Will we soon make origami artwork out of dollar bills?
That is a big deal: according to the annual Survey on Living Conditions released by 3 Venezuelan universities, in 2017, 90% of Venezuelans reported that they don’t have enough food for a healthy living. 74% of Venezuelans reported involuntary weight-loss caused by starvation, at an average of 11.4 kg (25 pounds) per person. More than 61 percent of respondents said they had gone to bed hungry over the past three months. Alarmingly, workers of the PDVSA, the National Oil Company in Venezuela, are quitting their jobs by hundreds because of anemia. They just don’t get enough calories to resist the hard work in the single industry that brings some wealth to the country.
Segovia has no worries for getting cheap paper to make his items from. His artwork is made of Venezuelan bolivar bills. He had this idea while looking to a pile of bolivars with his cousin, back in Venezuela. “We had a lot of cash but nothing to buy, because in Venezuela your money is worth nothing”, he says. Each item that Segovia crafts is made of 800 to 1000, 50 and 100 bolivar notes. That makes roughly 70,000 bolivars which value is less than 50 US cents on the black market.
With an inflation level in the three zeros range, Venezuela’s national currency loses value from one day to another. And the International Monetary Fund projects an inflation of 13,000% by the end of 2018.
The destruction of the bolivar by state driven hyperinflation ended with Venezuelans using foreign currency and doing barter for daily exchanges. Even the Venezuelan government tries to replace it with the Petro, a cryptocurrency based on oil.
To prevent us following Venezuela to hyperinflation and misery, we must understand why the Venezuela’s government has come to issue so much money. Chavez and Maduro’s socialist programs promised a social welfare greatly exceeding the taxpayer’s possibility to sustain it. To make up for the difference, Venezuela borrowed money up to the point where creditors stopped trusting that it will ever pay back. At that point, Venezuela’s Government only way to pay for the welfare was to print money. Far from being specific to Venezuela, today all the world Governments spend more than their tax revenues, either for welfare or for war. The difference is covered largely by adding to the debt, and slightly by printing money. Moreover, Governments pay the interest on current debts by issuing more debt, thus spiraling up the total. When the trust that Governments will pay back the debt is lost, the only way to cover for all the expenses and to pay back the debt will be by printing money. That is, by hyperinflation.
This pattern began since the creation of Central Banks. But it really went wild with the end of the Bretton Woods system back in 1971, when currencies where totally deprived of their linkage to gold: the only mechanism that was keeping the quantity of money in control. If we use gold as a reference, using CPI statistics, the US paper dollar lost 96% of its purchasing power since the creation of the Federal Reserve in 1913, from which 82% were lost since the end of the Bretton Woods.
Last month in the US, a new bi-partisan spending bill signed in effect by the president allows for another trillion-size increase of the national debt over the next 2 years. This adds to the current debt of almost 21 trillion US dollars. That, once monetized, will bring America on the list of countries devastated by hyperinflation. But, at least, we are not alone on this path.
If the world Governments and Central Banks didn’t learn the consequences of monetary debasement from thousands of years of economic history, at least they could learn from the present day’s tragedies in countries like Zimbabwe and Venezuela.
If the US Government won’t match its spending with the budget, and it won’t back the US dollar by gold as once did, we will all follow Segovia to handcraft origami paper artwork out of dollar bills.