We’ll head Down The Rabbit Hole after a check on the news feed…First up we have BNN Bloomberg with something that was kinda’ predictable. Inflation in Venezuela over the last three months is 359%. A few months ago inflation was at 157% due, in large part, to the de facto dollarization and reduced spending by the government. The question we’ve been asking has been, “How long can Maduro and the Chavistas leave well enough alone and allow the fragile recovery (6% growth after 8 consecutive years of recession and an 80% economic contraction) to continue?” It looks like the answer is not long.
BCV (Venezuela Central Bank) kept the bolivar relatively stable for a while using some of it’s scant resources in dollars to buy bolivares. Now that there is no artificial demand for the bolivar the exchange rate is rising. When you combine that with the Chavistas returning to their old ways of spending money they don’t have (sound familiar?) by digitally creating bolivares and…voila’ …you have 359% inflation. Remember, Venezuela is just coming off the four years of hyperinflation, the second longest period on record.
With the holidays approaching things will only get worse. 95% of the population (we’ve seen numbers from 94 – 96) is living in poverty so the Chavistas are sure to “print” more bolivares out of thin air to pay everyone holiday bonuses. According to Daniel Cadenas, economics professor at Metropolitan University in Caracas, “We won’t see less than 100% annualized inflation unless there is a change in economic policy…Venezuela has Dubai-like prices for products while people are paid Sudan-like salaries.” The bolivar has lost 1/3 of it’s value in the last three months while government spending has increased by the same amount. It’s not hard to see where this is headed… we’ve already been there.
Then we have Caracas Chronicles telling us that “Gringozuelan”, James Downer, founder of Roda Credito, has been helping Venezuelan migrants in Colombia that can’t get bank accounts for three years. Way to go James!
And we have Reuters reporting that last week the first flight of Venezuelan migrants unable to enter the US returned to Venezuela according to Mexican officials. 100 Venezuelans were scheduled to fly via Conviasa (Venezuela government-owned airline) from Mexico City to Caracas at a reduced rate of $200. Is it just me or hasn’t the Maduro regime been hyping how much they’ve helped repatriate 29,000 Venezuelan migrants (out of 7.1 million and counting that have fled 21st Century Bolivarian Socialism)?Why aren’t the Chavistas paying the airfare?
Then we have Rio Times reporting that Venezuela Deputy Foreign Minister for North American Affairs, Carlos Ren, says there are “ongoing conversations” with the US on sanctions relief. (We all know Biden wants to do a deal) He added that the US continues to attack his country, referring to the Biden administration’s change in immigration policy at the US southern border. He accused the US of “politicizing migration”.
Uhh…would that be the same migration the Chavistas have downplayed (and at one time outright denied was happening) since it began? There was no mention of all the other countries that changed their migration policies toward Venezuelan migrants due to the absolute exodus trying to escape 21st Century Bolivarian Socialism. There was also no mention of why, as we previously stated, if they want to help repatriate Venezuelans, as they say they do, are they not picking up the tab for Venezuelan migrants returning to Caracas on Conviasa?
Let’s head Down The Rabbit Hole….
Chapter 5/ continued….
…In 2016 a new exchange system was announced although it wouldn’t be functioning until 2017. The new DICOM System would solve everything! Hmmm… isn’t that what they said about the three systems before DICOM? Anyway…one thing that was different was a higher exchange rate while still maintaining the 10 bolivar rate for priority usage called the DIPRO.
So now we have DICOM, DIPRO, and the black market. Since DICOM and DIPRO required that the government spend some of their much-coveted dollar reserves there wasn’t much volume in those two. DIPRO (the 10 bolivar rate) was almost non-existent and DICOM only sold $32 million from inception until mid-2019. In the world of foreign currency exchange that is almost nothing so, as before, businesses and non-connected individuals had to rely on the black market. Here’s an example of the break-down from 2018 :
DIPRO – 10 bolivares/dollar
DICOM – 3,345 bolivares/dollar
Black Market – 240,000 bolivares/dollar
At the same time this was happening the government was printing money at an astounding rate. They kept increasing the minimum wage, between 4-5 times per year, and funding it by creating money out of thin air. The money supply increased 3,000% in 2018 alone. The hyperinflation genie was out of the bottle.
The earlier example of the break-down for the three rates was from January, 2018. By April, 2018 here’s what it looked like :
DIPRO – 10 bolivares/dollar
DICOM – 60,000 bolivares/dollar (average for the month)
Black Market – 880,000 bolivares/ dollar
At this point the minimum wage was 1,800,000 bolivares a month or just over two bucks. Here’s a snapshot of a few prices from April, 2018 :
Vegetable oil – 748,367 bsf (Bolivares Fuertes – after Chavez lopped off 3 zeroes from the bolivar)
Cheese – 2,160,950 bsf (non-imported)
Chicken – 2,299,500 bsf
Toilet paper – 400,000 bsf (two rolls)
Ground beef – 1,150,000 bsf
Pair of shoes – 6,000,000 bsf (approximate price of non-designer brand)
As you can see, food was becoming a luxury and having to work more than three months to buy a pair of shoes wasn’t really doable. Over the next several months it would get much worse. The monthly minimum wage would reach a low, when converted on the black market (the only real rate), of just 60 cents a month. Prices were so out of control that stores were weighing cash instead of counting it. Financial institutions were having difficulty because their systems weren’t able to process numbers in the trillions and beyond so they were amending statements with a note that the figures represented them having dropped decimal places. Something had to give and Maduro had already shown he wouldn’t listen to anyone’s counsel on economic matters. He even blew off recommendations from Russia and China, his two primary creditors.
People were using bolivar notes in various denominations to make things like handbags. Street vendors were offering bills instead of napkins because they were cheaper. When riots and looting occurred and people came in to assess the aftermath the floor would be littered with bolivar notes from the register or cash box. They weren’t even worth picking up off the ground.
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