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Inflation is Destroying Venezuela’s Economy: Shield Your Portfolio Against It

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Socialist president Nicolas Maduro has run out of other people’s money, and so his government is using inflation of its currency to pay its bills. The country’s inflation has gotten out of hand, and hyperinflation has ensued. Now, the dropping value of the country’s bolivars has decimated its manufacturing industry. The Wall Street Journal reports:

Manufacturing’s fall reflects broader economic devastation. Venezuela’s economy has halved during President Nicolás Maduro’s six years in office, and is expected to decline another 30% this year as new U.S. sanctions on oil hit. The country’s GDP, at $80 billion, is now smaller than General Electric . Oil production, the most vital income source, has dropped 64% under Mr. Maduro, according to AGPV Asesores Económicos, a Caracas-based consulting firm. Imports have caved by 72%, the firm says.

“The fall in consumption is so big that plants work at volumes so low that they can’t maintain themselves and sustain their infrastructure, to keep machinery functioning and be able to pay their workers,” said Juan Pablo Olalquiaga, president of an industry group, Conindustria. “You have to be God to maintain all of these balls in the air.”

The ravages of hyperinflation have sapped Mr. Maduro’s support as his U.S.-backed rival, Juan Guaidó, claims the presidency. Mr. Guaidó staged a dramatic return to Venezuela on Monday despite government threats to arrest him, energizing the country’s opposition anew. Mr. Guaidó’s team says they would stabilize prices by stopping excessive printing of money while seeking loans and assistance from abroad.

“It’s really hard to see how anyone could run a stable government when prices are out of control,” said Sergi Lanau, deputy chief economist for the Institute of International Finance, a Washington-based association of global financial institutions that tracks economic trends.

The impact is obvious in Valencia, once a Venezuelan heart of industry.

On Henry Ford Way, the once-sprawling auto plants are closed. So is the diaper factory, as well as the plants that made soft drinks, steel, cooking oil and breakfast cereal. The managers of some companies—including Irish packaging giant Smurfit Kappa and Clorox—have fled the country.

Read more here.

Venezuelans who were wealthy enough and who thought ahead purchased gold before the currency crisis and are doing OK. I have repeatedly extolled the virtues of gold as a hedge against inflation and chaos. Read here, here, and here for examples. Adding some gold to your portfolio can shield you from the full effects of inflation’s bite.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com