This Is
What the Death Of A Nation Looks Like: Venezuela Prepares For 720%
Hyperinflation, by Tyler Durden, 1/22/16
For citizens of Nicolas Maduro's socialist paradise the news is terrible,
and getting worse with every passing day. Yesterday, we reported that one year after our November 2014
forecast, Barclays has decided that Venezuela is now past the "point of no
return", and a bankruptcy in 2016 will be "difficult to avoid." But while some may have thought
that this dramatic impact, while welcome by the rest of OPEC and oil bulls
around the globe, would only impact the government, the reality is that this
latest hit means a total disintegration of the economy and will take the
country's already staggering hyperinflation to previously unprecedented levels.
According to the latest IMF estimate, Venezuela’s consumer inflation,
already the world’s highest, will triple this year to a level above all
estimates from economists surveyed by Bloomberg.
This is because the IMF, which until recently had predicted
"only" 204% inflation for Venezuela, already higher than the 140%
consensus, revised its numbers and now sees a mindblowing 750% hyperinflation
in 2016: this means that the average price of products and services will
increase over eight times over the span of the next 12 months.
Bloomberg reports that inflation will surge to 720 percent in 2016 from 275 percent last year,
according to a note published by the IMF’s Western Hemisphere Director,
Alejandro Werner. That’s nearly quadruple the median 184 percent
estimate from 12 economists surveyed by Bloomberg, and exceeding the highest
forecast of 700 percent from Nomura Securities.
Venezuela’s central bank published economic statistics Jan. 15 for the
first time in a year, confirming that inflation had reached triple digits and
closed the third quarter at 141.5 percent on an annual basis. As of December
2014, the last time data was released, inflation was 68.5 percent.
It has gotten so surreal, that the local central bank accused websites that
track the dollar’s street value of “destroying prices” and installing a
“savage” form of capitalism in the country, adding that 60 percent of inflation
was the result of currency manipulation.
Whatever the cause, the reality is that real inflation is even worse, and
when charted, this is what the death of a sovereign nation looks as follows
(this does not assume a sovereign bankruptcy; when that happens the
hyperinflation will really take off):
And when described with words: Spiking
prices and widespread shortages for even staples have driven discontent in
Venezuela. That helped spur the opposition to gain control of Congress for the
first time in a decade as President Nicolas Maduro attempts to turn the tide of
what he has deemed an “economic emergency.”
“A lack
of hard currency has led to scarcity of intermediate goods and to widespread
shortages of essential goods — including food — exacting a tragic toll,”
Werner said. “Prices continue to spiral out of control.”
Actually, the hard currency exists, because while locals may not have
access to dollars, they certainly could have converted their now totally
worthless currency into gold, thus not only preserving but boosting their
purchasing power relative to the local stock market which, as we showed
previously, has also generated negative
returns relative to the rampaging hyperinflation.
According to Bloomberg, Venezuela’s economy will shrink 8% this year
following a 10% contraction last year, according to the IMF. While these
forecasts are more pessimistic than economists’ median estimates for a
contraction of 4.1%, in reality the Venezuela economy no longer exists, with
all transactions now taking place in the gray or black markets, and the
government apparatus effectively operating in a vacuum.
Which, as we noted yesterday, is good news for oil bulls: once the now
inevitable sovereign bankruptcy hits, the resulting chaos and collapse in oil
production in the political and power vacuum which may last for years, will
serve as just the supply drop buffer the world oil market so desperately needs.
But while that may be good news for oil traders, there is no good news in
any of the above for the long-suffering citizens of this "socialist
paradise" which any minute now will be downgraded to its fair value of
"socialist hell."
Comments
The
population of Venezuela is 30 million. In
2015, GDP was $209 billion. There are 13 million government employees working.
Per capita income was 13,000 per year. Government external debt was $100 billion.
Inflation was 40%. Apparently, government is printing money to pay for
themselves. Nobody will lend them money.
Oil
revenue pays to keep this economy afloat. With no oil revenue, there is no cash
to pay government employees, pensioners or other government expenses. The
government took over the food supply and now there is no food in the stores.
http://www.heritage.org/index/country/venezuela
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