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Venezuelan Hyperinflation Is a Wake-Up Call for U.S. Citizens

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In the 1990s, author F. Paul Wilson wrote a novella entitled, “Aryans and Absinthe.” 

It's a horror tale set in 1923 Weimar Germany. And the “monster” in the tale is one of the most unusual, and most realistic, forces of destruction and chaos in literature.

It's also something pertinent to today’s headlines.

As the protagonist, Karl Stehr, soaks in the avant-garde vibe of one of Berlin’s leftist art cafes, he is approached by a man who always seems to be “on the scene,” an enigmatic figure named Ernst Drexler. Drexler has chosen to show Karl his latest amusement, his new “entertainment” here in Germany:

“Ernst laughed again. ‘My, you are sharp, Karl. That’s why I wanted to talk to you. You’re very bright. You’re one of the few people in this room who will be able to appreciate my new entertainment.’

‘Really? And what is that?’”

Then, Wilson reveals the monster, and his choice is absolutely brilliant… It is, as Ernst explains:

“‘Inflation.’”

In fact, instead of chapter breaks, Wilson cites historical reports of the ever-dwindling buying power of the mark, beginning on May 4, 1923, when it took 40,000 marks to buy a U.S. dollar, moving to late May, when it took 51,000 marks, to September 1, when Germans had to cough up 500,000,000 marks to buy one US dollar, to early November, when a US dollar was worth 4 trillion marks.

Beyond his conceptual freshness, why is he so ingenious to use inflation as the monster?

Because inflation is a monster. In Germany it was both the result of, and contributory to, the unraveling of the Weimar Republic, which, in turn, led to the rise of Adolf Hitler, which coincided with the scapegoating of German Jews in the banking field.

F. Paul Wilson understands that inflation is destructive. It’s a shame that more politicians worldwide don’t get it.

Case in point: Venezuela, where the bolivar, the government-mandated currency, is experiencing such dramatic inflation, store displays don’t have enough digits to show the new prices. As Patricia Laya reports for Bloomberg Business:

The store’s deli scales run to only six digits. And ham, my Whatsapp food-hunting community tells me, is retailing nowadays for about 1,480,000 bolivars per kilogram. It didn’t matter that I wanted only a few hundred milligrams. The cost was, at this market at least, incalculable.

She adds:

A similar dynamic is impeding the use of credit and debit cards. The price of a set of sheets (33,541,963), a pair of Adidas sneakers (10,500,000) or even a slice of lasagna (401,450) can’t fit on the screens of older card machines…

This is hyperinflation, the kind that saw Germans realizing their currency had more value to burn than to carry around as a commodity for exchange.

And it is precisely what I and others have warned would be the fate of the Venezuelan currency. We derive no satisfaction from this. Unlike Ernst Drexler in “Aryans and Absinthe,” we don’t enjoy seeing people vexed, starving, fighting, and wondering about their futures. We merely try to discuss the axiomatic dynamics of economics.

And the dynamics of nearly all governments – especially those of Venezuela and the U.S. – are such that, over and over, politicians have chosen to inflate their silly government-mandated money, all as they strive to perpetuate their brief holds on power through runaway spending.

In Venezuela, the bolivar was already “devalued” by three digits 10 years ago. In other words, the currency had been inflated so much that skyrocketing prices forced politicians to “rename” the value, removing three zeros and calling it, as Laya notes, “The Strong Bolivar.”

Cute.

Of course, the government kept up its perverse antics of nationalizing industries like oil and farming, mismanaging them as natural outgrowth of socialism, and then printing more money to prop up the spending.

Unlike private business, which creates things and gets cash by pleasing voluntary consumers, government can only get its money in one of three ways. First, politicians can tax people. But they can only tax up to a certain level before folks rebel and/or go black market. Politicians can also sell bonds. But those bonds need to be paid back, and since taxation might not pay off all the bonds, the politicians typically resort to option three: print more money to pay for spending and the bonds. In US history this has been done both by the U.S. government and the U.S.-sanctioned banking monopoly of the Federal Reserve, which, in turn, buys the government debt.

This causes inflation. And inflation is not what the pop media tell you it is. They tell you it’s increasing prices. But price increases actually follow inflation.

Inflation is, economically speaking, an increase in the money supply. The more units created by the government or central bank, the more those units bid up the prices of products and services.

And Venezuela is not alone in this profound error. As with Weimar Germany, and Ancient Rome, since 2002, the US government and the Fed have embarked on a massive increase in the US money supply. The only things that delay runaway inflation here are high productivity rates and the relatively inflated natures of most other currencies around the world.

So when Americans look at the fate of Venezuela, one hopes that they can see the lesson and beware here.

Because the United States money supply has been blown up as well, and judgment day cannot be avoided indefinitely.

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