Venezuela isn’t Germany in 1938, it’s Germany in 1921

"Eine Cocosette, bitte."

“Eine Cocosette, bitte.”

On September 1st this year, Bs.87 would buy you $1 in Cúcuta. Today, those same 87 bolos will buy you 50 cents. That’s a 100% rise in the price of a black market dollar in just over one quarter.

We know it’s bad, but do we know what it means from an economist’s point of view?

Thankfully, we have @Econ_Vzla to tell us.

It means Venezuelans are quickly coming to the conclusion that there’s no worse business than holding bolivars. That only chumps hold bolivars, and if you’re unfortunate enough toget some your best bet is to rush off and trade them for more or less anything. It means the bolivar barely functions as a store of value at all anymore.

It means, in other words, that we better brush up on our Dornbusch. In 2014. It’s embarrassing.

24 thoughts on “Venezuela isn’t Germany in 1938, it’s Germany in 1921

  1. It is more than embarrassing. It is tragic for ordinary people just trying to get by the best way they can. What is more it is ideal ground for blackmail and crime to flourish, as it creates desperation amongst those who are caught in this Chavista maelstrom – ie. most of the polulation in Venezuela.


  2. Go easy on the Weimar comparison – The Weimar Republic was a respectable political project, in spite of its currency woes. It was the first democracy ever in its country. Its demise was the beginning of disaster. None of those things apply to chavismo. Nathan

    Liked by 1 person

  3. It seems the government may have found a way to get interest free loans. This should help reduce hyperinflation (yeah, right!)

    “……Moya-Ocampos said. Indeed, he noted that a new law won’t allow foreign investors to repatriate profits for five years.”


  4. And there are ignorants that think that they don’t need to care about dollar per bolivar exchange, because they don’t travel…*sigh


  5. The history of LatAm is replete with Weimar-like currencies. Personally, I encountered them in Brasil under Figueredo, Nicaragua under Ortega first government and Peru under Allan Garcia’s first government. My big surprise was that I though it was all in the past and one morning about February 2004 I woke up to “back to the future” in Venezuela. Go figure… In particular, I seem to remember that the situation in Peru was far more dire than what is is currently in Venezuela, so bad that the currency consisted of pieces of white paper stamped by the central bank and clipped together. I read the other day that Maduro’s government is having difficulties importing money paper.


  6. Plus, word on the street is that crooked bank employees are revealing some of their clients’ account statements to malandro buddies on the outside so they know who to target and for how much.


  7. Here follows very useful information that will be considered utterly useless information here on Caracas Chronicles where it is 100% certain that this information will be dismissed as utter and total nonsense by all the readers of Caracas Chronicles which is a very accurate indication of your understanding of monetary economics during hyperinflation:

    Brazil had high and hyperinflation of up to 2000% per annum from 1964 till June 1994, but, they had a relatively stable non-monetary economy during those 30 years because they always indexed almost everything – including many monetary items. Their best index was their final Unidade Real de Valor DAILY INDEX which they used in their Real Plan to stop hyperinflation overnight at no cost.

    Yes, I know: this is considered utter nonsense by all of you here on Caracas Chronicles. Good for you!


    • Here’s the thing, N Smith. I don’t entirely discount that you might have a much better approach to ending hyperinflationary episodes than the entire macroeconomic profession. That is, in principle, possible.

      I just think if it’s true, you need to stop wasting your time on some obscure blog’s comments section and take this *major*breakthrough* in macroeconomics directly to the American Economic Review. Then just sit pretty waiting for the call from Oslo announcing you’re to receive a *richly* deserved Nobel Prize in Economics.

      I am a journalist, a blogger, at most a political scientist. I’m not an economist, and certainly not qualified to judge your contribution in this area.

      My instinct, though, is always going to look at the established literature, which as Distortioland notes is sprinkled with classic, theory-laden, data-rich papers explaining both how hyperinflation happens and how you recover from it.

      It may be that you’re dead right and R. Dornbusch is talking out of his ass. Writing one more comment on this blog will do exactly zero to persuade anyone of that, though.

      Liked by 1 person

    • Why are you so hostile? Yes, indexing is a policy tool that has been used successfully in the past to mitigate/stabilize the economic damage wrought by hyperinflation.

      I don’t know how applicable it is to Venezuela, with it’s massively distorted economy, currency controls, and price controls. I’m not saying it’s not applicable, I just don’t know. Tons of things needs to be done to help repair the economy and the country, and most of these policy options are known by many. The problem is the regime who can not or will not do anything to significantly alter course.

      I just don’t understand the hostility in your post?


      • it is because he’s been posting that theory for months (years?) in every Venezuelan blog that publish our economic issues. He has discussed it amply with all these bloggers, they explain to him that it is not that easy to execute the indexing policy for all the reasons you can imagine, but he keep posting these comments without positive feedback, he speaks as if bloggers have the power to implement the indexing thing but they don’t want to, he’ been utterly ignored most of the time, that’s why his hostility.


  8. Good luck to the economists who eventually will have to rebuild Venezuela!

    To me, the most shocking thing though is the disconnect between present inflation and any actual economic justification. Going by memory, I believe Giordana said the present expansion in the money base was done for purely political reasons, before the election. According to Tooze, in his book on the economy in Weimar and the Nazis, the inflation was begun on purpose, to lessen the value of the German mark, so that it could recover its export markets. And this was necessary to make the reparations payments demanded by the WWI victors. While it got out of hand, it’s origins were in basic economic principles, not political expediency.


  9. In 1921, Germany was still partially under foreign occupation, and were recovering from a blockade in place well after the end of the war to ensure they accepted the Treaty of Versailles.

    Many Germans born in 1919-20, were much shorter than Germans born a few years later, due to malnutrition.

    Venezuela of today is nothing like Germany in 38 or 21.


  10. The real hyperinflation in 1923 was like that:
    France occupied the heavy industrial powerhouse of Germany, the Ruhr region, due to missing reparation payments.
    The workers went on general strike and the German Government financed that strike by money printing, which they were quite used to, but to a smaller scale.

    My Grandfather had some good stories about the time, probably 50% true.
    Lots of people had problems with food supply in 1923, but generally it was better than at the end of WW I.
    There is a widespread theory, that germans became monetary stability freaks because of the hyperinflation experience. Many historians contest that. Hyperinflation was just a minor of a series of deep shocks like the WW I, the hunger during the war, the armed revolts from the left and than from the right between 1918 and 1923, Black Friday 1929, Hitler, WW II.

    The grade of recklessness of the Chavista is very special.


  11. Chavista apologists are everywhere and usually don’t live in Venezuela. You cannot destroy a country’s private sector and mortgage its monetary system with debts and handouts without severe consequences. I think Venezuela is looking more like Zimbabwe than Weimar Germany and I haven’t heard of Venezuelans using bolivars to paper their walls yet like the Germans did. The stunning economic expertise of the parasitic Castros is being applied to the country with similar destructive results and things are nowhere near as bad as they are going to get, especially with the low oil prices. The scarcity of basic medical supplies should be a government priority, yet the chavistas prefer to stage an expensive music festival. The chavistas have said they will never leave power even if they lose the next election, so the stage is set for all-out repression and bloody violence as the leadership sees the handwriting on the wall. Does Maduro really think the Tupamaros and other colectivos are going to march in and turn over their weapons? LOL!! The murder rate has continued its upward spiral again in 2014.


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