The hyperinflation continuing to impoverish Venezuelans is entirely avoidable and shows why sound, honest money is needed to head off inflation worldwide, says Glint Co-founder Ben Davies
The fate of Venezuelans, held hostage in poverty by the mismanagement of their government and a currency hyperinflating, has been well documented in recent years. The extent of the misery being caused was recently revisited by the New York Times.
Unlike a natural disaster the suffering caused in Venezuela is completely man-made: All such hyperinflations such as we witness in countries like Venezuela are a political occurrence – they are caused by financing vast public deficits through money creation.
When money creation goes wrong, or is malpracticed for political intent, we create inflation. This raises the costs of living and lowers the value of savings and our quality of life. It is an endemic problem that has become normality in the West. People lose prosperity and opportunity.
When money creation goes really wrong, usually due to the outright manipulation of money and markets by political ideology – as in Venezuela – people lose everything. Growth disappears, value evaporates, corruption dictates, people starve.
This is entirely avoidable. When we call gold ‘honest money’ this is what we mean. It cannot be corrupted; politicians, economists, you, me, cannot just make more, it always has value. If those in Venezuela were able to use honest money, they would be able to trade knowing they had a store of value – not only domestically, but with anyone in the world.
We talk a lot about inflation because it is not something that only happens in countries under the yoke of corruption or dictatorship. The US under Trump is now on an inflationary path due to egregious increases in fiscal deficit which cannot be paid for via tax revenue or from any growth in the economy.
The protectionist behaviour of the US administration is encouraging trade wars which will mean other regions of world will naturally need less dollars. This use of dollars is what enables the fiscal imbalance to be funded. The US and China are now at odds with each other – the dollar hegemony is over and a new currency is needed to create coherent trade structure.
Gold and Glint will be part of that calibration.
In many parts of the world where gold is already used, Glint will just enable a more frictionless facilitation of trade and commerce on a daily and individual basis. Where gold will be proven is in arresting the fallout from the mismanagement of public, sovereign money around the world. In Venezuela, in the US, in the UK and elsewhere, that mismanagement has shown its human cost.
I attach a presentation we did at Hinde Capital which explains the journey to hyperinflation based on fiscal incontinence. This was written in 2010 and presented at a Precious Metal conference. The underlying issues are now an order of magnitude.
Ben Davies is Co-founder and COO of Glint. Ben has 20 years’ experience in international financial markets, previously as head of trading at RBS Greenwich, before founding Hinde Capital, an alternative fund management company in equity and precious metals.