The Venezuelan Central Bank published yesterday July's price inflation numbers, which turn out to be very very bad, despite the attempts by the bank to hide reality with word games.

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In another episode of the sag saga of hyperinflation in Zimbabwe, the central bank of the African nation has announced a new monetary reform, this time to slash ten (10) zeroes from the Zimbabwean dollar.

The official price inflation rate in Zimbabwe is over 2,000,000% year-over-year, but private estimates place the CPI on the vicinity of 4 or 9 million per cent (you choose the poison).

As you probably know, we in Venezuela also implemented a "monetary reform", slashing only three (3) zeroes from the devalued bolívar, but so far this year, the new "bolívar fuerte" (strong bolivar) hasn't fared so strong, with an accumulated official inflation rate over 15% (up to June).

So, what is it about these monetary reforms that seem to go wrong all the time? Why don't they work? You see, Zimbabwe, or Venezuela are not special and they're not different the every other country, when the issue are the laws of economics. There's people who vehemently deny the existence of economic laws, but austrian economists have demonstrated the indeed there are universal, immutable laws that apply to human action everywhere at any time. And what do these laws tell us about money? That when you create money out of thin air, the value of already existent money will decrease, with a consequent rise in prices.

It's as simple as that, no matter how many zeroes you make disappear from paper bills.

 Economics, International

Someday somebody should compile a Venezuelan Dictionary of Economic Idiocy. One of the first entries should go to the idiocy spouted by Agriculture and Land minister, Elías Jaua, in regards to one of the possible solutions to the inflation problem.

Jaua tells us that one way to fight inflation is haggling over prices:

Venezuelan Agriculture Minister Elias Jaua asked consumers to start bargaining over prices with retailers to try to curb inflation.

The most important help that people can give us (in fighting inflation) is that they defend their income. We can’t get used to buying everything at any price, Jaua told reporters . If we all start haggling over prices, speculators are going to start feeling pressured, Jaua said.

He also said that

If they sell me tomatoes at 6 BsF today and at 12 BsF tomorrow, the fault does not lie with the government, no, the government is not at fault, because it's doing all the effort in order to have more production (...)

But Mr. Jaua, the fault does lie with the government. Inflation is always an entirely monetary phenomenon and it doesn't matter how much people haggle over prices, so long as the streets continue being inundated with "monetary liquidity", prices will kee going up. And the only one with the legal power to create money is the government through its central bank.

Of course, I will not deny that you can get better relative prices if you haggle a little bit, but this is irrelevant when the absolute level of prices is rising. Any gains from haggling will be overshadowed by loses through monetary inflation.

 Venezuela, Economics

If you believe, as many others, that on the wake of the Dollar debacle, the Euro might be some sort of safe haven, think twice. As the Dollar, the Euro lacks any tangible backing and any limitation in the amount that can be created ot uf thin air.

In its race to avoid a disorderly Dollar collapse, the European Central Bank is devaluing the Euro at an increasing rate, under the illusion that if both currencies lose value at similar speeds nobody will notice.

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There are several reasons why, in nowadays Venezuela, money in the bank is money lost. But let talk to you briefly about one of the main reasons: inflation.

Yes, that seems to be my preferred subject of conversation. But it is not by whim. Inflation is one of the gravest problems Venezuelan face, certainly a much graver problem than that of the political "blacklist" of Clodosvaldo Russian.

The Venezuelan Central Bank, that perfectly oiled money making machine, reported last week that active interest rates dropped to 22.2%, a full 100 basis points from the week before.

Passive rates, on the other hand, dropped to 17.9%.

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So long as politicians in Venezuela are as ignorant as National Assembly's second vice-president, Saúl Ortega, the inflation problem (or for that matter, any important problem) will never be solved.

And so long as the media serves as mouthpieces of the daily mutterings of politicians, without critically examining the truthfulness of their words, the situation will continue as it is right now.

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In the most recent episode in Zimbabwe's hyperinflationary saga, the german company which sells bank notes to Robert Mugabe has announced it will not continue providing paper money to Zimababwe's Reserve Bank, due to political pressure exerted from the high political circles of the german federal government in Berlin.

The move by Munich-based Giesecke & Devrient comes at a time when inflation indexes in the South African nation surpass the 1 million percent mark (whatever that means), since the Zimbabwean Reserve Banks is exponentially increasing the money supply. In fact the one million percent number is already obsolete, being only two weeks old, the number thrown around last week was 4 million percent and this week the number is closer to 9 million percent per year.

But don't you worry, Zimbabwe's Reserve Bank is already preparing for its umpteenth monetary reform or reconversion, in the best chavecista style, by which they will eliminate a whole bunch of zeros from the Zimbabwe dollar, which at this time is trading at 12.2 million per US dollar.

The problem is that now Robert Mugabe will have to find another paper money provider to print his ever depreciating Zimbabwe Dollars.

Curious note: The German company Giesecke & Devrient is the same company that used to print the Reichmarks during the hyperinflationary episode of 1922-1923 in the Weimar Republic. When the issue is hyperinflating a currency until it is destroyed, why deal with newcomers when you have an experienced company at your hand?

The lesson I'd like you to take from this sad story is the following: paper or fiat money, by which I mean any kind of money devoid of tangible physical backing, is always destroyed by government. Always.

 Economics, International