The inflationary monster


Nice little video on inflation from our comrades-in-chains in the South. (HT: Rodrigo)

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  1. It’s a great video. First of all: I agree with all of it.
    It would be really wonderful, a huge marvel if we could get the Venezuelan ministers to express on a press conference their opinion on specially the 0:30-0:50 part.
    But I think they basically have a neurological problem with accepting the part between 0:34 and 0:41. THAT is fundamental in understanding them: they simply think that if you have twice as much money for the same amount of products you don’t need to increase prices.
    Why? (please, follow Giordani’s neurons, it’s NOT ME):
    “because you can use the extra cash to save”
    “capitalists want more and do not want people to save so they keep maximizing their prices”

    and when you tell them about the fact most other countries have not this inflation they talk about the so-called “economic war”.

    Argh…it’s a neurological problem, basically…normal people, even those with little education, do get it when they hear about the rest of the world. If only we could tell them…not easy these days of “hegemonía comunicacional”.

    • for them it’s impossible to understand that market behavior is actually logical human behavior, you can’t outlaw price increasing, they simply think that they can print money and get away with it. It’s funny to hear chavistas complain about “capitalist speculators” yet they wouldn’t sell their car or house for the “fair” price.

      What about the fact that 41% of the workforce belong to the informal economy, how can you regulate that?, how can a country can call itself “modern” or even “developing” with that level of informal economy?

      • I know, but the thing is: we should be talking about this to the people.
        See: minister of “information Deisy sent a tweet with information obtained from immigration about where our leaders went for Christmas. She did something that is illegal and yet I see all those opposition people, most of them leaders who, as usual after election time in December, go abroad: they did that and there was apparently no one with some real authority to prepare a press conference and talk very clearly about how the BCV’s statement is not just a shame but a clear violation of the State of Law by talking about a “comandante” and “economic war” and all that crap.

        Take the informal economy: the regime talks all the time about how Venezuela has an inflation that is lower than that of Spain and even Germany! But it seems our opposition NEVER NEVER NEVER explain the common folk that in Germany and even in Spain you simply do not have even 10% living out of illegal taxi driving or selling panties on the streets, with no social security or the like. Our leaders take it for granted most people have this in mind. They don’t. I know that: I have discussed that even with many of my opposition-minded relatives who have never been abroad. When I tell them about how most professionals here send their children to public schools, how the murder rate is 1/60 of what we have in Venezuela, how those 7%, 10%, for Spain whopping 25% unemployed tend to live better than the 40% “trabajadores informales”, they, even if they are oppos, are astonished…and they find those pieces of information useful.

        When our leaders go to Apure or Guarico, they need to find out not only the needs of those people but also what they know about the rest of the world. And then we can adapt our discourse.

        • I think you meant unemployment instead of inflation in: “[…]the regime talks all the time about how Venezuela has an inflation that is lower than that of Spain and even Germany![…]”
          Otherwise, I agree very much with your point.

        • to add to your comment, I have never heard or read any opposition leader talking about the way the bcv printing money like they are, don’t know if it is because they dont want it to stop to accelerate the regime’s fall, or because they would do it too.

          • I don’t think they are so sophisticated.

            Read this:
            José Guerra is an economist. Either he is lying and what he is saying now is not likely to have any impact or he is really ignorant.

            It is unlikely we will have oil prices of $60 to the dollar. Now, the guy doesn’t take the time to explain people what does it mean really then if prices keep at the same level AND the government spends that amount and what happens to the rest (read parallel budgets) What’s going to happen with M1, M2 and M3? And: what happens to inflation if the government spends even more than that, the full planned budget and even more? Is he not saying because he hopes the government just does that? Well, it will and it won’t benefit us in the least because PEOPLE WON’T UNDERSTAND and we did not prepare them for it. And he is an economist.

            And I see Borges over the years with his monotonous presentations, no decent charts ever, sitting and explaining things throwing out numbers that most people cannot keep in mind. Apparently Venezuelans are incapable of reading any chart but a pie chart.

            I am no economist and I know we can explain this kind of things to people like an aunt who only did two years of primary school. People know little but they can learn.

          • Ive discovered that ofteh the newsman reporting a persons declaration doesnt understand what he is being told and writes something up which is nonsense !!

          • Standard Venezuelan reporting.
            One example: journalists see nothing wrong with interviewing an author about a recently published book without reading it first.

    • Ive read other studies which show that people in authority, tend to feel that having authority makes them superior to others and thus bound by different rules that apply to the general population, i.e. by special rules which justify their breaking or abusing those rules which apply generally to their subordinates. Its generally not a conscious thing , they somehow either fall into a kind of subliminal cognitive disonance or rationalize explanations of why they can do things that are forbidden to others . It all goes back to Lord Acton´s celebrated dictum that ‘absolute power corrupts absolutely´. Thats why all wise principles of government insist on the need for a system of check and balances between different organs of power.

      • One such experiment a prison themed one.

        You take a uniform group of people, say an entire class of students. You designate a minority (maybe a third or 20%) as prison guards and the majority as prisoners.

        In attempting to keep order, the group of guards ends up oppressing the prisoners in rather tyrannical and worrisome ways.

        There’s a German movie “Das Experiment”, whose plot revolves around an experiment of this kind.

        • There are dozens of studies and experiments of the same type , all yielding the same result , you give people power over others ( or even a sense that they are empowered) and they start acting abusively . In the prison guard experiment , the abuses begun with the pretext of preserving order but they really made expressed the old human penchant for abusing power whenever it is wielded with little control . Wielding Power tickles people sense of pride , the more strikingly and violently the more gratifyingly, until a moment comes when it becomes intoxicating and turns into hubris.

        • The Stanford Prison Experiment is rather the definitive experiment of this type, which dates back to 1971. You can find the specifics of it here:

          I have yet to see an entry level psych book that doesn’t at least superficially discuss it.

          There’s several versions of the original documentary on youtube as well (from the grainy 8mm films, if you remember those). Years ago, in a business ethics class, we had to do a case study on institutionalized behaviors and power differentials, and of course, the SPE was the topic selected.

          • What this and other experiments dont often go into is why people behave this way ?. What is there about power that makes people abuse it and use it against their fellows who dont have it ?. In the experiment its obvious that there is no material incentive for the guards to start behaving the way they did , the only incentive lies in the fact that the abusive use of power makes people ‘big headed’., feel full of their own importance and superior ‘might’ , this is exactly the mentality of the thug , of those who engage in bullish behaviour , who take pride in their abuse of others weaker than themselves. Thats what makes ideologies or discourses that underline the us-them divide between ourselves and the rest popular , that finds a thrill and excited anger in the ennactment of histrionized and dramatized confrontations, that idolize might and violence and its magnified expressions . Who would go to a football or baseball match where there was only one team playing , or if the goal of the game was for the players to end up in a tie ? Half the pleasure of winning is seeing the other guy lose . St Thomas taught that one of the pleasures of the elect was to watch from the perches of heaven the suffering of the danmed down below in the caldrouns of hell . That why its so important that govt be organized so that no one wields absolute or hegemonical power , to prevent this universal human penchant for the hubristic or abusive use of power from manifesting itself Thats why Chavistas conception of political power is so wrong and perverse.!!

  2. sorry, but voiceover is lazy, doesn’t enunciate well. I, like Pico Palote in Upata, has some difficulty wrapping my head around the well illustrated concepts. I give the video efforts a B-.

  3. When you inflation-index all monetary items in the economy in terms of a Daily CPI and all the money is in the banking system then you have NO EFFECT OF (COST OF) inflation during continued inflation. Example: TIPS (US Treasury Inflation-protected Securities, i.e., government capital inflation-indexed bonds currently valued at more than 3 trillion USD worldwide). An interesting idea according to Prof Steve Hanke.

    When you measure all constant real value non-monetary items (e.g., salaries, wages, taxes, rents, trade debtors, trade creditors, capital, all items in shareholders equity) in units of constant purchasing power in terms of a Daily CPI (update them DAILY) then you would have NO destruction of real value in these items – during continued inflation and hyperinflation.

    This was very successfully partly done in Brazil from 1964 to 1994 as well as in other LA countries.

    This can be done in Venezuela if IAS 29 Financial Reporting in Hyperinflationary Economies which is being implemented in Venezuela since 2009, were to be changed to REQUIRE DAILY indexing.

    • Requiring DAILY INDEXING in IAS 29 would stabilise the Venezuelan economy via an International Financial Reporting Standard without the intervention of the government. There would still be hyperinflation in Venezuela while the BCV continue to print Bolivars like they are at the moment. But, there would be NO COST OF (NO EFFECT OF) hyperinflation in monetary items and NO COST OF (NO EFFECT OF) implementing the stable measuring unit assumption (HCA) in constant items.

  4. El Universal on deficit, devaluation and gas price (

    The deficit is between 15 and 17% of the GDP. If the CADIVI rate stays at 6.30 and the SICAD rate rises to 16-17, the additional revenue would represent 1,7% of the GDP. If the CADIVI rate rises to 11 and the SICAD rate rises to 17-18, the additional revenue would be 7% of the GDP.

    Adjusting gas prices at or near international prices could bring in over 6% of the GDP. A lower adjustment could bring as little as 1,7% of the GDP.

    “Sin embargo, analistas explican que la devaluación ya no garantiza ingresos suficientes y que el déficit, que se calcula entre 15 y 17% del PIB (Producto Interno Bruto), solamente se cubriría parcialmente.

    La firma Ecoanalítica en sus escenarios cambiarios estima que si el Gobierno mantiene la paridad oficial de 6,30 bolívares para las importaciones prioritarias y las compras del sector público y revisa la tasa del Sicad de 11,30 bolívares (valor actual) a 16 o 17 bolívares, los ingresos adicionales representarían 1,7% del PIB.

    Si se devalúa la paridad oficial de 6,30 bolívares a 11 bolívares y el tipo de cambio del Sicad pasa de 11,30 bolívares a 17 o 18 bolívares, el aporte extraordinarios sería 7% del PIB.”

    “Econalítica calcula que si el Ejecutivo nacional toma como referencia para el precio de la gasolina el valor internacional dicha revisión podría aportar más de 6% del PIB. Si el ajuste es más bajo, la contribución sería de 1,7% del PIB.”

    • Stoking the fires of doubts about Venezuelas financial situation, Bloomberg reports on a piece on a fall in Opec crude oil production last december::

      Venezuelan Policies
      Venezuelan production dropped 235,000 barrels a day to 2.45 million this month, the survey showed. The South American country pumped the least crude since October 2011. Resources have been diverted from energy sector into social welfare programs, sending production lower.
      Petroleos de Venezuela SA, the state oil company, was purged after a two-month oil strike intended to oust President Hugo Chavez from power in 2003. Nicolas Maduro, who became president in March when Chavez died, has continued his predecessor’s policies.
      “It’s hard to see how the situation in Venezuela gets any better,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Funds have been used to prop up the government instead of maintaining the oil industry since the PDVSA strike in 2003. It’s clear the country is on an unsustainable path.”

      A 235.000 bls per day drop in crude production represents a fall of close to 10% of the total Venezuelan oil production in ONE MONTH .!!, that is one big drop !!, precisely in the time of the year in which oil prices normally reach their peak . This may be a sign that years of neglect in maintaining production are starting to impact the countries oil production big time , Of course thats not likely to help the countrys worsening financial situation .one bit !!

      2014 starts with interesting news.

      • The same article points out that PDVSA has been unable to spend it’s planned capital expenditures to increase production. Capex plans are tangible in the way of “work in progress,” or physical activity taking place with a forecast end date and a forecast increase in production. There is absolutely nothing in the news about the kind of projects required to provide the forecast increases in production as currently being in progress. The claim to spend 25 billion in 2014 should be clearly evident by “spend on what, you say?” rather than just a number thrown out into the wind. It is really hard to spend 2 billion per month on maintenance and development. I forecast continuing production declines.


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