Venezuela Hyperinflation: The Bolivar Value Goes To Zero

Venezuela hyperinflation is our next example of a country attempting to solve one economic problem only to create another. I’m continually amazed by the paradoxes of wealth and money.

In attempting to solve one problem we often create an unintended consequence: gamble big only to lose everything, spend lavish to look wealthy, and live like a pauper to save and end up with a King’s ransom for a portfolio.

When I started My Wealth Money a year ago there were two stories I wanted to cover but didn’t know how I would get them. The stories of Zimbabwe hyperinflation and the Venezuela hyperinflation experience.

I’m a big believer in the law of attraction and through the magic of social media I’ve connected with JD Rostagno who lived through the Venezuelan experience first hand.

No further delays – lets meet JD and jump right in.

Hey JD – tell us about yourself

I was born in Lima, Peru 45 years ago. We emigrated from Peru because of my dad’s job when I was just 2 months old. We lived in central America for a while and then most of my life in Venezuela. We went back to Peru around 1982 and then we left again due to terrorism and hyperinflation on Alan Garcia’s government. We went back to Venezuela until 2015 then we finally left and moved to the US with my wife and son due to the communist regime and economic downturn there.

Image Caption: Wedding – Morrocoy National Park – Aug 2009

Tell us about Venezuela and what happened with the economy there

Chavez won the elections at the end of 1998 and while some people thought that he was a moderate candidate, he wasn’t. He, as a military man, attempted two coup-d’etat to overthrow the democratic government in 1992. After he got elected president, he then worked to change the constitution, and sadly, he did it. They molded the constitution exactly as they needed to start implementing an authoritarian regime in the country.

As his power grew, so did the government’s control over the economy. Luckily for the government, oil prices started to rise (it was at $11/barrel in 1998) but instead of investing in the country, Chavez had this “Simon Bolivar” syndrome that made him want to expand his project throughout Latin America and the Caribbean.

Wait, what is “Simon Bolivar” syndrome?

He wanted to be some kind of “libertarian” and expand his project throughout Latin America to “save the oppressed people from capitalism”.

Okay, let’s continue

He started giving away money to other countries, replacing career professionals for any loyal-to-him person disregarding knowledge and experience, and launching non productive social programs in order to have people depend on the government.

Between 2008 and 2014 Oil prices went up to $110/barrel so money flow seemed to be endless. Venezuela received a trillion dollars from 1999 to 2014 only in oil exports. None or almost none of it was invested.

In 2002 there was an event in which Chavez was removed from government for 3 days but he came back even stronger and he realized that corporations still had too much power so he needed to also control them.

That’s when they implemented currency control so nobody could trade currency (get $) without the government’s approval. They also started to suffocate the private sector by controlling all products prices and taking away companies that didn’t follow his rules. While oil prices were high, they had money to pay for everything but after 2014, when oil prices crashed, it’s when everything went downhill.

After Chavez’s death in 2013, he assigned Nicolas Maduro as his successor and things got even worse.

Image Caption: “Jacuzzis” On top of Mount Roraima

Can you give us some pricing examples and currency slippage

By mid 2014, dollars started to run dry and that’s when inflation started to move up fast. By the end of that year, whenever I had to go and make a deposit to the bank, I had to take a couple bags with shoe boxes filled with cash. The Bolivar started to lose value FAST.

In 2008, while oil prices were going up, inflation also started to go up as there was too much inorganic money in the streets. That’s when they took the first three zero’s out of the Bolivar and changed it to Bolivar Fuerte (1,000 Bs = 1 BsF).

When we decided to move, I sold my car for X amount of money, a year later, the same amount of money was just enough for a bottle of scotch.

In 2016 we decided to sell our house, $ was anchored for a year at around 1,000 Bsf/$. We received an offer in BsF which we accepted because we didn’t expect a significant change for a while. Unfortunately two days after we received the check, currency jumped to around 2,300 BsF/$ so we pretty much ended up losing more than half our house value.

Since 2008, the regime has taken fourteen zero’s, yes… FOURTEEN (14) out of the currency.

Image Caption: Venezuela annual inflation rate

Image Caption: Black line shows the real value of the Bolivar against the US Dollar.

How did citizens protect their savings, investments and businesses?

Sadly most people couldn’t protect their assets as there was no free access to buying dollars. Many businesses started to close and big companies left the country. It’s estimated that around 8,000 corporations and more than 500,000 small businesses have closed in the last 20 years.

The ones that could save something, are pretty much the ones that had businesses outside the country.

What happened to those that trusted the narrative and did nothing to protect themselves?

Venezuela has now the lowest minimum wage of all Latin America and maybe the world. Minimum salary is $2.50 per month. Around 7 million people have left the country.

What lessons did you learn from this experience

Most important lesson is to not take things for granted. We were what you can call “settled”, we had our house paid, cars paid, I had two businesses… We lost everything. Another thing is to not get too comfortable, always step out of your comfort zone and keep pushing, even when you are doing good. And finally, resilience. Be able to adapt, no matter if you have to go back to basics.

Tell us where you are now and what your next financial goals are:

Because of the difficulty of the moving process we ended up having almost $60K of debt by the beginning of 2019. We have already paid most of it and we only have $2K to go. Because of this process I fell in love with personal finances and got so passionate about it that I’m starting to switch careers in order to be a financial advisor so I can help people with their finances. I’m already a FINRA Series 6 licensee and I’m still studying to keep improving and reach my goal.

Taking everything you’ve learned, and experienced, what are the top assets you’re investing in?

Right now I’m mostly focused on getting completely out of debt so we can start with a clean slate. I have a brokerage account with single stocks and a Roth IRA with some aggressive funds.

I have “played” with crypto, and made some money with Doge (bought at $0.003), but for me, in my particular situation (I’m 45 and a little risk averse), crypto is still too volatile to consider it a long term investment.

The way I see my investment future is mostly in the market and Real Estate, but for sure I’ll have a percentage of my pie in digital money.

Take us out – give us your key lessons from this experience

The key points I’m focusing right now when telling my story and assisting people on how to be successful with their finances and their lives overall is what I would have loved for anybody to really sit down and talked me into:

Start as young as possible. Is not about timing the market but time in the market.
Budget. People often believe that budgeting is for broke people while in reality it’s one of the greatest tools on building wealth.
Integrity. Never have people do or buy anything that you wouldn’t do for yourself and your family.Lead by example.
Never leave your future in the hands of any government. Governments are meant to give and guard equal opportunities, not to invest and take care of you.
Be debt free. Stop using debt as a crutch for keeping up with the Joneses and be careful with debt leveraging. Don’t over leverage your way to wealth, learn about risk management.
Protect your family and protect your assets. Insurance… Is better to have it and not need it, than to need it and not have it.
Diversification. Don’t put all your eggs in one basket.

If we all put our grain of sand, everything could be better for everybody. Always remember that you are building this “world” that you’ll leave to your kids. This is not an aleatory action. Live your life with a purpose and you will start to see the difference.

Thanks for this opportunity, take care and be safe. Love you all!

Bonus Material

9/11 20th Anniversary

20 years to the day of publishing this article, Tuesday, September 11th, 2001, I was standing in the “Butter Dome” at the University of Alberta as I watched the second plane crash into the World Trade Center at 9:03am.

I went numb and l covered my mouth with my hand.

For a moment the world seemed still, upside down, and nothing made sense.

Then the buildings crashed.

I will never forget this day nor this moment.

While the terrorist attack took itself took 2997 lives, many first responders died years later because of the exposure they endured being heroes pure. While the immediate destruction left the towers in ruin, the fires weren’t successfully extinguished until December 20, 2001. A full 100 days after the event.

9/11 Economically Speaking

After the 2nd plane crashed, the stock market was immediately closed, and it would stay closed until the following Monday. In response to the attacks, and in an attempt to spur recovery and provide liquidity, Alan Greenspan lowered interest rates on Sept 17, 2001 and continued to do so until interest rates hit their lows of 0.75% on Nov 6, 2002.

Economically speaking, I don’t believe we’ve extinguished the inflationary fires that started from this event.

This low interest rate environment would then spur the ensuing housing fever and excitement that lead to the 2008 Great Recession. This horrible recession lead to many bankruptcies and resulted in the lowering of interest rates once again.

Over the course of the next 10 years things seemed to recover and interest rates began to rise. But then 2020 comes along.

COVID Money Printing

COVID hits in early 2020 and back down we go. Except this time we’re at 0.00%. In real terms, its negative.

A healthy economy needs a healthy interest rate. Firstly, because lenders need a low risk reward for providing capital. Secondly, it sets a fixed competitive hurdle for businesses to deliver a product or service. And lastly, it allows investors to sleep sound at night and not inflate another asset bubble as they chase returns.

At the current rate of bond and currency devaluation, the asset price of bonds is artificially propped up by the federal government. They are currently buying $4B a day in bonds and they don’t believe they cannot stop anytime soon.

There is still one last fire to be put out.

Dedication & Tribute

To all the first responders and heroes of 9/11 – thank-you for your dedication to duty when it was most difficult.

You are the reason America is Beautiful.