Venezuela provides a glimpse into the horrors of inflation gone wild: A dozen eggs cost $150 USD as hyper inflation wrecks economy.

The award for worst performing economy in 2016 would likely go to Venezuela.  What could possibly go wrong when the government tries to control absolutely everything in a petro state?  Apparently everything can go wrong and you now have runaway inflation.  At this point Venezuela’s currency is in a death spiral of hyperinflation.  A dozen eggs will cost you $150 U.S. dollars.  Needless to say people are going without certain items and many people are actually on the verge of starving.  So when you have people acting like inflation can never be a bad thing, just look at what is happening in Venezuela.  Let us actually see what is going on in the country.

Venezuela and a glimpse into hyperinflation

There are some harrowing stories being reported out of Venezuela like people waiting all day in the supermarket for expected food deliveries.  You are also hearing things like:

-People slaughtering zoo animals and pets as a source of food

-Shortages of food, clean water, and electricity are common place

-A dozen eggs will cost you $150 U.S. dollars

You have once middle class families now roaming the streets for their next meal.  Things can go bad when inflation goes out of control.  Let us see how things are for a local hot dog seller:

done

“(MarketPlace) For the record, I ate two (on separate days). On the first trip, it cost 900 local bolivars. Three days later, a new pricelist was taped over the earlier one. And one pepito went up to 1,050.

Peña blamed cost inflation.

If you go buy a pack of sausages, it’s 9,000,” he said. “And then tomorrow it’s 15,000. It’s crazy. Some ingredients we can find. But sometimes we can’t, not even bread.”

And why is this happening?  Horrible policies and a government that unfortunately has run out of other people’s money.  When that happens, you get this:

inflation-in-venezuela

Venezuela’s inflation rate is running at 180% and estimates vary widely.  In all practical purposes, the currency is now in what is hyperinflation.  Hyperinflation differs from inflation because it simply means a currency is fully unraveling.  It is practically worthless.  Of course this simply does not happen overnight.  Bad policies can lead to a quick deterioration of an economy.

The big issue is simply over spending with little sources of revenue:

“Layered on top of that, the government overspent its oil revenue. To provide for subsidized gasoline (the world’s cheapest) and a host of other services in healthcare, housing and education, the country borrowed. And it printed money, bringing inflation. The official estimate is around 180 percent; other estimates range from 400-700 percent. Local bolivars become increasingly worthless by the day.”

Add into the mix corruption and you have a recipe for economic pain.  There are many lessons to take here:

-Governments will over spend if given the chance

-Other people’s money is always easy to spend (just look at our recent bailouts during the Great Recession)

-Cronyism and corruption can infect an economy that was stable before

-Don’t bet everything on one sector

Venezuela might seem like a distant country to most but you can derive economic lessons from her misery which is happening in real time.

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4 Comments on this post

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  1. Padre said:

    Not to be contrite but eggs costing $150 USD is NOT hyperinflation–its supply and demand. Hyperinflation is when there are eggs for sale but trust in the value of fiat currency is weak so it takes more and more fiat to by the same product. Typically when hyperinflation kicks in other currencies (recently the USD) become the de facto currency–typically causing DEFLATIONARY forces locally. This was the case in Eastern Europe during and after the fall of Communism when USD was the black market currency of choice and had MUCH more purchasing power because everyone wanted stable dollars, not insolvent marks, zloty, or rubbles. However since $150 will still buy you 3 dozen eggs in most places in the world the issue is not hyperinflation but a lack of supply… now why is there a lack of supply?

    Well economic instability might have something to do with it, for the past 9 months the Argentinian peso has been essentially worthless valued at 6 US cents since it dropped 40% in Dec 2015. However again, since the pesos’ value has been relatively flat, its not hyperinflation (today) causing the scarcity of eggs. However, even without a working local currency eggs could “cost” the same as “normal” based on a barter or foreign currency system. So a shortage of eggs means that economic stability has led to systemic instability–primarily lawlessness and/or a break down of the supply chain–resulting in too few eggs. In turn the scarcity, presumably not just of eggs but of all food, has made people willing to trade anything, including hugely valuable USD, for food not because USD have lost their value but because they are desperate.

    This reminds us that gold/silver et al. may be great ways to preserve wealth through a SHTF, however if food scaricity sets in you can’t eat the gold and eventually if people are hungry enough, you may not be able to trade any amount of gold for food–supply and demand–currencies, including gold, only work when people have surpluses.

    September 18th, 2016 at 9:45 pm
  2. Padre said:

    Also one should note thst Argentinian peso experienced hyper inflation… 9 months ago… today it is inflatED, not experieng hyperinflation, having been fairly flat (and worthless) for the past 9 months.

    September 18th, 2016 at 9:51 pm
  3. D.A. said:

    Why $150.00 for eggs? Simply put… the government took over the farms. Whenever, and wherever this has happened, a person will see the same results. The farming declines, and soon the country can no longer feed it’s people.

    This happens on a small scale in U.S.A. (so far) as our government places more control on our nation’s farms via rules from NRD’s, the EPA, etc. Thus far the American farm families still manage to remain productive in spite of the government “help”. However, as the goverment continues to interfer, the results will be predictable. EPA regs will first hurt the farmer’s profit, the government will “help” with “safety nets” (with strings attached of course), more government rules for farmers to follow, less profit, more government “help” & control, then zero profit, government takes over to “save the day”….

    And you end up with $150.00 a dozen eggs

    September 19th, 2016 at 8:54 pm
  4. mike said:

    so the problem is 96% of everything in Venezuela is imported Chavez got dependent on using oil income to pay for importing everything. now the government is near bankrupt without the oil revenue so imports are drying up. Venezuela was a rich farming community before the idiot Chavez got everyone hooked on hand outs.

    September 20th, 2016 at 4:57 am

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