Phone Call for Janet Yellen!

In the department of “what could possibly go wrong?” we have the following headline: “Zimbabwe is planning to print its own ‘U.S. dollars’”

Shockingly, given the great stewardship of President Mugabe, Zimbabwe is once again facing an economic crisis.  The article reports that “the government is asking for more than $1 billion to feed millions that are in dire need of food aid.”  Things have gotten so bad that the “government is selling wildlife from its national parks to game reserves to scrounge up some cash.” [I know where they could have found at least some of that money without selling wildlife. See here and here.]

Zimbabwe has a checkered history with monetary policy.  In 2008, inflation reached 89.7 sextillion percent a year!  In response, “the country has officially used nine currencies, including the U.S. dollar, the euro, the South African rand, the Indian rupee, the British pound and the Chinese yuan.”

So what’s the plan with printing US dollars?  Perhaps not surprisingly, details are not very forthcoming.  The Central Bank governor claims they will be “bond notes” although it’s unclear why anyone would voluntarily buy a bond backed by the Zim government.  It’s also not clear if they would be identical to US dollars.  If they were, I think Zimbabwe would have an additional problem on its hands!

 

How much is that coffee in the window? More than the government says it is

The IMF recently calculated Venezuela’s inflation to be 275%, the highest in the world.  And that isn’t the worst of it.  Researchers predict that inflation will reach 720% in 2016 and GDP will crash by almost 20%.

To get a better handle of what that means for Venezuelan life, I’d recommend following Nick Casey, a New York Times correspondent who is chronicling his first 30 days living in Caracas.  Here is a recent tweet of his:

Screenshot 2016-01-25 08.38.08.png

He also has a good blog post called “A Bank Robbery? Nope, Just Buying Coffee and Groceries in Caracas.” In it, he describes the daily joys of living in a country with hyperinflation.  Here he is writing about his trip to the coffee shop:

“According to the government, the official exchange rate is 6.3 bolivars to the dollar. But the market doesn’t accept that. On the streets, a money changer will be happy to buy your dollars for 700 bolivars a piece. Here is the magic realism of Caracas. Those coffees from Tuesday? They cost 2,200 bolivars. On the black market, that’s $3. At the official exchange, $349.”

Paying for everyday items is even more of a pain because the government has refused to print bills greater than 50s and 100s, which “trade for nickels and dimes.” (note: what is up with the dude’s glasses on the 50 bolivar note? I wonder if he bemoaned the fact that his glasses didn’t help his eyesight at all)

 

 

 

 

Here it is, your Venezuela update

One area where Maduro has been able to top Chavez is in producing inflation! Prices are rising at a 49.4% annual rate this year (the 2012 rate was 20%). So congrats to Maduro for this “win”.

Maduro was the picture of modesty though, giving credit to “speculators”.

With this kind of leadership and economic performance, it will be interesting to see how long Chavismo can last post-Chavez. When Mr. God-given Hair gets his turn will things stabilize or deteriorate even faster?

Carts & Horses

According to Quartz.com, hyperinflation in Venezuela is “forcing” the country to “print hundreds of millions of extra banknotes”.

Yikes!

“The more expensive things get in Venezuela, the more 100 bolivar bills Venezuelans are forced to carry in their pockets.”

High inflation is usually, at a deep level, caused  by fiscal failure. For example, countries at war that cannot finance expenditures with taxes or borrowing resort to printing money.

But the proximate cause of the high inflation is the money printing. It’s charmingly naive to see the argument reversed.

The article also refers to 45% annual inflation as “well above much feared hyperinflation levels”.

The common definition of hyperinflation in economics is an inflation rate that is above 50% per month for a sustained period of time. That would be an annualized inflation rate of over 500%.

Venezuela has an inflation problem, which I believe to be caused by a governance problem, but it’s still pretty far away from a hyperinflation episode