07/14/08

Money in the bank is lost money

by Larry Email  310 words

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%.

As you know, active interest rates are those banks charge when the lend money, and passive rates are those banks pay when you deposit money in your savings account or buy CDs (Certificate of Deposits).

Therefore, if you're a "sophisticated" saver and buy one year CDs at one of the 6 lasrgest banks you can expect a 17.9% percent interest on your capital.

The problem is that official price inflation rates are running over 30% year-over-year and trending upwards.

So, if you put money in a Venezuelan bank you're losing around 12% per year in terms of the purchasing power of your Bolívares. And this is very likely and understatement, since government numbers always understimate the real price inflation.

You'd fare better standing in one of Caracas' corners and handing out your money to the passing bums. This way, at least the money would be going to some needy person and not to the pockets of fat and lazy Venezuelan bankers.

Of course, people who don't want to lose their money, slowly but inexorably, to the voracious inflation can always put at least a fraction of their savings in gold and silver, which cannot be inflated at the whim of the parasites who rule the world.

That's the only effective protection.

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