I had not looked at monetary liquidity M2 in a few months. This number measures the amount of money in the economy, including bank deposits.
I checked it yesterday and it had reached again US$ 100 billion at the official rate of exchange, in fact, to be precise, it is at US$ 102.3 billion after reaching US$ 100 billion on December 2nd, according to the Venezuelan Central Bank.
And yes, and I say it reached that number again, for the second time in the country’s history. You see, a year ago it had reached US$ 100 billion (US$ 113 billion to be precise), but then the Government through the magic of devaluation from Bs. 2.6 to Bs. 4.3, instantly pushed it down to US$ 68 billion on January 1st.
Thus, since the first of the year monetary liquidity has increased by 49%, or 57% since one year ago.
That’s a lot of new money out there. A lot of printing. That’s why inflation is so pesky, if rather than blame speculators and the oligarchs, the Government allowed M2 to rise more slowly, then inflation would ease.
It may sound like a chicken and egg problem, what comes first? The printing of money or the inflation? Well, I can assure you that if the rate of increase of M2 is double that of inflation like it is today (inflation is around 27%), inflation is surely going to go up. More so when the amount of goods available for sale has not increased much, certainly no more than low digits, while the amount of money has gone up dramatically.
It is simply too much new money chasing the same amount of goods.
And the amount of goods can not be increased via imports much. Imports this year are running more or less at the same pace as last year and right now, the ability of the Venezuelan Central Bank (or CADIVI) to give more money is quite limited. You see, a year ago when M2 was also US$ 100 billion, international reserves were about US$ 30.2 billion, of which gold was about US$ 16 billion. That is, “liquid” reserves (reserves-gold), with some caveats, was about US$ 14.2 billion. That is about six months of imports via CADIVI.
Today, reserves are down to US$ 27.7 billion, of which gold is about US$ 21 billion, that is a much smaller cushion of US$ 6.7 billion in liquid reserves and now the gold is harder to sell or pledge, because it is here. It would have to be shipped abroad first. Thus, the liquid part of reserves is slightly more than one quarter. A little more than three months, that’s all.
The worst part, is that the Government is very unlikely to devalue in 2012, because a devaluation would give inflation a push and you know who wants to be President forever. Thus, as the Government spends ahead of the 2012 election, to give people a felling of well being, M2 will increase more and more, making the idea of removing exchange controls more difficult. A year ago, there were Bs. 9.8 for each dollar in international reserves, today there are Bs. 15.9 for each dollar at the Venezuelan Central Bank (including the gold, of course). In a year, any attempt to remove exchange controls would require a bigger devaluation and more foreign currency to be able to defend a floating rate.
Barclays estimates that inflation in 2013 will reach 36%. The Government will pull all of the stops, decrees, bills and threats in order to slow down price increases. Unfortunately, this is a very difficult game as inflation accelerates, as the private sector may decide not to sell or make goods at a large loss. Then scarcity will increase and politically and scarcity seems to carry more weight with voters than inflation.
And no matter who wins the election, there will have to be a very significant adjustment to the rate of exchange in 2013. And thus, more inflation. The mirage of lower inflation moves further into the future, while the Government ignores the fact that it is the main driver behind it.
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December 21, 2011 at 11:32 am
Chavez killing the messenger, ignoring the message.
Keep moving people, nothing new here…
December 21, 2011 at 10:53 am
Due to the increases in the liquidity the Banco Central is considering issuing a new bill of BsF.500.
This will be our biggest denomination & will have a black market value of about US$60. (for the moment)
http://informecifras.com/?p=180651
December 21, 2011 at 12:32 am
Parts 1 and 2 of Chávez’s rebuttal to President Obama.
By the way, Señor Obama has been out there attacking me.
Well, that doesn’t surprise us at all.
It’s the voice of Imperialism.
Obama, mind your own business, brother.
Look after your own country; look at the mess you’ve made of it, buddy.
Stick to governing your own country.
Now you’re going around trying to get votes by attacking Venezuela.
Don’t be so irresponsible, brother.
Obama the phony.
You’re a phony. Hmm!
Leave us alone; we’re free. Don’t you know?
And we’ll never again be a colony of yours, or of hers…
[LONG PAUSE AND APPLAUSE FROM HIS ENTIRE CABINET ET AL.]
To tell you the truth, Obama, you know, pathetic is what you are.
You’re pathetic.
Go ask the black communities of your country what you are to them:
the biggest frustration in I don’t know how many years
Obama, go ask the poor people of your country and you’ll see what you are:
a great frustration.
Go ask many of Africa’s people, who may have believed in you because of the color of your skin color— because your father was from over there — from Africa.
You’re of African descent, but all those people are ashamed of you.
Then, leave us in peace, Obama.
Leave us alone, leave us alone.
Go find your votes over there, but do right by your people. Eh! That’s what you should be doing.
December 22, 2011 at 9:54 am
Great example of statesmanship, Hugo. Why didn’t you just say, “And, your mother wears army boots.”?
December 21, 2011 at 12:27 am
en la casa blanca estaban orgullosos de la entrevista…
December 21, 2011 at 12:26 am
Chavez’s Rebuttal to Obama
By the way, Señor Obama has been out there attacking me.
Well, that doesn’t surprise us at all.
It’s the voice of Imperialism.
Obama, mind your own business, brother.
Look after your own country; look at the mess you’ve made of it, buddy.
Stick to governing your own country.
Now you’re going around trying to get votes by attacking Venezuela.
Don’t be so irresponsible, brother.
Obama the phony.
You’re a phony. Hm!
Leave us alone; we’re free. Don’t you know?
And we’ll never ever be any colony of yours, or of hers.
December 20, 2011 at 5:48 pm
They are printed in La Casa de La Moneda in Maracay
http://200.74.197.135/c3/casamoneda.asp
December 20, 2011 at 4:30 pm
Technical curiosity: The picture you chose to accompany the entry is of dollar bills being printed. Are there no photographs showing bolivars in the same condition?
December 20, 2011 at 4:32 pm
Not that I know of, I also liked the effect of the bills moving…
December 20, 2011 at 5:27 pm
Last time I heard, BsF bills are not even printed in Venezuela. Is that correct?
December 23, 2011 at 8:50 am
I think only 100s are printed al Casa de la Moneda (o del billete)
December 19, 2011 at 6:52 pm
In 2009 the government transferred $12000 million out of reserves (excess reserves they called it). Does anyone know where that money went and if there is anything left over?
If that money is still around (a big if, i know) that may have an impact on the numbers in the post.
December 19, 2011 at 7:06 pm
Well, not really. The Central Bank has transferred a lot of money to Fonden from reserves, including US$ 3.5 billion this year.
However, as of Decemeber 2010, Fonden had less than US$ 3 billion:
and I am sure they have spent a large fraction of ir by now. I dont think it affects my calcualtion very much.
December 20, 2011 at 10:16 am
Plot weekly M2 from BCV’s data. Scary. Talk about exponential. Particularly noteworthy is what has happened since Nov 2011. Not sustainable at all.
December 20, 2011 at 10:35 am
…particularly sad when compared to Peru or Colombia.
December 19, 2011 at 5:22 pm
Next government should move to la orchila, park an american destroyer there for protection and eliminate the Bolivares, the central bank, the military, the chaveses… Kick out the cubans, odebrecht, the libians, the chinesse, petrocaribe and all the other sanguijuelas.
Hopefully we do not start WWIII and are able to move forward with some dignity.
That was a excerpt of my letter to Santa…
Ho ho ho feliz navidad!!!
December 19, 2011 at 5:33 pm
I’ll sign that letter, also.
Chavez never seems to care for the truth.
Example, has Chavez learned anything about
Economics in the past years. No. He keeps repeating
the same blunders, even larger…
December 19, 2011 at 4:03 pm
now the gold is harder to sell or pledge, because it is here.
Where? It actually arrived, if so I’m surprised it wasn’t televised.
December 19, 2011 at 7:00 pm
Edit: I left out a question mark or 2. Where? It actually arrived?
December 19, 2011 at 3:49 pm
I don’t think inflation is important enough for Chavez, especially considering elections are coming up.
“scarcity seems to carry more weight with voters than inflation”- only with a very small percentage of the population, the rest doesn’t even understand it.
December 19, 2011 at 3:08 pm
Government accounting: 2+2=8
Hugo’s hoping the “great unwashed” won’t understand “inflation”, and simply focus on their heavier pay-packets.