telephone Wednesday.

Market Manipulation
The black market rate is being manipulated by traders in Cucuta, Colombia and the Miami-based website dolartoday.com, the official added. While the rate has become a reference for some minor sectors of the economy, it’s a small market and not representative of the overall economy, the official said.

Venezuela maintains its willingness to pay foreign debt and is buying back bonds when it can, said the official, adding that the government could consider selling or swapping gold reserves if it needed to. Gold currently held in Caracas could easily be transported abroad if the need arose, the official said.

The country’s foreign reserves fell to a 12-year low of $15.4 billion on July 27 and have since rebounded to about $16.5 billion, according to data compiled by Bloomberg. New loans from China will slowly be reflected in the country’s reserves, the official said.

 Five reasons why Venezuela may be the world's worst economy    @CNNMoney February 20, 2015

Venezuela might be the world's worst economy. With 68% inflation, the highest across the globe, Venezuela comes in just ahead of war-torn Sudan and heavily-sanctioned Iran.
U.S. companies like Ford (F) and Pepsi (PEP) are quickly losing profits there due to inflation. U.S. airlines have drastically reduced their flights to the capital, Caracas. Some European airlines have already stopped flying there altogether.

Here are five reasons why Venezuela's economy is spiraling down.

Political instability: The Venezuelan government, led by Nicolas Maduro, who succeeded Hugo Chavez after his death, has become increasingly authoritarian.

In February his government has taken over a supermarket chain, and arrested the mayor of Caracas, Antonio Ledezma. Maduro alleges that Ledezma was trying to overthrow him. Ledezma, a vocal critic of the government, joins Leopoldo López, another incarcerated opposition leader in Venezuela.

A food crisis: Venezuelans wait for hours in lines outside supermarkets to buy milk, sugar and flour. There are food shortages at grocery stores across the country because the government can't pay to import food. Sugar, flour and other basic imports, account for 70% of Venezuela's consumer goods, according to the Brookings Institution. McDonalds (MCD) in Venezuela ran out of french fries in January and offered yucca fries instead.

Maduro's government took over the supermarket chain Dia Dia two weeks ago after the president accused the chain's owner of hoarding food to hurt the economy. The owner, Jose Vicente Aguerrevere, denied the accusations.

Oil: From riches to rags: Venezuela is getting crushed by low oil prices. A barrel of oil now costs about $51 on the global market, losing about half its value from just six months ago. That's exacerbating the economy's acute problems. Venezuela has the largest oil reserves in the world, and once flourished on its treasure chest of crude.

Now Maduro appears to be hitting the panic button. He recently visited China, Russia and several OPEC nations, asking for funds to shore up his government.  Maduro said on Venezuela's state-owned television that China has offered aid. But in return, Venezuela is giving China free oil. Experts say that Venezuela isn't selling enough of its oil for profit, given these agreements. Plus, Venezuelans pay next to nothing for gas. One U.S. penny now pays for about five gallons of gas in Venezuela.

Dead money: Venezuela's currency is losing value faster than any other in the world. Most Venezuelans now exchange money on the unofficial black market. One U.S. dollar equaled about 88 bolivars a year ago. Today, one dollar is worth 190 bolivars, according to dolartoday.com, a website that tracks the black market exchange rate.

The process of simply exchanging money is very confusing. Venezuela has four exchange rates: two that the government uses to pay for its imports, the unofficial (black market) rate and a new one Maduro introduced Thursday.

The latest exchange rate allows Venezuelans to legally buy U.S. dollar for the first time in over a decade. But there's a limit: Venezuelans can only buy $2,000 dollars a month.

Default: The country owes $11 billion in debt payment this year. Some experts see Venezuela defaulting in October, when the country must pay $5 billion.


Comments

Venezuela had been an “oil dependent” socialist dictatorship and welfare state.  Now that oil is under $40 / bbl. And the government took over the food industry, things got worse. They quickly became the new Greece by defaulting on their government debt payments.  Hyperinflation is the result of too much money printing, so it looks like they stepped on that rake as well.  Apparently their national government is both stupid and stubborn.  Let that be a lesson to us in the US.

Norb Leahy, Dunwoody GA Tea Party Leader





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