Precious metals in Venezuela during hyperinflation - article
davidk
Posts: 275 ✭✭✭
I found this interesting. Lots of good information on this site if you want to get a good picture of what happens in a hyperinflationary environment.
We Buy Gold and Silver:
https://www.caracaschronicles.com/2018/05/16/we-buy-gold-and-silver/
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Great article. But entirely predictable for those of us who have studied what happens when governments inevitably decide to run their printing presses 24-7.
The distance between Caracas and, say, Miami Florida is about the same distance as Chicago to Albuquerque. This isn't some 3rd world country on the other side of the world. It's literally in our back yard.
--Severian the Lame
Likely being shipped overseas....
bob
"but now these are your savings, for when you need medicine"
That says it all right there.
Pretty rough if your total liquid assets have dwindled to one ring.
Edit: Unless you're a hobbit.
Liberty: Parent of Science & Industry
“In a Chacaito store, a lady in her 70s takes a ring out of her underwear.”
Umm, pass on that.
stink ringer?
I wonder what % of spot they are paying, although with the Bolivar dropping like a rock I suppose it doesn't really matter too much. Not good for the poor people who have no options.
I knew it would happen.
The Venezuelans would care about back of spot at the time of exchange even though their bolivars will decline further the next day.
And while I'm here...
What is it about the USA economy right now that portends a catastrophic money decline like in Venezuela ?
Fiat currency backed by debt.
Fiat is, by definition, backed by nothing..
The markets are saying we have acceptable levels of debt.
And debt was not the start of Venezuela's downfall. Staunch Socialism and price controls started it.
I agree. Real money fixes this problem in the first place. That’s why I started with fiat backed by nothing
Real money backed by gold?
That would be my definition of real money. I call gold and silver money, I call unbacked paper fiat.
The markets are saying "thank you for all the new, cheap, borrowed money."
Venezuela was once Latin America's richest country. And yes, debt was the start of Venezuela's downfall..
And while I consider myself a greedy capitalist, let us not forget that social security, private pensions, national defense and group health insurance are basically American socialist programs. Some things do work best with group participation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I'm long gold but don't think it's possible to use it to back money anymore.
Perhaps if they fixed gold to $100k/oz they'd have enough value to cover the printed money for a couple of centuries. Unfortunately, there could be a run on the "gold bank" if the electronic money is attempted to be converted to gold. Imagine $20trillion in just us debt knocking on the door of $10Trillion worth of gold. To meet such demands of all electronic and printed money for a few centuries, gold would need to be fixed at some astonishingly high amount and then be adjusted for money growth after a few centuries.
Fixing the value of gold and adjusting it for money growth every few centuries sounds a bit like market manipulation.
What it would be is taking a fixed amount of a commodity and throwing out market forces.
That's what Venezuela has done with some renewable food resources.
Gold IS ‘money’, fiat is not.
There is plenty of gold to facilitate world finance, it just depends on how you value the gold in fiat.
Gold is as ‘fixed’ production-wise as is necessary.
What exactly has Venezuela done right monetarily? Aren’t they eating zoo animals and pets?
fiat is money as long as it is accepted as payment. It's value is determined by the amount of confidence that it will be accepted by the next person as payment.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Is fiat a store of value? I would say, emphatically, no. It is conjured at will by unelected people who can reduce it’s value at any time by running the press.
Fiat is definitely currency, but not ‘money’ according to Aristotle’s definition. It has exactly zero intrinsic value.
I offer the German Papiermark, Zimbabwean Dollar, Venezuelan Bolivar, Argentinian Peso, and Turkish Lyre as modern examples of the true intrinsic value of printed paper.
BTW, the only paper I buy is failed fiat currencies for my collection. The cheaper, and more failed the better.
Aristotle’s definition of money:
Durable- the medium of exchange must not weather, fall apart, or become unusable. It must be able to stand the test of time.
Portable- relative to its size, it must be easily moveable and hold a large amount of universal value relative to its size.
Divisible- should be relatively easy to separate and put back together without ruining its basic characteristics.
Intrinsically Valuable- should be valuable in of itself, and its value should be totally independent of any other object. Essentially, the item must be rare.
A dollar is only an extension of a T-Bill or a T-Note. They are all debt instruments and they all represent obligations made on behalf of the taxpayer by predominantly crooked politicians. These debt instruments are all created by the electronic printing press keystrokes and amplified by loans within the fractional reserve banking system. At that point, the unregulated shadow banking system gins up even more layers of debt by creating derivative debt instruments which they then market (collecting fees along the way) as low risk, which is ridiculous since they are all highly-leveraged on top of the underlying leveraged debt that they are made of. Nothing was fixed in 2008, and no one was ever held accountable for the banking losses that were bailed out.
Gold is a precious metal but it has been officially demonetized. The only reason it still isn't money is because having gold as money would force the politicians to face the hard choices they ought to be making even in the face of criticisms by various special interest groups who wouldn't get a big enough "cut" of the tax revenues. A gold standard would simply keep the pie at 100% instead of a sliding scale of 100% plus whatever the budget shortfall happens to be after the politicians decide how much to overspend in a futile attempt to keep 51% of their constituents relatively happy.
Basing a currency on debt instruments is a tricky business. It's always a confidence game. Always. There's 100 ways to lose confidence in the system, and debt levels are involved in many of those 100 ways.
I knew it would happen.
value of any item used to conduct commerce has nothing to do with "intrinsic value" and everything to do with one of the parties' willingness to accept it as payment. As long as fiat is accepted as a form of payment it is money.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Put your faith in what you’re comfortable with as a store of value. I like Aristotle’s definition of true money.
Do you accept dollars as payment? I rest my case.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Do you accept Bolivars? Serious question. Why or why not?
Who hijacked derryb''s account?
And welcome to the forum davidk.
Knowledge is the enemy of fear
No. Bolivars are not money Here. No pesos, pounds, or euros either.
Nor do I generally accept salt, tobacco, beaver pelts, or wampum, though they were money in a different place and time.
I don't Accept gold either, or stock certificates or bonds or deeds.
Pay me in Dollars, with cash, check, money order, or bank wire. Money.
I might BUY (or sell) Bolivars, gold, silver, oil, soybeans, or any of the other commodities mentioned above, if the price were right. But i would give or receive US dollars. Barter is very inefficient, rarely do needs and wants line up, hence the need for money, which Gold decidedly is NOT.
Notice the Venezuelans aren't paying for goods and services with gold, they're SELLING gold to get money, in the form of local currency, to pay for things.
Liberty: Parent of Science & Industry
I was thinking the same thing....
Bolivars aren't an international reserve currency and they generally aren't even available in the US. Aside from being worthless, they are also useless in the US.
Gold doesn't have to be considered as money by the governments of the world in order to have value, which it does. Don't make the mistake of thinking that you can pay for anything with gold because you consider it to be money.
OTOH, money and currency aren't necessarily the same thing. I would contend that the Bolivar isn't really money in Venezuela at this point, and that in Venezuela gold is closer to being money than fiat is - if you have some gold you can at least negotiate with it or trade it for something else.
I knew it would happen.
Of course not and the reason has everything to do with confidence. The flaw in your thinking is that "all fiat is the same." It is not. While history shows us fiat does have a lifespan, that lifespan is dependent on the restraint of those who create it or have the ability to add five zeros to it. While Venezuela chooses to add zeros overnight, the US dollar is more stealthily destroyed in slow motion. The FED's goal of 2% inflation (dollar devaluation) is their way of controlling the rate of decent. And 2% inflation is in reality meaningless or offset in the short term if wages increase with it.
Fiat, regardless of the number of zeros on it, is a store of value as long as it has some purchasing power left in it. The faster that store of value is deteriorating the less confidence it's users will have in it.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Not to mention the fact that the socialist government in Venezuela tried to strong-arm the oil companies, who then judiciously pulled their personnel, equipment and expertise out of the country, and now the place can't produce much oil to support their economy in spite of having the largest reserves in the world.
American know-how matters. That's one of the reasons for the US still having "the cleanest dirty shirt" as the world reserve currency. Gold has done quite well vs. many other currencies but the dollar has been strong even vs gold. Capital flees to the places where it is treated best, and the US is still a large enough reservoir for capital and not oppressive enough for the currency to collapse because of capital flight.
Gold's best attribute is still that it stands aside from the world monetary system's mismanagement and governmental overreach when it comes to relative privacy. That's true everywhere.
I knew it would happen.
The same realist who sees things as they are, not as the mouthpieces want me to think they are. We are in an economic "Matrix," choose the color of your pill carefully.
Money, as a medium of exchange, is no different than any other investment. It is a piece of paper we trade our labor for, we accumulate shares of it, and we trade it for a sofa to invest in our comfort. Unfortunately, unlike stocks, bonds and other tightly regulated "promissory" notes, it is recklessly managed by those who have little accountability. The only difference between all the fiats is their lifespan. Lifespan is determined by confidence. For now I'll accept dollars, send me all you have. I have confidence they won't loose too much value too soon. Rest assured that as their value declines I will invest them into something with a better future.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
And because this gold is being used as a medium of exchange it fits the definition of money.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I love how folks try to compare Venezuela "Socialism" with the US. Makes no sense. There are many types of socialism, and Venezuela's is Market Socialism. Prices are set by the Gov't, usually way too low to make it worth while to produce that product or service. Thus a snowball of inflation follows.
Social Security is funded by individuals via a tax on income. It is not a "Socialist" type of program by any means.
Liberal Socialism is Bernie Sanders form and is different than Venezuela's market socialism.
ahhh,
nevermind.
bob
Agree. And so then is Silver, money, in the looser Philosophical definition. So is copper and platinum and aluminum and steel, all of their liquidity, their utility as Money, is dependent on their Form. Nice common and marked coins and bars and jewelry are like big bills and small bills and change.
And also, by that wider definition, a case of airplane bottles of vodka are money too, and cartons of cigarettes. And a pallet of kilo bags of rice, all more liquid and useful money in currency crisis areas than GFD 400 oz bars of .999 gold would be.
Liberty: Parent of Science & Industry
Agree, anything used for trade is money. The common money in a specific geographic location is the currency.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
The Social Security program a form of socialism
"because the American government plays such a dominant role in the U.S. Social Security system – deciding how much and when employees and employers pay into the system, how much individuals receive in benefits when they get them, and preventing almost everyone from opting out – it seems fair to call the Social Security program a form of socialism. The program requires workers and their employers, along with self-employed individuals, to pay into the system throughout their working years. The government controls the money they contribute, and decides when and how much they get back after – and if – they reach retirement age."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Having the world's reserve currency means that the massive unfunded liability problem doesn't matter until someone wants to get paid and there's no way to pay except with smoke & mirrors.
Social Security is funded by individuals via a tax on income. It is not a "Socialist" type of program by any means.
Social Security, Medicare, Medicaid and Public Employee union pensions continue to expand and take up larger percentages of GNP. There's no private market at work in those programs. That's socialism.
I love how folks try to compare Venezuela "Socialism" with the US. Makes no sense. There are many types of socialism, and Venezuela's is Market Socialism. Prices are set by the Gov't, usually way too low to make it worth while to produce that product or service.
The US is certainly home to creeping market socialism, aka the ACA which accounts for 1/6 of the economy. In Venezuela, the government decided to nationalize the oil industry. How is that different?
I knew it would happen.
Some forms of socialism are beneficial (i.e. public health, national defense, etc.). What makes a government "socialist" and eventually bankrupts that government is it's application of socialism to more than what benefits the majority of the population. A move towards too much socialism (government debt) will destroy the currency and will be a boom for precious metals.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Us debt
Municipal debt
Corp debt
Cash in the bank
Stock values
Home values
Business values
Printed cash
More
Add all that up and divide by the gold ounces we have
A gold dollar would not be visible to the naked eye.
wear would devalue holdings in a significant amount
Do the math. Trillions divided by millions would make me rich but it would make gold circulation impossible
good reason not to get hooked on too many medications. How sad
Best place to buy !
Bronze Associate member
It’s possible to have currency backed by something other than lies and debt, gold and silver are perfect.
It becomes more clear if you stop thinking of fiat as money, but simply unbacked currency. The true market price of both gold and silver would happen naturally through free market price discovery.
There is nothing stopping us from having a one dollar note that is 1/100,000th of an ounce of metal, but we’re so addicted to credit and debt that it’s become difficult for most to imagine.
My bet is that nothing will change until the entire system implodes, and I believe that it will in my lifetime.
In order to back the US$ with gold, gold will have to be removed from private hands and turned over to the Treasury.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
So, turn it in, similar to when they UN-backed the US$ with gold in 1933?
Liberty: Parent of Science & Industry
On a related note...
5 Failed Currencies And Why They Crashed
https://www.investopedia.com/slide-show/5-failed-currencies-why-they-crashed/
Ok....so those systems imploded. Did they ever create a currency backed by gold or silver in response?
Knowledge is the enemy of fear
So, turn it in, similar to when they UN-backed the US$ with gold in 1933?
Yes, exactly. Only it wasn't the UN doing anything. FDR revalued gold from $20 to $35 overnight - after the confiscation order and threat of imprisonment & a $10,000 fine went into effect.
Governments seem to have this notion that it's perfectly okay for themselves to own gold (as the money of last resort), but when it comes to individuals, "well, gee...…...individuals exist to pay taxes, so as long as they do, yeah - we'll let them own a little gold - but we can't let them call it "money". We have the rights to that".
The dollar was still backed by gold until 1971, when DeGaulle was withdrawing gold from the US Treasury. Correct me if I'm wrong.
I knew it would happen.
I'm guessing that the Venezuelan who had 6 months or so of living expenses saved up in gold and/or silver (prior to hyperinflation really taking off) is very glad that he did. I would guess that most people had their savings in Bolivars and lost all savings.
yep, good insurance policy.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey