Venezuela’s annual inflation rate is over 4,000 percent: ‘The authorities have lost control’

Feb 7, 2018 2:45 pm

People walk along a street Tuesday during a partial power cut in Caracas. Venezuela's annual inflation rate has risen to 4,068 percent over the past year, according to estimates from the Venezuelan opposition-led National Assembly. (Federico Parra/AFP/Getty Images) 

Kevin RyanSTAFF WRITER

Venezuela’s economic crisis continues to worsen. According to estimates from the Venezuelan opposition-led National Assembly, the socialist country’s annual inflation rate has risen to 4,068 percent over the past year.

Independent economists have produced similar figures.

For January, inflation was 84.2 percent, which analysts estimate would amount an annual inflation of more than 150,000 percent, with prices doubling every 35 days.

The Wall Street Journal reported that the inflation rate, currently the highest in the world, has risen so precipitously over the past 23 months that the Venezuelan government is unable to print enough money; customers often need stacks of bills even when paying for small purchases.

Excessive printing has worsened the country’s economic crisis, with the Venezuelan government printing bolivars at a 14-fold rate since the beginning of 2017, hastened by customers’ desperate spending, which forces the government to replace existing notes every seven to nine months, the Journal noted.

By comparison, one U.S. dollar now is worth roughly 236,000 bolivars, an amount that, according to the Journal, could have paid for a small apartment five years ago. Today, it barely covers an appetizer. A cup of coffee, for instance, costs 45,000 bolivars today. Twelve weeks ago, it would have cost 5,500 bolivars.

The Journal spoke with former economist for the Inter-American Development Bank Omar Zambrano about the current Venezuelan crisis.

“The authorities have lost control, they can’t stop creating bolivars even if they wanted to,” Zambrano said. “This ends in two ways: Either we adopt the dollar or we go back to bartering.”

Others, like Helima Croft, head of global commodity strategy at RBC Capital Markets, are concerned about Venezuela’s inability to manage oil exports, which has also led to a prolonged recession.

“We continue to contend that, given 2018’s tightening oil market, any potential geopolitically driven supply disruption would have an outsized impact versus recent years when the market was awash in crude,” Croft said.

RBC Capital Markets has predicted a fall of at least 700,000 to 800,000 barrels per day in 2018. For a country dependent on oil, such a drop in production would be catastrophic.

“Against this bleak backdrop, the recently scheduled April elections could prove to be the catalyst for more civil strife and economic sanctions that would further erode output,” Croft said. “The clear and present danger to watch is Venezuela, which arguably has progressed past the risk stage given that production is in freefall.”

Why government control always requires more force. Kids figure it out pretty early

Kids Create Salt Black Markets in Cafeterias Due to Michelle Obama’s Lunch Rules

School administrators testify to Congress on ‘unintended consequences’ of the law

BY: Elizabeth Harrington 

June 24, 2015 3:05 pm

Children are creating their own black markets to trade and sell salt due to First Lady Michelle Obama’s school lunch rules.

During a hearing before the House Subcommittee on Early Childhood, Elementary, and Secondary Education, chaired by Rep. Todd Rokita (R., Ind.), a school administrator told Congress of the “unintended consequences” of the Healthy, Hunger-Free Kids Act.

“Perhaps the most colorful example in my district is that students have been caught bringing–and even selling–salt, pepper, and sugar in school to add taste to perceived bland and tasteless cafeteria food,” said John S. Payne, the president of Blackford County School Board of Trustees in Hartford City, Indiana.

“This ‘contraband’ economy is just one example of many that reinforce the call for flexibility [with the rules],” he said.

Payne noted other problems with the “one-size-fits-all” approach to providing healthier meals to students, including fewer kids participating in the program and higher food waste. The trend started in 2012, when the school lunch law, which was championed by Mrs. Obama, went into effect.

“Students are avoiding cafeteria food,” Payne said. “More students bring their lunch, and a few parents even ‘check out’ their child from campus, taking them to a local fast-food restaurant or home for lunch.”

Payne also said school fundraisers like bake sales, have been canceled due to the rules, and “whole-grain items and most of the broccoli end up in the trash” in his district.

Dr. Lynn Harvey agreed that the whole-grain requirement is not working, as kids refuse to eat dense and dry biscuits, and “unpalatable” grits.

“When it comes to whole grain-rich variations of biscuits, grits, crackers and cornbread, all too often, students simply toss them into the trash cans,” said Harvey, who serves as chief of school nutrition services at the North Carolina Department of Public Instruction, which oversees lunch programs for schools that enroll 1.5 million students.

“This product dissatisfaction has contributed to a decline in breakfast participation in 60 percent of North Carolina’s school districts,” she said.

“Biscuits and corn muffins are part of the state’s cultural and regional food heritage, just as bagels are traditional in the Northeast and tortillas in the Southwest,” Harvey added. “These foods are very popular breakfast items; the addition of whole grain flour has created products that are dense, compact, dry, and crumbly instead of light, moist, tender, and flaky.”

Harvey said since the new rules went into effect participation in the school lunch program in her state has declined by 5 percent, “a loss of nearly 13 million meals in two years.”

School districts across the country have echoed Payne and Harvey’s complaints. Students have noted the unappetizing fare on Twitter, with the viral hash tag #ThanksMichelleObama, which led the U.S. Department of Agriculture (USDA) to launch their own social media campaign, soliciting pictures of more appetizing food.

More than 1 million students fled the lunch line during the first year the standards went into effect.

House Republicans have introduced legislation to give schools more flexibility in meeting the rules. A bill sponsored by Rep. Kristi Noem (R., S.D.) would “ease sodium restrictions, give school administrators flexibility on some of the rules that have increased costs, including the school breakfast program, a la carte options, and school lunch price increases, and make USDA’s easing of the meat and grain requirements permanent,” according to the Hill.

“The clear solution to these problems is local leadership and flexibility,” Payne said. “When local school districts have the authority and flexibility to make adjustments honoring the spirit and intent of the law they can provide students with healthy, nutritious, and appetizing meals.”

Redistributing your wealth

U.S. Government's Foreign Debt Hits Record $5.29 Trillion

(CNSNews.com) - The money the U.S. government owes to foreign entities rose to a record $5.2923 trillion in June, according to data released by the U.S. TreasuryWednesday afternoon.

In May, the U.S. Treasury had owed $5.2581 trillion to foreign entities. On net, in June, the U.S. government borrowed an additional $34.2 billion from foreign entities in order to fund U.S. government operations.

The U.S. government’s indebtedness to foreign interests has grown by 72.3 percent during President Barack Obama’s term in office. In January 2009, when Obama was inaugurated, the U.S. government owed $3.0717 trillion to foreign entities, according to the Treasury Department. That has increased by $2.2206 trillion—or 72.3 percent—to the record $5.2923 trillion reported for yesterday.

Entities in the People’s Republic of China remain the largest holders of U.S. government debt. Entities in Japan, however, are on track to eclipse the Chinese as the top holders of U.S. government debt.

In June, the Chinese held $1.1643 trillion in U.S. government debt, up slightly from the $1.1640 trillion in U.S. government debt the Chinese held in May. However, Chinese ownership of U.S. government debt hit an historical peaked of $1.3149 trillion in July 2011 and has been on a generally downward trend since then.

Entities in Japan, by contrast, have been consistently increasing their ownership of U.S. government debt. In June, the Japanese owned $1.1193 trillion in U.S. debt. In May, they owned $1.1089 trillion in U.S. debt. A year ago, in June 2011, the Japanese owned only $881.5 in U.S. government debt.

Although the Chinese maintained their place as the top foreign owners of U.S. debt in June, they are not the top owners of U.S. debt in the world. That distinction belongs to the U.S. Federal Reserve, which according to its July monthly report, owned $1.667 trillion in U.S. government debt in June.

As of the end of June, the total debt of the federal government was $15,856,367,214,324.44. However, of that debt, $4,812,182,369,712.78 was money the federal government owed to itself (i.e. money the Treasury had borrowed from federal trust funds such as the Social Security Trust Fund, etc.). The Treasury calls this type of debt “intragovernmental” debt. The remaining $11,044,184,844,611.66 the federal government owed as of the end of June was debt held by the “public.” This is debt in the form of Treasury securities the government is obligated to pay off in cash.

The combined $6.9593 trillion that U.S. Treasury owed both to foreign entities ($5.2923 trillion) and the Federal Reserve ($1.667 trillion) at the end of June, equaled about 63 percent of the federal government’s debt held by the public.

Obama's economy...stealing your savings

Inflation: Not as low as you think

Forget the modest 3.1 percent rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.

The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don't look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans' typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.

The institute contends that to get a good read on inflation's "sticker shock" effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move.

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The group maintains that this index better measures the real-world impact of price changes, particularly for people on a budget. And, largely as the result of the recent run-up in gas prices, this "everyday price index" (EPI) suggests that Americans are being pinched far more tightly than the official inflation measure would have you believe.

Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government's inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.

On the bright side, prices of household fuel (natural gas and electricity) and supplies have increased only 2.74 percent; recreation and personal care products are up less than 1 percent; and telephone or Internet services are down 0.66 percent.

Admittedly, the purchases that the EPI tracks make up slightly less than 40 percent of the average household budget. But Steven Cunningham, research and education director at AIER, says these items are what contribute to the "sticker shock at the gasoline pump and the supermarket check-out line."

The Secret Tax

Analysis from Robert Higgs:

About a month ago, I posted in regard to what I called “the euthanasia of the saver.” This comment had to do with the fact that nominal interest rates in the United States for financial investments such as bank certificates of deposit and bank savings accounts—the kinds of investments traditionally employed by retired persons and small savers, who wish to gain income without exposing their funds to great risk of capital loss—now fall considerably below the rate of inflation, and hence the real (or inflation-adjusted) yield on such investments is negative. That is, the nominal payoff is insufficient to offset the loss of purchasing power of the money invested.

About a month before I wrote my commentary, my old friend Richard Rahn had, without my noticing, written on the same issue in a commentary article published in the Washington Times, but he had gone beyond the simple point I made. Rahn notes that besides suffering the loss of wealth occasioned by the negative real yield on such investments, the investor has to pay tax on the nominal yield—truly a case of the government’s adding insult to injury. He notes that given the currently prevailing rates of interest, rate of inflation, and tax rates, a small investor who earns a nominal yield of 1% and pays a 20% marginal tax rate, while the rate of inflation is 3.5 %, actually ends up paying a real tax rate of 370%. For example, an investor buys a $100,000 CD, earns $1,000 in annual interest, pays a tax of $200, and incurs a loss of $3,500 in purchasing power on the invested principal. Total (nominal) income is $1,000; total real tax (nominal tax plus inflation tax) is $3,700.

This expropriation of private wealth is not accidental.

It is the joint product of the Fed’s near-zero interest-rate policies, the Fed’s money supply increases that underlie the current rate of inflation, and the tax rates established by Congress and administered by the IRS, including the taxation of nominal interest earnings even when they amount to real losses of capital, rather than genuine earnings. The government clearly aims to expropriate private wealth on a massive scale. The only plausible alternative interpretation of these policies requires us to believe that the government officials who set these policies are complete idiots about basic economics.
The expropriation amounts to a huge sum. For example, the value of the Non-M1 component of the monetary aggregate M2—consisting of savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts—currently amounts to more than $7.5 trillion. If investors lose 2.7% on this investment each year (nominal yield minus the sum of the amount lost via taxation of nominal interest and the amount lost via the inflation tax), the loss amounts to about $204 billion. Because this type of investment is not the whole of the investments subject to this effect, the total amount the government is expropriating comes to a much larger sum.

Because this taking continues year after year, so long as current conditions persist the continuation of this expropriation for another year or two will bring the cumulative amount expropriated in this fashion to more than $1 trillion since the onset of the recession and the Fed’s adoption of the near-zero interest-rate policies, along with its allowance of substantial growth of the money stock and the consequent decrease in the money’s purchasing power. This is a rough calculation for the purpose of illustration. My point does not hinge on a precise estimate, because any well-founded estimate is sure to amount to a gigantic sum.
In sum, the government’s monetary and fiscal authorities are currently engaged in the expropriation of private wealth on a vast scale. Entire classes of investors—especially people who saved during their working years and expected to live on interest earnings on their accumulated capital during their retirement years—are being steadily wiped out. Astonishingly, this de facto robbery is being committed by a government that misses no opportunity to shed crocodile tears over how single-mindedly it seeks to protect the weak and helpless among us.