America: The Next Venezuela

Your flight has been cancelled.’

Those were not the words we were hoping to hear when we got to Dulles International Airport last night. But Air France is on strike. So we quickly changed plans…and travelled to Paris on United.

That wasn’t the end of it…because the French train crews are on strike, too. C’est la France!

Ever resourceful, our US based assistant found a driver who would take us out to Normandy, where our car has been parked for the last two months, faithfully awaiting the return of its master.

The car is very patient with us. The 12-year-old Nissan Patrol sits for months…sometimes an entire year…waiting for us. Then, when we finally show up, the battery is dead.

But that problem will be overcome later today, we hope, and we will be on our way to Ireland, taking the ferry overnight. Stay tuned.

Connoisseurs of disaster

Meanwhile, as we mentioned yesterday, bitcoin seems to be useful. When other money fails…and gold is hard to get…bitcoin gives people a way to escape from the trap of a rapidly disintegrating paper currency.

As long-term readers of this Diary know, we are connoisseurs of disaster.

Give us a 1922 deutschmark…an excellent vintage! And it’s hard to beat. If you had bought a house in Berlin in 1921, you could have paid off your mortgage in 1923 for the price of a cup of coffee.

Or, how about a Zimbabwean dollar from 2006? That was a great year. Plenty of liquidity. We used to have a $10 trillion Zim note in our wallet, just to remind us not to trust paper money.

But the South American blends are good, too.

Both Brazil and Argentina have produced some fine catastrophes. In Argentina, the inflation rate hit about 12,000% in 1989. And in Brazil, one of our colleagues recalls what it was like living there in the ’80s:

‘Dad would get paid twice a day. We’d meet him at the office. And then, we’d take the money right over to the grocery store. We had to get there as soon as possible because they marked the prices up all day long. If you waited, you’d get a lot less for your money. And there might not be anything left to buy.

Vintages of disaster

There are many different vintages of disaster. There are natural disasters, such as the explosion of Vesuvius, which wiped out Pompeii in the first century, AD.

There are military disasters, such as Athens’ foolish war against Sparta in the 5th century BC, Japan’s attack on Pearl Harbor in 1941, or the US’s attack on Iraq in 2003.

There are political disasters, too — such as the French Revolution or the coup d’état in Russia in 1917.

Our favourites are the financial disasters…which often lead to disasters of the other sort.

And as we write, a classic catastrophe is developing in Venezuela. The bolívar — the Venezuelan currency — is expected to lose about 99.99% of its value this year.

Obviously, you don’t want to store your wealth in bolívars. Instead, you’ll want to get rid of them as soon as possible. Our report yesterday explained that those who could do so were moving to bitcoin.

Rich people can avoid financial disaster by diversifying their wealth outside the national currency and outside the country. They open bank accounts in Miami or Switzerland, for example. And now, they have another option: cryptocurrencies.

But poorer people often have no choice; they have no wealth to diversify, so they have to diversify themselves. 

Deserted by 2038

The Financial Times reports that 5,000 people are leaving Venezuela every day. At that rate, the country will be completely empty by 2038. This is not just a matter of money, in other words.

Financial disaster often leads to social, political, military, and health disasters. Were it not so, the coming US financial crisis would be merely entertaining. After all, who cares if rich people lose money?

For poor people, alas, the stakes are higher. More than 600,000 Venezuelan refugees already live in Colombia.

They scrounge for food. They pick through trash for something they can eat…or use. They work at pick-up jobs, or as prostitutes, and sleep rough under bridges or in parks.

We are dying of hunger,’ said a refugee to the FT. ‘Three members of my family have already died of starvation.

Most hospitals in Venezuela have no medicine, and little or no running water. Lack of food, medicine, and sanitation makes people more vulnerable to illness — especially communicable diseases.

After a 40% drop in output, more than four out of five people are said to be impoverished. ‘Extreme poverty’ has tripled in the last four years. Law and order are breaking down, too, both in Venezuela and in neighbouring countries.

Those who do manage to get across the border to Colombia or Brazil often find little hospitality.

There are so many of them that local services are overwhelmed. Jobs are scarce. And few people are happy to have so many desperate refugees on their doorsteps.

How do these crises happen? Slowly…and then all of a sudden. The feds spend too much money. Eventually, they run out of other people’s money. So they ‘print’ more.

Then, they are trapped by the bad money too; the easiest way out is simply to print more and more…until the whole economy collapses.

That process is already well underway in America. But more on that tomorrow.

It’s great for connoisseurs of disaster; bad for everyone else.

Our advice: Open a bitcoin account, just in case. And keep a ‘bolthole’ — a little farm, or at least a place in a stable and largely self-sufficient community — where you can wait out the crisis.

Regards,

Bill Bonner


Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.


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