inflation

  • Source - Economist, Nov 10, 2018: "A trunkload of bolivares"     

    In Venezuela, where the inflation rate is in the tens of thousands of percent, people find hedges againt the worthlessness of the bolivare. As usual, the wealthy have access to the best hedges against inflation.

    From the article: "That is why you can see scaffolding and other signs of a building boom dotted around Caracas, the capital of a country that has endured an economic collapse. Businesses need to park their earnings where they will not be wiped out by inflation. A smaller-scale response to galloping prices is the emerging “egg economy”. Eggs hold their value better than cash, for a while at least. They make for a convenient currency, too. It is easier to carry around a half-dozen eggs than a trunkful of banknotes. And many tradespeople would be happier to receive the eggs." 

    "Episodes of hyperinflation are quite rare. Steve Hanke of Johns Hopkins University lists 57 cases, starting with France in the 1790s. It takes something extraordinary—war, revolution or epic incompetence—to mess things up on such a scale. The root cause is usually a chronic weakness in public finances. This might be because of looting by officials, lavish welfare spending or reliance on a single source of tax revenue. The government resorts to printing money to pay its bills. That feeds inflation. A vicious cycle ensures that it rises quickly. Because taxes are paid some time after the activity they relate to, rapid inflation erodes the value of tax receipts. More money is created to fill the gap in revenue. Inflation accelerates. The cycle turns."

    "A shrewd minority are using the stock market as a sort of inflation-linked bank, buying shares to deposit cash and selling them to withdraw it. A favoured stock is Banco Mercantil, which has businesses outside Venezuela."