When Columbus arrived in Venezuela on his way to what is now America, he dubbed the country “The Land of Grace” (Isla de Gracia). He became breathless at what he discovered. He thought he had reached Paradise. Columbus devoted two weeks exploring the Río Orinoco delta. He became entranced with the ample source of fresh water and the pearl ornaments of the native population. He believed he had discovered the Garden of Eden.
But it was Amerigo Vespucci, in 1499, who gave Venezuela its name, one year after Columbus had explored the Orinoco River Delta. When the Florentine explorer sailed along the coast of South America and reached Lake Maracaibo, and noticed homes on stilts along the shore, he couldn’t help but think of Venice, and thus named the region Venezuela, or “Little Venice.”
Unfortunately, the sixth largest country in South America, though it retains its beauty and biodiversity, no longer can be thought of as a charming place for city dwellers to carve out a life. The Land of Grace has turned into a hell on earth.
The residents are having a difficult time finding food, clothing, medical supplies, and even toilet paper. Venezuela has now become besieged by rampant crime, a government dictatorship, and inflation that’s out of control.
In 2016, the country’s inflation hit 800 per cent, and its gross domestic product (GDP) contracted 18.6 percent. Four out of five households are now officially in poverty, twice the rate that enveloped the economy when its current corrupt and inept leader, Nicolás Maduro, came into power in 2013.
The fundamental reason for Venezuela’s economic disaster can be traced to its over-reliance on its oil exports.
When global oil prices toppled in 2014 from $100 a barrel to $21.50 a barrel, Venezuela found itself in dire straits. The country became plagued by enormous oil surpluses. What was once its economic advantage rapidly had become its economic curse. Lacking other resources, government leaders discovered that oil surpluses did not convert to food, medical supplies, toilet paper, or domestic stability.
Venezuela now found itself trapped by the “resource curse” known as the Dutch disease. The phrase came into fashion in 1977 when the Dutch economy precipitously declined on the tail of the Netherlands discovery of natural gas reserves in 1959. The country had come to suffer as a result of relying too heavily on one resource – natural gas – and on an overvaluation of the Dutch currency.
Unfortunately, the Dutch disease didn’t translate into an economic lesson for Venezuela. In 2013, that country’s $143 billion in exports consisted of $139 billion in crude and refined petroleum. So it comes as no surprise that when world oil prices plummeted, Venezuela’s economy collapsed.
As things stand, Venezuela does not have enough money to import food and medicine, its shopping lines have become longer and longer, whereupon shoppers ultimately discover stores’ shelves have become empty.
Inflation keeps rising, and the bolivar, Venezuela’s currency, is devaluing. One bolivar is now worth 0.100127 US dollars. And there’s no stopping of the currency slide in sight. Needless to say, the country is now caught in a nightmare of crime and political corruption.
Is there a lesson we can learn from Venezuela’s experience with inflation? I think so. While here in the United States, we’re nowhere close to that nation’s economic tragedy, we’d be well advised to keep in mind that fiat currency could very well go poof in our lifetime.
Also, we don’t accumulate wealth, per se, by just accumulating dollars. It’s important to accumulate hard assets as well. And the best of the hard assets, in terms of its history and portability, remains physical gold.
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