Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

This Is a Recipe for Massive Hyperinflation Bankruptcy

Economics / HyperInflation Feb 27, 2013 - 12:25 PM GMT

By: Money_Morning

Economics

Nobody was really shocked when Venezuela devalued the bolivar earlier this month from 4.3 to the dollar to 6.3.

When it comes to the currency wars, massive devaluations are simply one of the keys to this "race to the bottom" strategy.


But Venezuela's bad behavior, and that of several other countries in the region, means that several Latin American countries are now likely to suffer hyper-inflation or declare bankruptcy.

For investors in Latin America, that raises the risks for everyone, even for countries with good policies and relatively low debt.

Unfortunately, long-standing investors in this part of the world have seen this hyperinflationary pattern before.

Hyperinflation Gone Wild

For instance, Argentina suffered average annual consumer price inflation of 546% between 1975 and 1991. During that period it went through three currency re-denominations that included a 10,000-for-1 devaluation in 1983, a 1,000-for-1 in 1985 and another 10,000-for-1 change in 1992.

Similarly, Brazil suffered average inflation of 773% between 1981 and 1995. During that period it went through four currency re-denominations, with multiples of 1,000 for 1 in 1986, 1989 and 1993, and 2,750 for 1 in 1995.

Finally, Peru suffered average inflation of 809% between 1978 and 1993; during that period it went through two currency re-denominations, with multiples of 1,000 for 1 in 1985 and 1,000,000 for 1 in 1991.

In other words, in a period of less than 20 years, the three countries knocked 9, 11 and more than 12 zeros off the value of their currencies.

You'd think hyperinflation would prevent debt defaults, but in these cases it didn't.

Argentina defaulted in 1982 and 1989, in addition to its other defaults in 1827, 1890, 1951, 1956 and 2002. Brazil defaulted three times during its period of hyperinflation - and another 7 times outside it.

Peru also defaulted three times during its period of hyperinflation - and six more times outside it. You wouldn't want to buy the debt of any of these three losers, in my view, although Peru is currently notably better run than the other two.

As for Venezuela, it has managed so far to avoid the hyperinflation that has afflicted the other countries, in the sense that its annual inflation rate has never made it into three digits. However, its record on default is correspondingly worse, having defaulted no fewer than 11 times in its 202 years of existence as an independent nation.

What Latin American Investors Need to Know Now
Foreign investors in these sorry track records have lost their shirts, over and over again.

In the 1990s and 2000s, it seemed that the Latin American countries had grown up, with Argentina being carefully run and very popular in the 1990s, and Brazil having a very good run since 2002.

In some cases, the perception has continued:

■Chile has been well run economically by both autocratic and democratic governments since President Augusto Pinochet took over in 1973. It now has very little foreign debt and a reputation for integrity better than that of the United States, according to global surveys.
■Colombia, which had always been better at avoiding debt defaults (none since 1935) and has also avoided hyperinflation, currently appears one of the world's best growth stories.
■Peru, which had a dreadful track record in 1978-93, has been much better managed since then, with relatively low debt. Even in 2010, in the early stages of the current enthusiastic market for emerging-market bonds, it managed to issue 40-year bonds.

Nevertheless, overall there are as many likely losers as winners.

Venezuelan inflation is clearly headed towards the triple digit level (49% annually in the last two months) and even if Hugo Chavez goes, his Vice President, Nicolas Maduro, is committed to the same overspending and hostility to international capital.

Argentina's Cristina Kirchner jails people who disclose the true inflation rate (somewhere north of 30%) and is likely to run out of money soon - if she doesn't start a war with Britain over the Falkland Islands first.

Brazil under Dilma Rousseff has gone ex-growth and is about to ramp up public spending again to pay for the 2014 World Cup and 2016 Olympics. In addition, smaller countries such as Bolivia, Nicaragua, and Ecuador are enthusiastically following in Chavez' and Kirchner's footsteps.

The point is if half the South American continent goes bust, it can't be good news for the other half.

For one thing, trade relationships will be disrupted and companies with large operations in the bankrupt countries will suffer large losses.

For another, international capital markets are likely to "redline" the continent altogether as they did in the 1980s, even though at that time a number of Latin American countries were competently run.

Then there are the political repercussions if countries suffering hyperinflation or bankruptcy try to distract their citizens by starting a war. Old rivalries die hard, and Argentina/Chile, Bolivia/Chile and Venezuela/Colombia are all borders that have seen flare-ups in recent years.

It's a great shame for the well-run countries of Latin America, which are doing things right, growing their economies rapidly, and deserve to be rewarded.

But as investors, we should be careful with our money. The currency wars make Latin America a very slippery slope.

Source :http://moneymorning.com/2013/02/27/this-is-a-recipe-for-massive-hyperinflation-or-bankruptcy/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife