Saturday, June 23, 2012

Belarus Hyperinflation: Money Abhors a Vacuum

I previously pointed out of the developing crack-up boom or hyperinflation in Belarus.

If money is being perverted by governments to the point where it triggers a total loss of confidence by the public, while gold and silver may be the best refuge, people will stampede to any real assets—when gold and silver are not available and on short notice.

image

Belarus Ruble: US dollar From XE.com

Simon Black of the Sovereign Man gives the evidence (bold emphasis mine)

More than two decades after the fall of the Soviet Union, the Iron Curtain is still alive and well in an often forgotten corner of Eastern Europe… albeit a kindler, gentler version.

Belarus has been ruled by the same person, Alexandr Lukashenko, practically since its independence in the early 1990s.

He has total control of every facet of the country, from media and information flow, to education, to the military and ‘State Security Agency’ (which is still called the KGB), to the centrally planned economy.

Perhaps nowhere is this more obvious than with respect to the nation’s currency, the Belarusian ruble.

In 2009, one US dollar bought roughly 2,200 Belarusian rubles. In 2010, that number rose to 2,800. A year later, over 3,000. And today, one US dollar is worth over 8,000 rubles. On the black market, it’s much, much higher.

(You can just imagine how much the ruble has lost against gold and silver over the same period.)

My friends here tell me that, last summer after another bout of devaluation, it became nearly impossible to purchase euros and dollars. The currency was falling too rapidly, and no trader was willing to take the risk. Even the central bank stopped exchanging its reserves.

Consequently, small businesses in Belarus couldn’t get their hands on the hard currency they needed to pay foreigners for imported goods. Store shelves, including groceries, emptied quickly.

And people took whatever savings they had and traded it for anything they could find– sugar, toilet paper, ironing boards… you name it. As I’ve been told, hand tools were especially popular as a store of value in some parts of the country.

This is the key difference between ‘inflation’ and ‘hyperinflation’. Inflation involves a lot of painful price increases that reduce the standard of living for most people in society.

Hyperinflation, on the other hand, is a complete loss of confidence in a currency.

Anyone here who has held on to the local currency has gotten completely screwed. The few people at the top making the decisions have held on to power and become very wealthy at the expense of everyone else.

Bottom line: Like nature, money abhors a vacuum. People will switch to any form of assets with real value.

This would represent the flight into real values as warned by the great Professor Ludwig von Mises,

with the progress of inflation more and more people become aware of the fall in purchasing power. For those not personally engaged in business and not familiar with the conditions of the stock market, the main vehicle of saving is the accumulation of savings deposits, the purchase of bonds and life insurance. All such savings are prejudiced by inflation. Thus saving is discouraged and extravagance seems to be indicated. The ultimate reaction of the public, the "flight into real values," is a desperate attempt to salvage some debris from the ruinous breakdown. It is, viewed from the angle of capital preservation, not a remedy, but merely a poor emergency measure. It can, at best, rescue a fraction of the saver's funds.

2 comments:

Pavel Nosov said...

That was an amazing write up. Down with Lykashenko. Hes a dirty pig.

Pavel Nosov said...

Great write up. Down with Lykashenko. Hes a dirty communist pig and needs to get spit on and kicked in the face.