Presented by: Texas Precious Metals

From the 10 years of military dictatorship between 1948-1958 to the impeachment of Carlos Andrés Pérez for corruption in 1993, Venezuelan politics have often been both rocky and eventful.

But despite these challenges throughout its history, no one has ever denied Venezuela’s economic potential. After the discovery of oil in the early 20th century, the nation quickly built its economy on back of black gold – and even today, Venezuela leads the world in proven oil reserves with 300 billion barrels.

Oil reserves Venezuela

Early on, Venezuela’s oil was a game-changer.

By 1950, as the rest of the world was struggling to recover from World War II, Venezuela had the fourth-richest GDP per capita on Earth. The country was 2x richer than Chile, 4x richer than Japan, and 12x richer than China!

1950 GDP per capita rates

Unfortunately for Venezuela, this wealth wouldn’t last – and an over-reliance on oil would soon decimate the economy in unexpected ways.

The Downfall of Venezuela’s Economy

From 1950 to the early 1980s, the Venezuelan economy experienced steady growth.

By 1982, Venezuela was still the richest major economy in Latin America. The country used its vast oil wealth to pay for social programs, including health care, education, transport, and food subsidies. Workers in Venezuela were among the highest paid in the region.

However, as you’ll see in the following animation, from there things went quickly downhill. In the mid-1980s, an oil glut and a free-falling oil price ended up decimating the Venezuelan economy, which was unable to diversify away from energy.

Venezuela GDP per capita

Today, Venezuela has one of the poorest major economies in Latin America – and as the current crisis rides itself out, the IMF foresees it getting far worse. By 2022, the organization predicts Venezuela’s GDP per capita (PPP) will be just $12,210, which would be a massive economic setback – the Venezuelan economy would be even poorer than it was many years before the Chávez era started.

Flying Too Close to the Sun

Although oil revenues are tempting to rely on to maintain social order, they come with a degree of unpredictability. According to OPEC, Venezuela still relies on oil for 95% of its exports, which means that any fluctuations in oil price can be the difference between immense wealth and near-poverty.

Venezuela inflation vs. oil revenues

The above graphic shows Venezuela’s oil revenues (in 2000 dollars) against the rate of inflation – and it symbolizes the story of Venezuela’s recent economic history as succinctly as possible.

After the oil glut in the 1980s, Venezuela’s oil revenues dropped significantly. It was then that Venezuela had its first bout with inflation, where rates peaked in 1989 (84.5% inflation) and later in 1996 (99.9% inflation). Without sufficient money coming in, the country had to rely on its printing presses in an attempt to maintain living standards.

In 1998, Hugo Chávez was elected with the promise that Venezuela could reduce poverty and step up living standards by leaning even more heavily on its energy wealth. The recovery of oil prices helped this come true in the 2000s, and Chávez later passed away in office in 2013.

A Temporary Fix

Nicolás Maduro, who took over after the death of his predecessor, saw oil prices crash almost immediately, and it was clear that Venezuela’s intense battle with inflation was only just beginning. The national currency, the Venezuelan bolívar, would soon be almost worthless.

Bolivar inflation against USD

The details of today’s crisis and intense hyperinflation are widely shared.

The country has massive shortages of food, electricity, and other essential goods, and violence is escalating in Caracas. More recently, the government is attempting to tighten its grip around power, and mismanagement of the economy has led to people starving on the streets. People are calling the situation a humanitarian crisis, which is extremely disheartening to see in what was once one of the richest countries on the planet.

And while the current condition of Venezuela is a tragedy in itself, the country’s inability to live up to its true economic potential is nearly just as devastating.

The Money Project

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

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Presented by: Texas Precious Metals

The Trajectory of Venezuelan Hyperinflation Looks Familiar…

The Trajectory of Venezuelan Hyperinflation Looks Familiar…

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

Extreme shortages of food and power continue to ravage the country of Venezuela, and ordinary people have been paying the price.

With triple-digit inflation, that “price” is expected to continue to soar even higher. The International Monetary Fund (IMF), in its most recent set April forecasts, expects inflation in Venezuela to hit 481% by the end of 2016.
Even scarier is the estimated pace of acceleration – by 2017, the IMF expects Venezuelan hyperinflation to climb to a whopping 1,642%.

Our brains have trouble computing numbers of this magnitude, so we created today’s infographic to put things in perspective. We look at it from two angles, including a historical comparison as well as a more tangible example.

This Pattern Looks Familiar…

If the chart for the Venezuelan bolivar looks eerily familiar, it may be because its trajectory thus far is almost identical to that of the Papiermark during hyperinflation in the Weimar Republic from 1918-1923.

Although the Papiermark would eventually peak at an inflation rate of 3.5 billion percent in 1923, the pace of inflation started relatively modestly. It started in the double-digits after the war in 1918.

This is similar to today’s bolivar. In 2013 and 2014, the pace of inflation in Venezuela was increasing, but still confined to double-digits. Now things are accelerating fast, and if the IMF is correct with its predictions, there could be huge consequences.

Could Venezuelan hyperinflation ever hit the peak levels associated with Weimar Germany? It’s hard to say, but it’s not impossible.

A More Tangible Example

To put things from a more tangible perspective, let’s do the math based on IMF projections to see what may be in store for ordinary Venezuelans.

  • In 2012, one U.S. dollar could buy approximately four bolivars.
  • At the end of 2015, one U.S. dollar could buy 900 bolivars at the black market rate.
  • Based on IMF projected inflation rates, by the end of 2017, one U.S. dollar should be able to buy 90,000 bolivars.

Where things go after that is anybody’s guess.

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

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Presented by: Texas Precious Metals

Visualizing the Most Miserable Countries in the World

Visualizing the Most Miserable Countries in the World

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

Every year, the Cato Institute publishes a list of the world’s most “miserable countries” by using a simple economic formula to calculate the scores. Described as a Misery Index, the tally for each country can be found by adding the unemployment rate, inflation, and lending rate together, and then subtracting the change in real GDP per capita.

Disaster in Venezuela

According to the think tank, countries with misery scores over 20 are “ripe for reform”. If that’s true, then socialist Venezuela is way overdue.

The troubled nation finished with a misery score of 214.9, the highest marker in 2015 by far. Unfortunately, the number is not looking better for this year, as the IMF has projected that hyperinflation will top 720% by the end of 2016. For the average Venezuelan, that means that food staples and other necessities will be doubling in price every four months.

Hyperinflation has taken its toll on citizens already. Three years ago, one US dollar could buy four Venezuelan bolivars. Today, one dollar can buy more than 1,000 bolivars on the black market. If the inflation rate keeps accelerating, the situation could approach a similar trajectory to hyperinflation in Weimar Germany, where rates eventually catapulted to one trillion percent after six years.

While hyperinflation is certainly one of Venezuela’s biggest concerns, the nation has also been short on luck lately. The Zika virus has hit the country hard, and the oil crash has created political, economic, and social tensions in a nation that depends on oil exports to balance the budget. Three in four Venezuelans have fallen into poverty, and the country’s GDP is expected to contract 8% in 2016.

Venezuelans are now facing dire shortages for many necessities, including power. Droughts have caused mayhem on the country’s hydro reservoirs, making blackouts common and widespread. Food, medical supplies, and toilet paper are in short supply, and even beer production has been shut down.

Key Stats:

  • Approval Rating of Nicolas Maduro: 26.8%
  • People in poverty: 76%
  • Oil exports, as a percent of total revenue: 96%
  • Homicides per capita: 2nd highest in world
  • Good shortages: Power, medical supplies, food, toilet paper, beer
  • Fiscal deficit: 20% of GDP

Recent measures taken to dampen the crisis in Venezuela have been bold.

The government has moved entire time zones while reducing the work week of public sector workers to try and work around power deficiencies. Meanwhile, minimum wage earners have been given a 30% raise to keep up with inflation.

However, the crisis may be coming to a head. A recent survey shows that 87% of Venezuelans do not have enough money to purchase enough food to meet their needs, and people are getting restless.

In early May, the opposition party submitted a list 1.85 million signatures to the electoral commission to seek a recall referendum against President Nicolas Maduro. Days after the submission, the leader of an opposition party was found dead after being shot in the head.

Unless the country gets ruled with an iron fist, the level of misery can only reach a certain point before the people take decisive action.

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

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