Original art by @modográfico

According to Venezuela’s National Assembly, consumer price inflation rose to 57% in November from 45% in October – having blown past the classic 50% threshold, the country is officially in hyperinflation.

In hyperinflation, prices rise at a high and accelerating rate, fueled by unbridled central bank money printing and the population’s unwillingness to hold the currency. Latin America hadn’t seen hyperinflation in 25 years and skeptics balked at the thought that it was even possible for an oil exporter, but alas, Venezuela defied expectations once again.

The government essentially doubled the monetary base in November, a jaw-dropping record increase. All the new money was used to finance public sector year-end bonuses, Sunday’s municipal “elections” and the ordinary fiscal deficit. As a result, 12-month inflation rose over 1,700%, another all-time-high. To put things in perspective, daily inflation surpassed annual inflation in much of Europe.

Runaway inflation and the economic crisis are already fraying the fabric of Venezuelan society. Households, rich and poor, are cutting back on food because it’s too expensive, especially proteins, resulting in involuntary weight loss for three quarters for the population. Roughly half of university students have dropped out to look for a job because their parents can no longer sustain them. Malaria and other eradicated diseases are back with a vengeance. Shockingly, Venezuelans crossing into Colombia by land now outnumber North African immigrants to Europe.

For more than a decade, Presidents Chávez and Maduro wiped out the domestic private sector and racked up $150bn plus in external debt.

But bleak as it is, life in Venezuela will only get worse. Like the national oil company’s production collapse and the external debt default and restructuring saga, hyperinflation is just taking off. Without a complete overhaul, misery in Venezuela will deepen as Zimbabwe-style price increases become the norm and inflation accelerates to ten or twenty thousand percent per annum. Hunger will grow as prices outpace salaries and Venezuela’s $5 monthly minimum wage falls closer and closer to zero. 2018 will be the fifth consecutive year of economic recession.

Hyperinflation will cripple Venezuela’s dysfunctional economy. As production nosedives and tax revenue falls, for instance, the fiscal deficit will rise, increasing the speed at which the central bank prints money to cover it. This is gasoline to hyperinflation, which will make the economy and tax revenue fall even more in a toxic feedback loop. The government may hike the minimum wage to any level they like in response to rising prices, but it wont work. Real wages can’t rise if fewer goods and services are being produced.

The three things the bolívar is meant to do – store value, measure value, and be a useful exchange token – it’s failing at, making it more likely that citizens abandon the currency. Absurdly, ATMs only allow Bs. 10 thousand in withdrawals (10 U.S. cents) when groceries can be thirty times that, and even when shops take debit/credit cards, transactions can take minutes to go through the faulty interbank network, causing long lines. The bolivar’s purchasing power melts away in weeks thanks to galloping inflation, making nominal statistics like the government’s 36 trillion bolivar 2018 budget meaningless. As the currency’s problems worsen, the economy may eventually dollarize de facto or simply break down into barter.

Hunger will grow as prices outpace salaries and Venezuela’s $5 monthly minimum wage falls closer and closer to zero.

On this historic day, it’s important to remember that hyperinflation and Venezuela’s economic collapse were entirely self-inflicted. For more than a decade, Presidents Chávez and Maduro wiped out the domestic private sector with excessive controls and expropriations. They didn’t save a penny and racked up $150bn plus in external debt. What for? To finance consumption, not investment, even as oil prices were at an unprecedented $100 per barrel. They couldn’t stand congressional oversight or accountability so spending took off outside the budget. Behind the scenes, Chávez gutted the central bank’s independence, most seriously in a 2009 reform that allowed direct lending to state-owned enterprises.

Then, when oil prices suddenly crashed in 2014 and Venezuela’s export revenues dried up, the regime slashed imports by 80% over the four years to keep paying the debt and inadvertently threw the economy into a tailspin. GDP fell some 35% and the budget deficit bulged as if the country was at war, making the government completely reliant on the central bank printing press for deficit financing. Now domestic industry is in tatters and the country can’t make up for it with imports, so people are just dying for lack of food and medicine. Meanwhile, hyperinflation is taking off as the government floods the country in new bolívares to pay its bills.

With a likely Maduro “reelection” in 2018 and no talk of economic reforms, Venezuela’s outlook is dire. It’s deluded to think that the criminals that made Venezuela unlivable despite a trillion dollar oil bonanza might somehow stop hyperinflation, stabilize free-falling oil production or otherwise improve living standards. It’s deluded to think that they even want to. As long as Maduro is in charge, Venezuela will continue to walk the path of North Korea and Yemen until it’s global pariah and destitute wasteland.