Mierda is about to hit the ventilador

[bilby]

Being forced to spend other countrys' money on imports.

Your currency is worth less (and may become worthless) if nobody outside your country will take it.

There need not be any more of it. If it can't buy imports, you are in trouble. If you're a net importer of most goods and it can't buy imports, you're in DEEP trouble. Even if you managed to reduce the supply of currency, it's value would still fall in such circumstances.

Holy crap, what a bunch of nonsense.

The inflation is occurring within the country.

The number of Bolivars it takes to buy goods is spiraling upward because there are more and more Bolivars chasing roughly the same amount of goods.

Maybe this basic primer will help:

https://en.wikipedia.org/wiki/Equation_of_exchange

Inflation experienced in Bolivars in Venezuela has about zero to do with international finance. The Bolivar is hardly traded internationally. If you don't live in Venezuela, what would you do with it? It seems hard enough to get any value from it if you do live in Venezuela. Why would anyone take on the hassle of trying to get something for it?

It's not that Venezuela's currency is worthless, it's just not worth anything close to the government's legally mandated exchange rate, and it's usefulness in acquiring goods and services you might actually want is minimal. People in other countries are simply not going to play along with the charade.

Yes, of course the inflation is occurring within the country. But the cause is the lack of imports. There are no imports because there is no hard currency. There are no cheap goods, because there are too few goods, because there are no imports. So the Bolivar is worthless.

When oil prices were high, they sold oil for greenbacks, and could use greenbacks to obtain goods - including, ironically, banknotes - from elsewhere. That's why a government which has not changed its level of fiscal irresponsibility was able to avoid hyperinflation for so long. It wasn't because they were restrained about creating more Bolivars whenever they felt like it; it was because that activity isn't a cause of hyperinflation. The cause of hyperinflation is demonstrably the collapse of the ability to import goods, leading to a shortage of goods, leading to goods being more expensive.

The goods are not more expensive in US Dollar terms, because people still want dollars, because dollars can be used to buy imports. But Bolivars cannot be used to buy imports; so they are only exchangeable for an ever declining supply of goods - ie, they are getting less and less valuable. This DESPITE the banknote shortage, which makes 'printing money' impractical. Money supply is not the issue; a lack of goods that can be purchased with that money is the issue.

It's the same thing that happened in Zimbabwe, and in Weimar Germany - in the latter case, hard currency was required to pay for reparations, so the situation was even worse: Effectively Germany was required to import a lot of very expensive nothing. Zimbabwe was importing food, as a result of the collapse of her own primary production. Hyperinflation is caused by foreigners refusing to accept your money, rendering your ability to import weak or nil; not by local governments printing the stuff. The printing of money is a RESPONSE to hyperinflation.

You say "The Bolivar is hardly traded internationally", and yet you seem incapable of grasping that that's EXACTLY WHY it has become worthless - both internationally and in Venezuela herself. Nobody wants Bolivars. So they are worthless.

 

[Loren Pechtel]

One interesting aside in all of this; the clear evidence here that hyperinflation isn't caused by printing money.

Venezuela can't print (or import) more Bolivars; and yet the value of the currency continues to crash.

Massive printing of money and hyperinflation have always gone hand-in-hand; but here at last we see that the inflation is the CAUSE, and the printing is the EFFECT - and not, as the goldbugs and Austrians insist, vice-versa.

Inflation is always based on money supply vs goods.

You can get inflation without increasing the money supply if you cut downs the available goods--and that's what's happening in Venezuela.

 

[Loren Pechtel]

Being forced to spend other countrys' money on imports.

Your currency is worth less (and may become worthless) if nobody outside your country will take it.

There need not be any more of it. If it can't buy imports, you are in trouble. If you're a net importer of most goods and it can't buy imports, you're in DEEP trouble. Even if you managed to reduce the supply of currency, it's value would still fall in such circumstances.

Holy crap, what a bunch of nonsense.

The inflation is occurring within the country.

The number of Bolivars it takes to buy goods is spiraling upward because there are more and more Bolivars chasing roughly the same amount of goods.

Maybe this basic primer will help:

https://en.wikipedia.org/wiki/Equation_of_exchange

Inflation experienced in Bolivars in Venezuela has about zero to do with international finance. The Bolivar is hardly traded internationally. If you don't live in Venezuela, what would you do with it? It seems hard enough to get any value from it if you do live in Venezuela. Why would anyone take on the hassle of trying to get something for it?

It's not that Venezuela's currency is worthless, it's just not worth anything close to the government's legally mandated exchange rate, and it's usefulness in acquiring goods and services you might actually want is minimal. People in other countries are simply not going to play along with the charade.

The imports matter because they drive up the cost of anything made with imports.

- - - Updated - - -

Rapid contraction of the supply of goods and services would contribute too. Not only the shortages but Venezuelans avoiding trading in bolivars and bartering or preferring dollars would take goods and services out of the bolivar economy and put inflationary pressure on the bolivar.

Good point--I forgot about that aspect of it. It's an indirect way of reducing the goods and thus increasing the currency:goods ratio.

 

[Axulus]

Holy crap, what a bunch of nonsense.

The inflation is occurring within the country.

The number of Bolivars it takes to buy goods is spiraling upward because there are more and more Bolivars chasing roughly the same amount of goods.

Maybe this basic primer will help:

https://en.wikipedia.org/wiki/Equation_of_exchange

Inflation experienced in Bolivars in Venezuela has about zero to do with international finance. The Bolivar is hardly traded internationally. If you don't live in Venezuela, what would you do with it? It seems hard enough to get any value from it if you do live in Venezuela. Why would anyone take on the hassle of trying to get something for it?

It's not that Venezuela's currency is worthless, it's just not worth anything close to the government's legally mandated exchange rate, and it's usefulness in acquiring goods and services you might actually want is minimal. People in other countries are simply not going to play along with the charade.

Yes, of course the inflation is occurring within the country. But the cause is the lack of imports. There are no imports because there is no hard currency. There are no cheap goods, because there are too few goods, because there are no imports. So the Bolivar is worthless.

When oil prices were high, they sold oil for greenbacks, and could use greenbacks to obtain goods - including, ironically, banknotes - from elsewhere. That's why a government which has not changed its level of fiscal irresponsibility was able to avoid hyperinflation for so long. It wasn't because they were restrained about creating more Bolivars whenever they felt like it; it was because that activity isn't a cause of hyperinflation. The cause of hyperinflation is demonstrably the collapse of the ability to import goods, leading to a shortage of goods, leading to goods being more expensive.

The goods are not more expensive in US Dollar terms, because people still want dollars, because dollars can be used to buy imports. But Bolivars cannot be used to buy imports; so they are only exchangeable for an ever declining supply of goods - ie, they are getting less and less valuable. This DESPITE the banknote shortage, which makes 'printing money' impractical. Money supply is not the issue; a lack of goods that can be purchased with that money is the issue.

It's the same thing that happened in Zimbabwe, and in Weimar Germany - in the latter case, hard currency was required to pay for reparations, so the situation was even worse: Effectively Germany was required to import a lot of very expensive nothing. Zimbabwe was importing food, as a result of the collapse of her own primary production. Hyperinflation is caused by foreigners refusing to accept your money, rendering your ability to import weak or nil; not by local governments printing the stuff. The printing of money is a RESPONSE to hyperinflation.

You say "The Bolivar is hardly traded internationally", and yet you seem incapable of grasping that that's EXACTLY WHY it has become worthless - both internationally and in Venezuela herself. Nobody wants Bolivars. So they are worthless.

What on earth are you talking about? The physical money supply (M0) in Venezuela more than doubled over the past twelve months. Same with M1 and M2 .

http://www.tradingeconomics.com/venezuela/money-supply-m0

http://www.tradingeconomics.com/venezuela/money-supply-m2

Bolivars have never (or hardly ever) been used to pay for imports because the exporter can not convert them to their home currency (unless a black market is used), so they have always required payment in either dollars or their home currency both in the past and the present.

Compare that to the US where M0 has actually declined a little bit over the past 12 months:

http://www.tradingeconomics.com/united-states/money-supply-m0

M2 has only gone up about 5%

http://www.tradingeconomics.com/united-states/money-supply-m2

It has nothing to do with imports. It has to do with economic production vs money supply. The decline in the value of oil means less economic production means fewer goods available for sale for that money (whether the oil is exported and converted to imports or whatever).

The loss in confidence of the currency can also accelerate the rate of value decline.

 

[dismal]

What else could possibly cause hyperinflation besides rapid expansion of the money supply?

Rapid contraction of the supply of goods and services would contribute too. Not only the shortages but Venezuelans avoiding trading in bolivars and bartering or preferring dollars would take goods and services out of the bolivar economy and put inflationary pressure on the bolivar.
But you are right too. One can inflate the money supply without increasing the physical money supply to the same extent, especially when printing the low-denomination bolivars is quite costly.

Yes, if you look at the formula it could happen, but the contraction of goods is minimal. It's rate for an economy to shrink more than 5% or 10% a year. You aren;t going to get 1000% inflation without printing lotso money.

 

[dismal]

Holy crap, what a bunch of nonsense.

The inflation is occurring within the country.

The number of Bolivars it takes to buy goods is spiraling upward because there are more and more Bolivars chasing roughly the same amount of goods.

Maybe this basic primer will help:

https://en.wikipedia.org/wiki/Equation_of_exchange

Inflation experienced in Bolivars in Venezuela has about zero to do with international finance. The Bolivar is hardly traded internationally. If you don't live in Venezuela, what would you do with it? It seems hard enough to get any value from it if you do live in Venezuela. Why would anyone take on the hassle of trying to get something for it?

It's not that Venezuela's currency is worthless, it's just not worth anything close to the government's legally mandated exchange rate, and it's usefulness in acquiring goods and services you might actually want is minimal. People in other countries are simply not going to play along with the charade.

Yes, of course the inflation is occurring within the country. But the cause is the lack of imports. There are no imports because there is no hard currency. There are no cheap goods, because there are too few goods, because there are no imports. So the Bolivar is worthless.

When oil prices were high, they sold oil for greenbacks, and could use greenbacks to obtain goods - including, ironically, banknotes - from elsewhere. That's why a government which has not changed its level of fiscal irresponsibility was able to avoid hyperinflation for so long. It wasn't because they were restrained about creating more Bolivars whenever they felt like it; it was because that activity isn't a cause of hyperinflation. The cause of hyperinflation is demonstrably the collapse of the ability to import goods, leading to a shortage of goods, leading to goods being more expensive.

The goods are not more expensive in US Dollar terms, because people still want dollars, because dollars can be used to buy imports. But Bolivars cannot be used to buy imports; so they are only exchangeable for an ever declining supply of goods - ie, they are getting less and less valuable. This DESPITE the banknote shortage, which makes 'printing money' impractical. Money supply is not the issue; a lack of goods that can be purchased with that money is the issue.

It's the same thing that happened in Zimbabwe, and in Weimar Germany - in the latter case, hard currency was required to pay for reparations, so the situation was even worse: Effectively Germany was required to import a lot of very expensive nothing. Zimbabwe was importing food, as a result of the collapse of her own primary production. Hyperinflation is caused by foreigners refusing to accept your money, rendering your ability to import weak or nil; not by local governments printing the stuff. The printing of money is a RESPONSE to hyperinflation.

You say "The Bolivar is hardly traded internationally", and yet you seem incapable of grasping that that's EXACTLY WHY it has become worthless - both internationally and in Venezuela herself. Nobody wants Bolivars. So they are worthless.

Sweet lord, why is it that people around here decide to homebrew their own economics instead of using that which has been propounded and refined by expert economists over the decades?

Inflation is not an international phenomenon. It occurs within a country, within a currency.

The equation I linked earlier is an identity. It is true by definition.

MV = PQ

M= money supply
V = velocity of money
P = general price level
Q = quantity of goods

So if we solve for P it's, P = MV/Q

How to make P go up 1000%? Well, it's either a 90% drop in the goods available, a massive sudden inexplicable change in the velocity of money (which tends to be relatively constant), or the government printing a shitton of new money.

Which one of these is consistent with a) practicality and b) reality when you are dealing with a government trying to buy large quantities of goods and services based on revenues coming from a high oil price?

 

[bilby]

Yes, of course the inflation is occurring within the country. But the cause is the lack of imports. There are no imports because there is no hard currency. There are no cheap goods, because there are too few goods, because there are no imports. So the Bolivar is worthless.

When oil prices were high, they sold oil for greenbacks, and could use greenbacks to obtain goods - including, ironically, banknotes - from elsewhere. That's why a government which has not changed its level of fiscal irresponsibility was able to avoid hyperinflation for so long. It wasn't because they were restrained about creating more Bolivars whenever they felt like it; it was because that activity isn't a cause of hyperinflation. The cause of hyperinflation is demonstrably the collapse of the ability to import goods, leading to a shortage of goods, leading to goods being more expensive.

The goods are not more expensive in US Dollar terms, because people still want dollars, because dollars can be used to buy imports. But Bolivars cannot be used to buy imports; so they are only exchangeable for an ever declining supply of goods - ie, they are getting less and less valuable. This DESPITE the banknote shortage, which makes 'printing money' impractical. Money supply is not the issue; a lack of goods that can be purchased with that money is the issue.

It's the same thing that happened in Zimbabwe, and in Weimar Germany - in the latter case, hard currency was required to pay for reparations, so the situation was even worse: Effectively Germany was required to import a lot of very expensive nothing. Zimbabwe was importing food, as a result of the collapse of her own primary production. Hyperinflation is caused by foreigners refusing to accept your money, rendering your ability to import weak or nil; not by local governments printing the stuff. The printing of money is a RESPONSE to hyperinflation.

You say "The Bolivar is hardly traded internationally", and yet you seem incapable of grasping that that's EXACTLY WHY it has become worthless - both internationally and in Venezuela herself. Nobody wants Bolivars. So they are worthless.

Sweet lord, why is it that people around here decide to homebrew their own economics instead of using that which has been propounded and refined by expert economists over the decades?

Inflation is not an international phenomenon. It occurs within a country, within a currency.

The equation I linked earlier is an identity. It is true by definition.

MV = PQ

M= money supply
V = velocity of money
P = general price level
Q = quantity of goods

So if we solve for P it's, P = MV/Q

How to make P go up 1000%? Well, it's either a 90% drop in the goods available, a massive sudden inexplicable change in the velocity of money (which tends to be relatively constant), or the government printing a shitton of new money.

Which one of these is consistent with a) practicality and b) reality when you are dealing with a government trying to buy large quantities of goods and services based on revenues coming from a high oil price?

The first one.

No imports = massive decline in goods available.