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Lessons from Venezuela

By LINDON, Utah - March 8, 2019 No Comments

The disastrous failure of the Maduro dictatorship in Venezuela holds lessons for all of us. We can improve our lives in the short-term by borrowing money, but we must pay it back later. When governments try to avoid this reality by inflating the money supply, everyone eventually catches on. Inflation did not create real growth or help the poor in Venezuela, but it did destroy most of the middle class. When the paper economy collapsed, gold became more important than ever. 

Politicians often say our fears of hyperinflation are unrealistic, and some of them held up Venezuela as an example. Under Maduro's predecessor, Hugo Chavez, Venezuela regularly had inflation of 20 to 30 percent per year. Some experts disputed the official inflation numbers, just as they do in America. However, the regime could tout its performance in Gallup's happiness survey as recently as 2010. That year, Venezuela ranked as the fifth happiest country in the world.

Running deficits and printing money eventually catches up with governments. The World Bank annual inflation numbers for Venezuela went over 60% in 2014, above 120% in 2015, and to more than 250% by 2016. Things really became interesting in 2017. The Maduro regime eventually admitted to inflation of over 800%, but they had no credibility by that point. Bloomberg developed the Cafe con Leche Index, which measures the price of a cup of coffee in Caracas, Venezuela. As inflation spirals out of control, real goods become the only way to deal with it. The Cafe con Leche Index showed inflation in Venezuela at 1,718 percent in 2017 and nearly 400,000 percent earlier this year. 

The inflation numbers alone can't tell the whole story. The percentage of Venezuelans living in poverty rose from 52% to 76% between 2014 and 2016. CBS reported that many in the middle class were digging through trash for food. In 2017, the situation became worse. Gallup named Venezuela the least safe country in the world and found that over 40% of Venezuelans wanted to leave the country. By 2018, it had become a humanitarian disaster. The same happiness survey that ranked Venezuela fifth in 2010 showed the country dropping to 102, below war-torn Somalia. The IMF estimated that the economy contracted by 15%. 93% of Venezuelans did not have enough money to buy food. The Guardian reported that remaining members of the middle class were selling their jewelry for food. 

As the Venezuelan economy collapsed, gold proved to be the asset of last resort. The middle class sold their jewelry, and the government sold more than 40% of the country's gold reserves. The dictator Maduro was frequently seen with the gold that he took from his country. His family continued to do well while millions of his people went hungry. Despite all the promises of politicians, nothing has changed. Gold remains the best way to protect your savings and your family from the horrors of hyperinflation.