It’s not every year we get to see a national currency chart which looks like the side of a quarter pipe ramp, but Venezuela is making a real go of it.
In the latest twist of fate to befall this now banana republic, hyperinflation is rife and the government is gearing up for a paltry 720 percent inflation rate over the course of 2016.
The entire country has gone from bad to worse, with major shortages in basic goods like toilet paper, and various food products. Let’s hope they have an ample supply of wheelbarrows in the local stores.
Hyperinflation tends to occur when the nation goes into a state of default and international creditors cut the nation loose, leaving the authorities with no choice but to monetize the outstanding debts.
Let’s assume (as the Economists say) that we had a time machine and could travel back to the days of the now deceased Hugo Chavez, to warn the Venezuelans of what was around the corner. What advice would we give?
How to Hedge Against a Hyperinflation.
During a hyperinflationary bout, hard assets will retain some value. Things like gold and silver, property, and so on. We might also (if it was late enough) point to alternative currencies (preferably in cash) like the US Dollar, or maybe even cryptocurrency like Bitcoin. These are wealth HEDGES, they would not directly accrue value for you, but they would store value at a time when everyone is burning paper notes to cook rats.
It goes without saying that the more liquid the hard asset is, the better. Property would hold value between periods, but could not easily be liquidated if purchasing power was needed. Especially if there are riots and civil unrest. Finally it’s worth noting that productive assets, like a farm or manufacturing plant would be best of all, if you were fortunate enough to own one. Having real skills like being a mechanic, or an engineer- would also help as they are the sorts of things which people will need regardless of the financial collapse.
In advice that parallels a “how to survive the zombie apocalypse” moment, the basic human necessities like food, water, power supplies (fuel, batteries etc.) and medicine (as well as arms, potentially), are likely to be extremely valuable. In fact, during the Weimar Republic’s hyperinflationary bout, Rye Bread became so valuable as a medium of exchange that the Rentenmark was pegged to it to restore stability to the monetary system.
My chief piece of advice to Venezuelans therefore would be, “Stock up on food staples, ya dig?” I would, of course, offer similar advice to the Government of Venezuela. The last thing they will need is wealthy speculators restricting food supplies to extract wealth from the people. That sort of thing tends to lead to public hangings, and the word on the street is that can take a chunk out of the tourism industry.
So that would be the advice, or you know.. “get out of this socialist dystopia while you still can.”