Best of the Week
Most Popular
1.Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - Nadeem_Walayat
2.Gold And Silver – A Reality Check - Michael_Noonan
3.The Killer Ape, Human Evolution, Artificial Intelligence and Extinction End Game - Nadeem_Walayat
4.Stock Market S&P 500 Volatility-Based Price Probability Range - Richard_Shaw
5.A Stocks Bear Market Is Now More Likely Than Not - Richard_Shaw
6.Money Supply and the Fed’s Serious Inflation Risks - Zeal_LLC
7.More Selling for Stock Market, Gold? - Brad_Gudgeon
8.Gold, Silver Precious Metals: a Critical Week Ahead - Rambus_Chartology
9.Gold Price Change in Character - Gary_Savage
10.Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - TLSReport
Last 5 days
Dr Copper Back from the Dead - Time to Buy or Blink - 8th Oct 15
Glencore Rout Blamed on Short Sellers Playing With CDS - 8th Oct 15
The Real Reason for the Refugee Crisis You Won’t Hear About in the Media - 8th Oct 15
US Stocks: The [Trend]Line Between Bull and Bear Market - 8th Oct 15
Bundesbank “Reassures” Re. Gold Bullion Reserves as Deutsche Bank Shocks With €6 Billion Loss Warning - 8th Oct 15
How Our Aversion To Change Leads Us Into Danger - 8th Oct 15
Moving Stem Cell Research Forward: Bernie Siegel of the Genetics Policy Institute - 8th Oct 15
Stock Market VERY IMPORTANT Turn Date - 7th Oct 15
The 5th Convergence…An Economic & Financial Superstorm That Will Devastate America - 7th Oct 15
Summers Grades Janet Yellen's Fed Performance 'Incomplete' - 7th Oct 15
Gold Versus Central Banks Paper Ponzi - 7th Oct 15
QE3 is Over Get Ready for QE4 - 7th Oct 15
How to Profit from Government Mandates in Biofuels - 7th Oct 15
A Key Oil Price Trend That Everyone Is Missing - 6th Oct 15
Stock Market Turn Appears to Have Been Made - 6th Oct 15
Designing a Dividend Growth Portfolio for a Specific Retirement Yield Objective - 6th Oct 15
Peter Schiff Predicts Gold Price Breakout - Video - 6th Oct 15
Theresa May Declares War on Immigration - Conference Speech Full Transcript - 6th Oct 15
Is Russia Plotting To Bring Down OPEC? - 6th Oct 15
Target Date Funds As Aid In Retirement Investment Portfolio Design - 6th Oct 15
Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - 6th Oct 15
Redesigning Internet and Facebook to Explore Their Full Potentialities... - 5th Oct 15
Nightshades Curb Your Enthusiasm - 5th Oct 15
U.S. Recession Watch, High-Yield – Rising Defaults - 5th Oct 15
The Social Challenge to Find Humanity in Capitalism - 5th Oct 15
Fed Interest Rate Hike: "I don't care. It doesn't really make much of a difference" - 5th Oct 15
Gold Rose 2.2%, Silver Surged 5.4% After Poor Jobs Number On Friday - 5th Oct 15
Gold, Silver Precious Metals: a Critical Week Ahead - 5th Oct 15
Stock Market Correction Still in Force - 5th Oct 15
Gold Price Change in Character - 5th Oct 15
Putin’s Blitz Leaves Washington Rankled and Confused - 4th Oct 15
More Selling for Stock Market, Gold? - 4th Oct 15
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

This Is a Recipe for Massive Hyperinflation Bankruptcy

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

By: Money_Morning


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 :

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:

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

© 2005-2015 - 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

Biggest Debt Bomb in History