The day was February 2nd, 1999. And a dollar cost 576 bolivares… of the old kind. Today, eighteen years later, as Venezuela reels from hunger and collapse and oppression, that price is over 1,000,000% higher.

That’s a one with six zeros: One. Million. Percent.

In February 1999, the exchange rate was 0.576 BsF/$. Chavez hadn’t wiped three zeros off the currency then, so it was 576 Bs/$. Well, a dollar now costs just under six million of those old bolivares (or 5,800 of the new ones). Divide the current rate by the 1999 rate, add two zeros and a % sign and see for yourself. The nominal exchange rate is up over a million percent.

The number itself isn’t economically significant. It’s just a billboard on the long road to hyperinflation that reads “YOUR CURRENCY FAILED.” But it’s a good occasion to remember that el galactico wiped out 97.3% of the Bolivar’s value. It’s a good occasion to remember that every year for 14 years straight, from 1999 until Chavez’s death, the currency lost 23% of its value on average and it cost Venezuelans 29% more bolivares to buy dollars.

It’s also a good moment to keep tabs on Maduro. In just four years, Maduro erased 99.6% of the Bolivar’s value, or what remained of it after Chavez anyways. Every year, from 2013 to present, he wiped out a staggering three quarters of the currency’s value on average, meaning it cost Venezuelans about 300% more bolivares to buy dollars every year. After eighteen years of XXI Century Socialism, literally 99.99% of the currency’s value is gone.

On days like today, you really wonder in just which level of Dante’s inferno imbeciles like this one belong:

Serrano: if printing money doesn’t cause price inflation, why dont Central Banks just end world poverty with direct cash transfers to all poor people? If printing money doesn’t weaken the currency, why do governments bother to issue debt and collect taxes instead of just printing money and spending it?

Because it doesn’t work like that. Because basic economic laws like “printing phony money causes inflation” apply everywhere, including communism.

Central to the Hugo Chavez’s mission statement was this promise to screw the rich in the name of the poor. But absurdly, printing money did and does just the opposite. At its core, deficit monetization is a deeply regressive inflation tax. Economists have known for ages that it’s a wealth transfer to government and anyone with local debt, mostly big business and rich people, paid for by everybody else, especially the poor.   

How? Take an example from a friend.

Back in 2010 when the exchange rate was 8 BsF/$, he loaded up his business with debt, mortgaged his house and used the bolivares to buy $600k on the black market. He sat on the dollars and waited for the black market rate to weaken, as it obviously would, given the government’s insistence on monetizing the deficit.

By 2014, his dollars were worth ten times as many bolivares at 80 BsF/$, the new black market rate. So he sold just 10% of his $600k and paid off all of his debts in bolivares, and sold another $40k to pay the interest he owed on the loans. And voila, he pocketed $500k or enough for a free house in Miami.

Except it wasn’t free.

The rest of the country paid for it, mostly by taking a cut to their real wages. The single mom that was making 200 bucks a month and is now struggling to get by on $50 or $30 a month, she’s the one who paid. Here’s a graph of her paying, starting 2006 and 2009, when Chavez killed central bank independence:

But the inflation tax has pro-rich, anti-poor distributive effects that do the exact opposite of chavismo’s robin hood mission statement.

To be clear, the culprit here is the government, not the folks that bet against (or “short”) the currency. But the inflation tax has pro-rich, anti-poor distributive effects that do the exact opposite of chavismo’s robin hood mission statement.

The real story is that deficit monetization in Venezuela is a massive, 5-15% of GDP wealth transfer from the millions of people who work their asses off every day to the parasites in government. The real story is that when government prints money, it usurps purchasing power from all Venezuelans and funnels it to sycophants on the public sector payroll and uses it to keep its bankrupt nationalized industries afloat.

Yes, the government steals poor people’s purchasing power to buy paramilitary groups and fund food programs that function as blackmail. Yes, the government eats away at Venezuelan salaries and savings to close the hole in state finances that gifting 93% of PDVSA’s dollars to cronys opens.

The outrage is not just that the regime loots Venezuelans for 5-15% of GDP every year by diluting their old money with new, but that it does so to fund an ass-a-nine economic system and an extremely corrupt budget. Well fuck that.

If there are any folks on the left trying to find a silver lining here, some “logros” for the Revolution: sorry, there aren’t any. The “gains” were fictional, but the dictatorial backslide, the economic collapse, the hunger and the dead protesters —those are terrifyingly real.

27 COMMENTS

  1. Thanks Frank, this is a masterpiece.

    Now the question is why!? why so intent on breaking the country and its people? Do they not know what is going to happen (is happening)?.

    My explanation, the only one I can rationally arrive to, is that simply is a plan to to make serf out of Venezuelans just like cubans have been for 50 years.

    Dios se apiade de Venezuela.

  2. And still only a hand full of Venezuelans protesting, vast majority is at home and does NOTHING!!!! Taking my hat of to those cunt chavistas, you’ve gotta hand it to them, they do know how to get to a goal. Chavez is glowing, not only because he’s in hell but also because he proud of his achievements!!!

  3. What’s up with all these Spanish left-wing intellectuals and their extreme mediocrity? I’ve read similarly stupid comments from the likes of Monedero too.

    Is it just “mind farts” or are they really this dumb?

    • They are really this dumb. Really. In fact, calling them intellectuals is a stretch.

      I had the distinct non-pleasure of walking into an event by Podemos, with Monedero as a speaker. I didnt even knew they were going to be there, and I could not see who was speaking.

      It was basically a stream of the most mediocre 60’s Communist idiocy I could imagine. 100% ñangara moment. Not one bit of original new leftist thought, just what you would expect from a teenager with a Che T-shirt.

      They are intellectual non-entities.

      • They are not that dumb. They are taking their (big) chunk of your 5 to 15% of GDP that the government stole from you. They will say anything to continue to have the perks associated with being “consultants” and outright thieves.

      • I’m talking about them as intellectuals.

        As anything else, they may be as clever as any other “vivo” that discovered the big red teat of the Bolivarian Republic government to suck. But as producers of thought? Nothing to see there.

    • It’s the euros they’re pocketing, the venezuelan regime paid just to the Podemos party (The one all those morons belong in Spain) more than 8 million euros for “financial advice”

      • I don’t know if that’s the entire story. I mean, I’m sure these guys are cashing in hard, but I don’t think all that money is worth making a fool of yourself spewing so much nonsense.

        Unless you actually believe it. In Serrano’s case, I’m suspecting that he actually thinks he sounds all counter-current and “whoa man” totally unaware of his ludicrousness.

  4. El Pueblo voted for the policies that produced inflation and they still support the policies, just not the results.

  5. When Russia moved towards Capitalism, they sent a team of economic experts, state officials, to the U.K. on a fact-finding mission.

    One of the Russian officials naively asked, “Which government agency is responsible for regulating the distribution of certain products to certain parts of the country?”

    He was baffled when told, “Well, none, of course. The free market does that. You don’t need the government to get involved.”

    This was an alien concept to a Russian economic intellectual, mind you. One who surely studied economics for decades.

    The stupidity runs very deep.

  6. It’s a system of perverse incentives, that only rewards hurting the country. Thanks for spelling it out so clearly. And for breaking the magic spell.

  7. Frank… Can you rewrite this article in Spanish?… well i can translate it, but i think some ideas maybe “lost in translation”. I think many of Venezolanos need read this for understand, where is the real origin of the actually problem. Thanks.

  8. NO doubt the use of money printing to cover revenue shortfalls is highly destructive . the question is ,What can the govt do to cover its costs if it stopped printing money …….what would be the inmediate political cost of going for a more rational alternative ??

  9. Ok, I’m reading the article about Serrano and mother of fuck. This is not stupidity, this is being a fucking piece of shit liar.

    Lets take the 2 biggest moments

    ” “la economía tiene desafíos fundamentales. Tiene el reto de producir, porque es la mejor forma de sostener una revolución social importante. Si no tienes esa base material productiva, eso permitiría que todo proceso de revolución sea reversible”.

    Motherfucker, you are giving advice to the government that singlehandedly destroyed all the productivity in Venezuela! If there is a problem with not having a productive base is because of your pals!!!!

    “la emisión monetaria no es significativa. Europa es donde le dan más a la maquinita y hay deflación”.

    Yea, and you know why is that? Because following ACTUAL ECONOMIC KNOWLEDGE, in Europe and the US the monetary expansion would not create inflation as they are on a liquidity trap! Thats like saying radiation doesnt kill, see cancer patients get irradiated and they become healthy!!!

  10. Excellent Frank! It needs to be translated into Spanish so all Venezuelans can read it.
    It’s so amazingly presented and easy to digest.
    BRAVO!

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