Venezuela's Hyperinflation Problem

Written By Christian DeHaemer

Posted May 9, 2016

Venezuela cannot pull itself out of its economic downfall. You’d think a country with the world’s largest proven oil reserves would be able to do something to turn its economy around, but Venezuela just continues to spiral deeper into debt and hyperinflation.

Hyperinflation is a term constantly debated by economists, but most agree that it can be defined as persistent price rise of more than 50% a month, caused by a government printing too much money to try to pay for its debts.

The International Monetary Fund (IMF) expects inflation to hit a staggering 720% this year, which is essentially an exchange rate of 1,200 bolivars to one U.S. dollar. Think of that –a gallon of milk in the U.S. currently priced around $4. It would take 4,800 bolivars for one jug of milk in Venezuela– Imagine if the tables were turned and the U.S. was in the same situation. We would be a country on the edge of ruin, which is exactly what Venezuela is today.

A Country in Chaos

Venezuela is a nightmare of chaos right now. With rampant hyperinflation, Venezuela currency has almost no value and three-quarters of the population is living below the poverty-line, with wages falling by 35% last year, and more than half the population living in extreme poverty. Violent crime is surging (and Venezuela already had one of the highest crime rates in the world). People are having to wait in line for hours to get basic necessities, and even then have no promise of actually finding anything on the shelves once they finally make it into stores.

lines in Venezuela

There are many and varied causes to hyperinflation, but some of the contributing factors for the Venezuelan crisis have to do with the oil crash. Venezuela rode the high prices of oil when it was $100 a barrel, but had no provisions for what would happen when the prices inevitably fell.

Another contributer to the economic crisis is the inept president, Nicolás Maduro, who worries more about his own power and stability, rather than his people starving on the streets. Many who try to oppose him or bring an alternative view are jailed, leading a country in economic collapse to the brink of civil war.

To read more about Venezuela’s hyperinflation problems, read the MoneyWeek article.

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Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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