Will the U.S. Dollar Turn Into the Venezuelan Bolivar?

There was a recent article published on SchiffGold and reproduced on LewRockwell.com.  It asks the question if Americans could someday be using dollars as napkins?

The story is really about Venezuela.  The currency there is in hyperinflation.  Different people have different definitions of hyperinflation, but when estimates of the inflation rate range from 400% annually to over 800% annually, then most people will agree that is hyperinflation.

Venezuela is a great example of the “paradise” that the socialists seek.  The people chose Hugo Chavez to rule over them and his successor continues on with the same authoritarian policies.

The government will do everything in the name of helping the poor.  Meanwhile there are a greater percentage of poor people suffering in Venezuela than anywhere else in South America.  You can read stories about massive shortages of food, toilet paper, and other basic necessities.  This is the socialist paradise that Bernie Sanders wants to impose on us.

The government policies have been horrific in virtually every aspect, but the hyperinflation is probably the worst aspect.  When you can’t trade with a reliable currency, it leads to complete market chaos.  The whole pricing system is corrupt, if you can even call it a pricing system.  Until the hyperinflation stops or the currency is abandoned, the massive shortages will continue.

The article linked to above shows a picture of someone using a 2 bolivar note as a napkin to hold food.  It points out that the 2 bolivar note is somewhere around the equivalent of one-third of a U.S. cent.  This may be cheaper than using a napkin.  Unfortunately, paper money does not typically have a good texture for being used as toilet paper.  Toilet paper in Venezuela is more valuable at this point.

As to the question of whether the U.S. dollar will ultimately be used as a napkin, I still believe this is not going to happen.  Hyperinflation is not an impossible scenario in the U.S., but it is not a likely one.

This would mean a total loss of control of the currency by the Federal Reserve.  The Fed members would be destroying their own power and their own pensions.

We could certainly see double-digit price inflation as was seen in the 1970s, but it would be hard to imagine the Fed letting it go beyond that without calling in the likes of a Paul Volcker.

We also have to realize that the central bank’s actions are at least somewhat of a reflection of popular opinion.  If the public has little opinion, then they will try to get away with as much as they can.  I said above that the Venezuelans “chose” Hugo Chavez to rule over them.  This isn’t true of every individual in Venezuela, but it is true as a collective.  In order for a thug to rule as he did, there has to at least be tacit consent among a majority of the population.

It may not always feel this way, but there is a more independent and liberty-oriented streak in the hearts of the American people.  Just imagine if price inflation reaches 10% by the government’s own statistics.  What will happen?

My guess is that it won’t be like the 1970s.  There will be a strong minority who understand that the problem is central banking.  They will be posting articles and YouTube videos on Facebook.  They could do that now, but a lot of their friends probably ignore it.  If prices are going up at a significant pace and the American middle class is really feeling it, then some will start to pay attention.

I would say that 5 to 10 percent of the adult population in the U.S. have a decent understanding of the central bank.  They at least understand that the Fed is the primary culprit in rising prices.  If a good percentage of these people take to social media to tell their friends and relatives, I believe that a majority of Americans will come to at least a basic understanding that the central bank is the problem.

For this reason, I don’t think we will be using U.S. dollars as napkins.  They don’t soak up grease very well anyway.

Leave a Reply

Your email address will not be published. Required fields are marked *