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Venezuela, a country with only $10 billion left in reserves to run on, is in trouble. As the currency hyperinflates to new record lows against the dollar…

James Holbrooks points out that the people are starving. The government has gone full-on authoritarian, and now desperate human beings are dying in the streets. From an Associated Press report on Friday:

“Authorities in Venezuela say 12 people were killed overnight following looting and violence in the South American nation’s capital amid a spiraling political crisis.”

“Most of the deaths took place in El Valle, where opposition leaders say 13 people were hit with an electrical current while trying to loot a bakery protected by an electric fence.”

These are people without options, forced to turn to thievery to stay alive. And they died because of it.

On April 6, The Economist reported that over the past year, 74 percent of Venezuelans lost an average of 20 pounds. Venezuela, incidentally, has topped Bloomberg’s Economic Misery Index for the past three years.

The country began its slide downward into chaos with the election of President Nicolas Maduro, who immediately began implementing socialist programs and has since taken extreme measures to secure his position.

At the end of March, for instance, Maduro effectively shut down Venezuela’s congress — his primary political opposition — and gave those legislative duties to his puppet Supreme Court.

The latest news coming out of the South American nation — aside from the deaths of people trying to steal bread to live — is that General Motors, whose Venezuelan production facility was overtaken by local authorities, has now ceased all operations in the country.

To put that in perspective, consider that in 2016, only 3,000 vehicles were sold in Venezuela, a country of 30 million people.

…click on the above link to read the rest of the article…

When This All Blows Up…

March 11, 2017

Shutterstock

When This All Blows Up…

Understanding the how & when of the next economic crash

This report marks the end of a series of three big trains of thought. The first explained how we’re living through the Mother Of All Financial Bubbles. The next detailed the Great Wealth Transfer that is now underway, siphoning our wealth into the pockets of an elite few.

This concluding report predicts how these deleterious and unsustainable trends will inevitably ‘resolve’ (which is a pleasant way of saying ‘blow up’.)

The Ka-POOM Theory

In terms how this will all end, we favor the scenario put forth by Eric Janszen in 1998 called the Ka-POOM theory.

This theory rests on the belief that the Federal Reserve along with the other world central banks looked at Japan’s several decades of economic stagnation and decided that deflationary recessions are to be avoided at all costs — even if that means blowing asset bubbles and then cleaning up the destruction left behind in their aftermath.

Because the Fed, et al. have a limited playbook (which is: print, and then print some more), the Ka-POOM model calls for limited periods of disinflation, followed by massive money printing sprees that then produce high inflation.

Despite the trillions and trillions in thin-air money printed by the world’s central banks over the past 8 years, a common rebuttal we hear is “But there’s been no inflation so far!” To which I reply, “Yes, that’s what we’re being told. But that’s not actually true.”

Remember: inflation is simply “too much money chasing too few goods.” We can detect today’s excess of money in the rising prices in our cost of living — but those higher prices are symptoms, not causes. Inflation is not “higher prices”. Inflation is “too much money”.

…click on the above link to read the rest of the article…

Venezuelan Hyperinflation

November 30, 2016

Venezuelan Hyperinflation

The Venezuelean hyperinflation is the direct result of what happens when the general population loses all confidence in the government. The current hyperinflation is reminiscent of Germany’s hyperinflation following World War I, which was also the result of a Communist Revolution and the overthrow of the government giving birth to the Weimar Republic. Venezuela’s currency has become virtually worthless as was the case in Japan when the people simply refused to accept any coins issued by the Japanese government. In that instance, each new emperor devalued the outstanding money supply to 10% of his new issues. This led to Japanese accepting Chinese coins, but not Japanese.

In just two months, the bolivar plummeted 50% in value after dropping beneath the psychological 2000 level for the first time. Where the Japanese relied upon Chinese coins, in Venezuela they are using U.S. dollars. The same is starting to emerge in India after the government demonetized the large denomination notes.

Oil accounts for nearly 95% of Venezuela’s exports and composes 25% of the country’s overall economy. Many economists are blaming Venezuela’s socialist government for mismanaging budgets and over relying on oil-related industries. Acting as a typical politician, President Maduro will not take responsibility for the state of his country and is choosing to place the blame on an “economic war” being waged by overseas businesses predominantly in the U.S.

Venezuela’s troubles began in 2014 when the price of oil took a nosedive. Instead of moving to separate the country from its dependence on oil, the Venezuelan government lost the confidence of the people and was compelled to issue more money to pay its bills lacking revenue flow.

As the prices of goods continue to soar, shopkeepers in Venezuela have taken to weighing bolivars and the black market for alternative currencies – namely U.S. dollars — is becoming prevalent.

…click on the above link to read the rest of the article…

Hyperinflation Defined, Explained, and Proven: Part II – Jeff Nielson

August 16, 2016

Hyperinflation Defined, Explained, and Proven: Part II – Jeff Nielson

Part I began the somewhat ambitious mission described in the title: providing readers with the true definition of the term “hyperinflation”, in both economic and mathematical terms. This was done through first defining the term “inflation” itself. It was then explained how the dynamics of inflation/hyperinflation operate, through the use of a simple allegory. Finally, readers were provided with a real-life illustration: the hyperinflation of the U.S. money supply .

Part II continues this mission by explaining why the current economic context makes a full-blown, monetary episode of hyperinflation inevitable, meaning the collapse (to zero) in the exchange rate of our fiat currencies – at least those of the Corrupt West. The starting point here is obvious: “competitive devaluation” .

Competitive devaluation is the official (and permanent) monetary policy of all the regimes of the Corrupt West. Let me restate this, so that the true insanity and criminality of this policy is explicit. All of our governments are racing to see which can drive down the value of its currency the fastest, i.e. which can “create inflation” the fastest – since lowering the exchange rate and creating inflation are two sides of the same coin.

Regular readers already know what inflation really represents: central bankers stealing our wealth through (deliberately) diluting the value of our currencies. We already have the written confession from the Dean of these inflation-thieves.

In the absence of the gold standard, there is no way to protect savings from confiscation [i.e. theft]through inflation.

– Alan Greenspan, 1966

Our governments are racing to see which can steal our wealth the fastest, through the monetary crimes of the central banks which rule above them . When will it end? When will our governments stopthis race to steal our wealth?

…click on the above link to read the rest of the article…

This Is The End: Venezuela Runs Out Of Money To Print New Money

April 27, 2016

This Is The End: Venezuela Runs Out Of Money To Print New Money

Back in February, when we commented on the unprecedented hyperinflation about the be unleashed in the Latin American country whose president just announced that he would expand the “weekend” for public workers to 5 days…

… we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new physical currency. After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices.

This question, as morbidly amusing as it may have been to us if not the local population, became particularly poignant recently when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market (to be exact, it buys 1,127 as of today).

And then, as if on cue the WSJ responded: “millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar.

The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals.

More planes were coming: in December, the central bank began secret negotiations to order 10 billion more bills which would effectively double the amount of cash in circulation. That order alone is well above the eight billion notes the U.S. Federal Reserve and the European Central Bank each print annually—dollars and euros that unlike bolivars are used world-wide.

…click on the above link to read the rest of the article…

Negative Interest Rates Destroying the World Economy

April 18, 2016

Negative Interest Rates Destroying the World Economy

QUESTION: Mr. Armstrong, I think I am starting to see the light you have been shining. Negative interest rates really are “completely insane”. I also now see that months after you wrote about central banks were trapped, others are now just starting to entertain the idea. Is this distinct difference in your views that eventually become adopted with time because you were a hedge fund manager?

Just curious;

Bob

Summers-Larry-Career ANSWER: I believe the answer is rather simple. How can anyone pretend to be analysts if they have never traded? It would be like a man writing a book explaining how it feels to give birth. You cannot analyze what you have never done. It is just impossible. Those who cannot teach and those who can just do. Negative interest rates are fueling deflation. People have less income to spend so how is this beneficial? The Fed always needed 2% inflation. The father of negative interest rates is Larry Summers. He teaches or has been in government. He is not a trader and is clueless about how markets function. I warned that this idea of negative interest rates was very dangerous.

Yes, I have warned that the central banks are trapped. Their QE policies have totally failed. There were numerous “analysts” without experience calling for hyperinflation, collapse of the dollar, yelling the Fed is increasing the money supply so buy gold. The inflation never appeared and gold declined. Their reasoning was so far off the mark exactly as people like Larry Summers. These people become trapped in their own logic it becomes irrational gibberish. They only see one side of the coin and ignore the rest.

…click on the above link to read the rest of the article…

Former IMF Chief Economist Admits Japan’s “Endgame” Scenario Is Now In Play

April 11, 2016

Former IMF Chief Economist Admits Japan’s “Endgame” Scenario Is Now In Play

Back in October 2014, just after the BOJ drastically expanded its QE operation, we warned that the biggest risk facing the BOJ (and the ECB, and the Fed, and all other central banks actively soaking up securities from the open market) was a lack of monetizable supply. We cited Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, who said that at the scale of its current debt monetization, the BOJ could end up owning half of the JGB market by as early as in 2018. He added that “The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation.”

Which is why 17 months ago we predicted that, contrary to expectations of even more QE from Kuroda, we said “the BOJ will not boost QE, and if anything will have no choice but to start tapering it down – just like the Fed did when its interventions created the current illiquidity in the US govt market – especially since liquidity in the Japanese government market is now non-existent and getting worse by the day.”

As part of our conclusion, we said we do not “expect the media to grasp the profound implications of this analysis not only for the BOJ but for all other central banks: we expect this to be summer of 2016’s business.”

Since then, the forecast has panned out largely as expected: both the ECB and BOJ, finding themselves collateral constrained, were forced to expand into other, even more unconventional methods of easing, whether it be NIRP in the case of the BOJ, or the outright purchases of corporate bonds as the ECB did a month ago.

…click on the above link to read the rest of the article…

Adam Trexler: A New Way to Hold Gold (2016 Update)

April 11, 2016

Adam Trexler: A New Way to Hold Gold (2016 Update)

Right alongside the bills in your wallet

What if you could carry and exchange gold in the exact same manner as you do with the dollar bills in your wallet?

Two years ago, we introduced the precious metals community to a company called Valaurum, which has developed a technology that’s making this possible.

From that write-up:

Democratizing Gold

In short, a fractional gram’s worth of gold is affixed to layers of polyester, creating a note – called an “Aurum” – similar in dimension and thickness to a U.S. dollar bill. This gold (usually 1/10th or 1/20th of a gram) is commercially recoverable. So an Aurum offers similar potential as a coin or bar, in terms of providing a vehicle for storing and exchanging known, dependable increments of precious metals – just in much smaller (and more affordable) amounts than commercially available to date.

The big idea here? In a world where a 1oz coin of gold costs over $1,200, an Aurum will let you hold a few dollars’ worth of gold in a single note. If you’ve got pocket change, you can be a precious metals owner.

And you don’t have to change your behavior. You can store and transport an Aurum in your billfold along with your dollars.

Understanding the Aurum

As the saying goes, a picture’s worth a thousand words. Here’s a picture of an Aurum designed for Peak Prosperity that the Valaurum team produced for us:

You’ll see that with even just 1/20th of a gram of gold involved, it’s enough to make the Aurum appear to be “made of” gold. The characteristic luster, color, and shine of the 24-karat gold used is immediately apparent.

…click on the above link to read the rest of the article…

Ben Bernanke: “Helicopter Money May Be The Best Available Alternative”

April 11, 2016

Ben Bernanke: “Helicopter Money May Be The Best Available Alternatives

Now that the prospect of helicopter money by the ECB has so infuriated Germany, the ECB had to reach out to Schauble to “mollify” the Germans who are dreading the second coming of monetary paradrops in one century, it was only a matter of time before Citadel’s most prominent employer opined. In a blog post earlier today, Brookings’ blogger and the central banker who together with Alan Greenspan has been most responsible for the world’s unprecedented debt pile and sad economic state, Ben Bernanke, took the podium to share his views on “helicopter money” head on.

In “What tools does the Fed have left? Part 3: Helicopter money” the former Fed head who first infamously hinted at helicopter money in his November 2002 speech “Deflation: Making Sure “It” Doesn’t Happen Here” when he quoted Milton Friedman, once again started off with a Friedman quote:

“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” (Milton Friedman, “The Optimum Quantity of Money,” 1969)

He then pulls a quote from his own book “The Courage to Act”

“The deflation speech saddled me with the nickname ‘Helicopter Ben.’ In a discussion of hypothetical possibilities for combating deflation I mentioned an extreme tactic—a broad-based tax cut combined with money creation by the central bank to finance the cut. Milton Friedman had dubbed the approach a ‘helicopter drop’ of money. Dave Skidmore, the media relations officer…had advised me to delete the helicopter-drop metaphor…

…click on the above link to read the rest of the article…

“It’s Pure Chaos Now; There Is No Way Back” – Venezuela Hits Rock Bottom As Its Morgues Overflow

April 10, 2016

“It’s Pure Chaos Now; There Is No Way Back” – Venezuela Hits Rock Bottom As Its Morgues Overflow

When we previewed Venezuela’s upcoming hyperinflation, which in January was predicted to be 720% and as of this moment is likely far higher…

… we said “This Is What The Death Of A Nation Looks Like” and said “there is no good news in any of the above for the long-suffering citizens of this “socialist paradise” which any minute now will be downgraded to its fair value of “socialist hell.”

Subsequent news that Venezuela was now openly liquidating its gold reserves while its president, in an amusing twist, announced last week, that henceforth every Friday will be a holiday, (the term there was a slightly different meaning) to cut down on electricity usage (while blaming El Nino for its electricity rationing) merely confirmed that the end if nigh for this once flourishing Latin American nation.

Sadly, while we have been warning for years about Venezuela’s inevitable, economic devastation, we said it was only a matter of time before the chaos spreads to broader society and leads to total collapse.

That may have arrived because as even the FT now admits, after visiting the main Caracas morgue, Venezuela risks a descent into chaos.

But back to the morgue of central Caracas, where FT correspondent Andres Schipani writes that the stench forces everyone to cover their nostrils. “Now things are worse than ever,” says Yuli Sánchez. “They kill people and no one is punished while families have to keep their pain to themselves.”

Ms Sánchez’s 14-year-old nephew, Oliver, was shot five times by malandros, or thugs, while riding on the back of a friend’s motorcycle. His uncle, Luis Mejía, remarked that in a fortnight three members of their family had been shot, including two youths who were shot by police.

…click on the above link to read the rest of the article…

Currency And The Collapse Of The Roman Empire

February 19, 2016

Currency And The Collapse Of The Roman Empire

At its peak, the Roman Empire held up to 130 million people over a span of 1.5 million square miles.

Rome had conquered much of the known world. The Empire built 50,000 miles of roads, as well as many aqueducts, amphitheatres, and other works that are still in use today.

Our alphabet, calendar, languages, literature, and architecture borrow much from the Romans. Even concepts of Roman justice still stand tall, such as being “innocent until proven guilty”.

So, as Visual Capitalist’s Jeff Desjardins’ asks, how could such a powerful empire collapse?

…click on the above link to read the rest of the article…

The Inevitability of Dramatic Inflation

February 15, 2016

The Inevitability of Dramatic Inflation

No one is very concerned about inflation right now and that’s understandable.

Although inflation exists in some sectors of the economy, the present subject of discussion is deflation. Any depression is inherently deflationary since spending is curtailed, which drives prices down.

Since 2008, despite all the fudged reports emanating from governments, much of the world has been in a depression since 2008 and remains in one. This will continue until such time as there is a true cleansing of the system – a step the leaders of each jurisdiction have avoided as much as possible, choosing instead to extend the party as long as possible before the inevitable collapse occurs.

Since deflation is the problem that’s staring us in the face now, most economic discussion deals with it. But, historically, when deflation occurs, governments do everything they can do reverse the problem and return to inflation.

To the average person, one type of ‘flation is as bad as another type of ‘flation – he merely hopes for economic stability. And so the effort by governments to not only accept inflation but to recommend its existence as policy seems odd. But then, governments (and banks) benefit from inflation.

People can only be taxed so much before they rebel, but inflation acts as a hidden tax and most people don’t recognise that it’s not the number of currency units one possesses that matters, but what level of purchasing power they have. Inflation allows the individual to retain his currency notes, but devalues them so they buy him less in goods and services. Inflation is the unperceived tax.

The US Federal Reserve has done a sterling job of exacting wealth from US citizens. Since it was created in 1913, it has devalued the dollar by roughly 97% and the dollar is now due for replacement.

…click on the above link to read the rest of the article…

Hyperinflating Venezuela Used 36 Boeing 747 Cargo Planes To Deliver Its Worthless Bank Notes

February 5, 2016

Hyperinflating Venezuela Used 36 Boeing 747 Cargo Planes To Deliver Its Worthless Bank Notes

The weeks ago, when we showed “What The Death Of A Nation Looks Like: Venezuela Prepares For 720% Hyperinflation“, we said that after looking at a chart of Venezuela’s upcoming hyperinflation…

… a hyperinflation in which the soaring stock market has failed to keep pace with the collapsing currency, thereby mocking all erroneous thought experiments that under hyperinflation being long the stock market is a sure hedge to currency destruction…

… we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new currency.

After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices.

This question, as morbidly amusing as it may have been to us if not the local population, became particularly poginant yesterday, when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market.

And, as if on cue, the WSJ answered. As it turns out we were not the only ones wondering how the devastated “socialist paradise” gets its exponentially collapsing paper currency, which in just the past month has lost 17% of its value.

The answer: 36 Boeing 747s.

From the WSJ:

Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy.

But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar.

…click on the above link to read the rest of the article…

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

January 31, 2016

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

Having urged “don’t panic” just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a “Treasury Single Account” (TSA) at the central bank.

The policy is part of new President Muhammadu Buhari’s drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa’s biggest economy – playing havoc with banks’ liquidity ratios.

With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria’s energy revenues that has hit the naira currency and triggered flows of capital out of the country.

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

Since taking office in May, Buhari has vowed to rein in Nigeria’s dependency on oil exports which account for 90 percent of foreign currency earnings.

…click on the above link to read the rest of the article…

The World’s Most Famous Case Of Hyperinflation (Part 1)

January 16, 2016

The World’s Most Famous Case Of Hyperinflation (Part 1)

The Great War ended on the 11th hour of November 11th, 1918, when the signed armistice came into effect.

Though this peace would signal the end of the war, it would also help lead to a series of further destruction: this time the destruction of wealth and savings.

The world’s most famous hyperinflation event, which took place in Germany from 1921 and 1924, was a financial calamity that led millions of people to have their savings erased.

The Treaty of Versailles

Five years after the assassination of Archduke Franz Ferdinand, the Treaty of Versailles was signed, officially ending the state of war between Germany and the Allies.

The terms of the agreement, which were essentially forced upon Germany, made the country:

Accept blame for the war
Agree to pay £6.6 billion in reparations (equal to $442 billion in USD today)
Forfeit territory in Europe as well as its colonies
Forbid Germany to have submarines or an air force, as well as a limited army and navy
Accept the Rhineland, a strategic area bordering France and other countries, to be fully demilitarized.

“I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible.”
– John Maynard Keynes, representative of the British Treasury

Keynes believed the sums being asked of Germany in reparations were many times more than it was possible for Germany to pay. He thought that this could create large amounts of instability with the global financial system.

The Catalysts

1. Germany had suspended the Mark’s convertibility into gold at the beginning of war.

This created two separate versions of the same currency:

Goldmark: The Goldmark refers to the version on the gold standard, with 2790 Mark equal to 1 kg of pure gold. This meant: 1 USD = 4 Goldmarks, £1 = 20.43 Goldmarks

…click on the above link to read the rest of the article…

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