GEOPOLITICAL AFFAIRS
Global Outlook
Mortgages in Hyperinflation - A Venezuelan Case Study
In contrast with the past, mismanagement and offshore loyalties in the top tier, are presently enough. Managing a country’s affairs for the benefit of the citizenry was always an ideal, a dream. Today, it can be considered a bad joke — and the global economy has never been more brittle for many nations’ citizens.
Did the global economy ever truly recover from the sub-prime lending fiasco years ago? A new and rather nasty tone has infiltrated financial reporting over the last few months, writes Shannon Berkley.
HYPERINFLATION DEFINED Hyperinflation typically comes about as the symptom (and a subsequent cause) of severe recessions. As investors and consumers lose confidence in the government’s ability to manage the financial situation, faith in the currency plummets, and the money trust is broken. It was economist Phillip Cagan who, in 1956, defined hyperinflation as monthly inflation rates above 50 percent. Typically, however, it can be a slippery slope after a country’s inflation rises in excess of 50 percent a month. Hyperinflation gives rise to units of currency worth billions in a single note, and thus worth nothing at all. The repercussions of hyperinflation reverberate among lenders and borrowers. “Settling debt” takes on skewed meaning, credit dries up and currency becomes worthless. Case studies of Venezuela, Zimbabwe, and even as far back as the Weimar Republic of Germany, show destitution and hopelessness essentially returning a people to peasantry under conditions of hyperinflation, which happens when the country’s bond market goes bust. At this point, a sovereign nation can no longer fund itself. With falling bonds, the government either defaults or starts printing money. Rising interest rates subsequently consume a large portion of the
he term (or threat of ) “hyperinflation” has become commonplace, and points of view often pivot around stemming any monumental collapse of local or global markets, as well as how to steer clear of terminal loss-making situations. Looking back to the last decades before the turn of the century, those previously relatively simple and solid markets are forever changed. Dark commentary has increased, particularly around the Federal Reserve’s behaviour, while the world may also, at the same time, be witnessing the toppling of the US dollar’s charmed status. Almost 1.4 billion Chinese nationals are hard to argue with, and Beijing understands only too well that it needs to instil the notion of the yuan as a reserve currency. Even if it is only partially successful, the old world will forever be gone. From distant vistas, the gritty machinations of the global economy are now very directly impacting retail investors, consumers and business at large. Some incredibly poor management, some aggressive currency manipulation, the slow squeeze necessitated by the subprime handouts, as well as political allegiances and hostilities, have seen a number of nations go into hyperinflation in recent history. It is
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worth noting that the last prompt for hyperinflation played out in many countries post WW2. A world war, then, was what it took to savage an economy to ridiculous levels. Over the last few decades, Angola, Brazil, Bulgaria, Mexico, Yugoslavia and Zimbabwe have numbered among dozens of countries that have suffered hyperinflation, laying bare what many thought to be impossible volumes of debt. The persistent push for profit inherent to capitalism, has allowed at least unethical and risky behaviour by money handlers and governments alike. The incestuous nature of global finance in 2019 means that no war is needed to spark hyperinflation anywhere.
Photo: Ruben Alfonzo / Shutterstock.com
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