Venezuela’s Grim Reaper – A Weekly Report

The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. A bolivar is worthless, and with its collapse, Venezuela is witnessing the world’s worst inflation. 


As the bolivar collapsed and inflation accelerated, the Banco Central de Venezuela (BCV) became an unreliable source of inflation data. Indeed, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony the annual inflation rate for the third quarter of 2015. So, the last official inflation data by the BCV is almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure inflation in 2013. 

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black market (read: free market) for currency and the black market data are available, changes in the black market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

I compute the implied annual inflation rate on a daily basis by using PPP to translate changes in the VEF/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate, which peaked at 1823% (yr/yr) in early August 2017. At present, Venezuela’s annual inflation rate is 1195%, the highest in the world (see the chart below).


Past Blogs

Stop Venezuela's Economic Death Spiral - Dollarize, Now

August 15, 2017

Venezuela’s bolivar is worthless and its annual inflation rate is the world’s highest: 1195%. Not surprisingly, Venezuelans get rid of their bolivars like hot potatoes and replace them with U.S. dollars. So, Venezuela is, to a large extent, unofficially dollarized.

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Bank Regulations: An Existential Threat?

August 07, 2017

Why was international financial officialdom so eager in late 2008 and indeed through 2009, 2010 and later, to raising banks’ capital-asset ratios? To answer this question, there is more to the story than meets the eye. The starting point for the global bank capital obsession is to be found in Britain and its infamous 2007 Northern Rock affair. It was this British fiasco, rather than the September 2008 Lehman Brothers bankruptcy, that was the true beginning of the Great Financial Crisis and of the Great Recession which followed.

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Zimbabwe, From Disaster To Disaster

July 31, 2017

In 2008, Zimbabwe suffered the second most severe case of hyperinflation in modern history. Its annual inflation reached 89.7 sextillion (1023) %. Prices were doubling each day, making the currency almost worthless. The government was forced to scrap the local Zim dollar when Zimbabweans simply refused to use it. Subsequently, the government implemented a multicurrency system based on foreign currencies. But, the U.S. dollar became the coin of the realm. Indeed, even the government accounts became denominated in U.S. dollars in 2009. As a result of this spontaneous dollarization, along with the installation of a new national unity government, the economy rebounded and international trust in Zimbabwe began to be restored.

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Is The "Oil God" Andy Hall Dead?

July 31, 2017

Andy Hall, the “Oil God,” acquired that attribution after making flawless, bullish calls on oil and loads of cash for his clients at Astenbeck Capital Management. Of late, the markets have failed to cooperate with Hall. So, he has renounced his bullish faith. Indeed, the Oil God has thrown in the towel on what had been his perma-bullish position on oil.

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The Best Deal Going: Privatize U.S. Public Lands

June 30, 2017

Earlier this week, Nobelist Vernon L. Smith penned an important piece, “Trump’s Best Deal Ever: Privatize the Interstate,” which was published in The Wall Street Journal. Smith correctly argued that the Trump administration should expand the scope of its privatization efforts to include the Federal government’s vast holdings of commercial public lands.

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