Tag Archives: Inflation

Economy, Featured, International, Technology

Venezuela’s Currency Plunges to One-Seventh the Value of World of Warcraft Gold

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Venezuela’s ongoing, years-long financial crisis has continued to worsen, and the socialist nation’s real-world official currency, the bolívar, has plunged in a state of hyperinflation to around one-seventh the effective trade value of in-game digital gold from the massively-multiplayer online role-playing game World of Warcraft.

According to analysis by Fortune‘s Chris Morris, in terms of trade value in US dollars, World of Warcraft gold is worth 6.8 times more than the bolívar.

“Here’s how the math works out. Per Google, one U.S. dollar is worth 68,915 bolívar. Compare that to the price of WoW tokens, official in-game credits that can be used to extend a player’s play time or buy in-game items. Tokens can be bought with either $20 real world cash or sold for a fluctuating amount of in-game gold. One tracking service lists the current gold price of a token as 203,035 pieces. That works out to about 10,152 gold gaming pieces per USD,” wrote Morris.

It is worth noting that since Morris published his analysis on Monday, the bolívar’s official exchange rate has already dropped further against the dollar. One dollar is as of press time today worth 69,913 bolívar.

However, Venezuela’s government has enacted strict currency controls, limiting the ability of individuals to convert their bolívar into foreign currencies. For situations such as when companies need to import materials from other countries in order to produce goods, limits on currency conversion can hamstring their ability to produce goods, creating a significant demand for foreign currency exchanges on the black market. This causes the value of the bolívar to plunge even further in real-world terms.

Dolar Today, a currency valuation resource that factors black market value in its valuation of Venezuela’s currency, notes that the black market exchange rate for one U.S. dollar is 661,824 bolívar as of press time. At this valuation, World of Warcraft gold is actually worth 65 times more than the Venezuelan currency.

Venezuela has been in an ongoing financial crisis since 2012. Despite the fact that it has the world’s largest documented oil reserves, Forbes notes that Huge Chavez’ 2007 nationalization of the nation’s oil industry correlated with an oil production drop of 20 percent by the start of the 2012 financial crisis.

Reuters notes that 90 percent of Venezuelans currently live in poverty, and the average Venezuelan lost 24 pounds in body weight in 2017 due to hunger. A Miami Herald report found that significant numbers of Venezuelans with professional careers such as doctors and teachers have been crossing the border to Colombia to exchange sexual services for money in order to survive. According to The Washington Post, Venezuelans are applying for asylum to other countries at explosive rates not seen since the Syrian refugee crisis in 2015.

In a recent episode of Reality Check, Ben Swann explained Venezuela launching its own national cryptocurrency, the petro, and the issues arising from digital currency that is rooted in government rather than fully decentralized.

https://www.youtube.com/watch?v=xGkymaMtSPM

 

Business, Economy, International, Politics

Panic in Russia: Fearing Inflation, Consumers Rush to Make Purchases Before Prices Rise Further

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Russia’s economy is on the ropes. According to Bloomberg, the ruble fell 19% in just the past three days, and plummeting oil prices are also hammering Russia’s oil-based market. As the Russian government scrambles to implement emergency fiscal measures, retailers are taking cautious steps of their own, with some warning consumers about imminent and steep price hikes, and others, such as Apple, suspending online sales in the country entirely. The above-embedded video by CNBC‘s Nightly Business Report highlights some of the specifics of Russia’s current financial woes.

Daily Mail is reporting that consumers in Russia have begun a mad rush to stores in an effort to make purchases on expensive items like automobiles and furniture before prices surge further. Many stores that have remained open for business through the crisis are reporting sales records, though the temporary boosts in revenue are not being hailed as a productive economic indicator.

“This is a very dangerous situation. We are just a few days away from a full-blown run on the banks… If one does not calm down the currency market right now, the banking system will need robust emergency care,” noted an editorial in the Russian business magazine Vedomosti.

Authorities in Russia responded to the collapsing currency by pushing up interest rates to 17%, according to Business Insider. A Russian bank manager, quoted by Vedomosti, said of the rate hikes, “Raising rates up to 17% — that’s the end of the banking system.”

With consumers forming long lines at retailers, Russia’s current currency crisis risks worsening into a situation like the one that devastated the pre-World War II economy of the Weimar Republic, when shoppers carried money in wheelbarrows to purchase groceries. Daily Mail quoted a Russian shopper, who compared Russia’s modern woes to the nation’s 1998 ruble crisis and said, “What’s pressuring us is the fact that many people [back then] rushed to withdraw money from bank cards, accounts… We want to safeguard ourselves so that things wouldn’t be as bad as they were back then.” Currency fears are pushing consumers to invest their money into durable goods rather than financial instruments.

Financial experts have blamed falling oil prices and US sanctions for creating Russia’s current crisis. According to New York Daily News, President Obama plans to sign a bill imposing additional sanctions on Russia, despite the fact that the nation’s economy is on the brink of a potential collapse. RT notes that Obama has yet to sign the Russian sanctions bill, a geopolitical chess move aimed at influencing Putin’s response to Ukraine’s political crisis, but could as soon as the end of the week.

US

Chicago City Council approves minimum wage hike

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An ordinance brought before the Chicago City Council to raise the minimum wage to $13 an hour was overwhelmingly approved Tuesday by a vote of 44-5.

Currently, the minimum wage in Chicago is $8.25, and under the new ordinance this will rise to $10 an hour by next July and continue to rise by fifty cents every year until 2019.

The ordinance cites the rising levels of inflation for the need to raise the minimum wage.  Specifically, the ordinance says, “rising inflation has outpaced the growth in the minimum wage, leaving the true value of lllinois’ current minimum wage of $8.25 per hour 32 percent below the 1968 level of $10.71 per hour (in 2013 dollars).”

Chicago Mayor Rahm Emanuel said, according to the Chicago Tribune, the minimum wage increase is “part of an economic strategy to make sure that work pays … and not only that work pays — simple — but no parent that works should raise a child in poverty.”

While some groups such as the Raise Chicago Coalition applauded the raising of the wage, others said the approval of the ordinance is a mistake.

Tom Tunney, a restaurant owner in Chicago, said, according to the Huffington Post, “How do you go from $8.25 [an hour] to $13 overnight?  You know what you do? You raise the prices and you’ve also got to find ways to do it with less help. That’s what’s going to happen.”

Alderman Bob Fioretti, however, said the ordinance does not go far enough and the minimum wage could be raised to $15 an hour.  “While I’m proud to support today’s increase in the minimum wage, we can’t stop fighting now,” said Fioretti.  “The chant in the streets here and nationwide has been ‘show me $15,’ not ‘show me $13 by 2019.'”

Opinion

LOTFI: Minimum Wage Increase Will Destroy America’s Poorest

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MinWag

NASHVILLE, February 23, 2014– Democrats have stirred the pot (yet again) for a minimum wage increase. It is of paramount importance that people attain a basic working knowledge of the laws that guide labor markets. Democrats stress that increasing minimum wage will lift people out of poverty. This is not true. In fact, a minimum wage increase will hurt the very people we are told it is designed to help– America’s poorest.

Background

When most people think of supply and demand they associate the idea with goods and services, which they pay for with their money, such as cable television, groceries and utilities.

The majority of Americans understand that if a drought occurs then many plants will die. This will cause fewer plants to yield produce, which will cause the supply to be limited. Thus, the price will increase due to movement relating to the supply curve. They also understand that if Apple’s next iPhone was filled with new, groundbreaking technology then the price of the iPhone 6 would soar due to movement relating to the demand curve.

However, many people do not associate minimum wage with supply and demand. This should not come as a surprise. The vast majority of Americans aren’t business owners. Due to this lack of experience, most do not understand the market laws at play.

Supply & Demand

The fact is that minimum wage is a perfect example of supply and demand. In fact, it’s Economics 101. Employees are suppliers of labor (supply). Employers are the consumers of that labor (demand). Since the minimum wage was created in 1938, economic dead weight loss has ensued.

The minimum wage is a price floor. This means that a firm can pay no less for your labor than what the government dictates. How is this a problem? It prohibits voluntary labor contracts.

For example, say a 14-year-old kid wants his first job at McDonald’s. The candidate has no skills, he’s never worked before, is vastly inexperienced and presents a sizable risk to the firm. Due to the fact that the government has now mandated the employer pay the 14-year-old $15/hour the firm decides to hire someone with more experience. The kid voluntarily offers to work for $7.50/hour. However, the government won’t allow it. A potential contract has now been killed and economic dead weight loss is the result.

Furthermore, firms can only pay wages that are below their average revenue product of labor (ARPl) curve. In layman’s terms, if the firm only nets $1.00 of profit per unit of labor at a cost of $9.00/unit then a $1.10 increase in each unit of labor will net the firm (-)$0.10.

If labor currently costs $9.00/unit and the government mandates firms pay $10.10/unit then the firm must do one of three things. The firm will either raise prices in order to maintain all units of labor, fire employees (results in decreased production–supply), or fire employees and require that current employees increase output to compensate for lost labor units. Yes, even a $0.20 increase will have this effect on some firms.

Various firms will react differently. The net result is lost jobs and increased prices for goods and services (inflation). Higher prices for goods and services are further accelerated by the fact that some firms are now producing less due to higher variable costs. This causes movement with relation to the supply curve and prices increase with demand remaining constant.

Democrats have attacked this as being a fallacy. It is not. It is an economic truism. The Congressional Budget Office has already verified that increasing the minimum wage right now will destroy 500k-1 million jobs. One million people out of work? That’s exactly what we need going into a quasi recovery from the recession.

America’s Poorest

As stated previously, wage floors hurt America’s poorest. Many individuals seek “black market jobs”. These jobs are off the radar of government’s restrictive wage laws. Think of baby sitters, handymen, maids, farm hands and other similar “cash under the table” jobs.

The majority of employees in this market lack the training and experience to seek more lucrative jobs. Therefore, they often find themselves in poverty and unable to climb the career ladder.

As noted before, an increase in the minimum wage will cost jobs. One million workers who were previously employed at the previous wage floor are now unable to find work. Fired because they lacked the marginal value necessary to maintain employment, these individuals will have an extremely hard time finding work at the new wage floor.

What will they do? They flood the secondary labor market looking for cash jobs because they cannot find employment at the new wage floor.

This causes a surplus of labor (supply) in that market. This means that firms, as consumers (demand) of labor, can now pay less for each unit of labor due to surplus conditions.

America’s poorest are now in a far worse situation than before due to the new labor surplus in their market. Their wages are now being reduced and increased competition for available jobs now exists. This is then compounded with inflation from the minimum wage increase, which causes the purchasing power of the dollar to decrease. The net result? America’s poorest are now making less and their dollar is worth less.

To promote a minimum wage increase as salvation for America’s poorest is purely insidious. In reality, the effects on these Americans is simply detrimental.

The Solution

The minimum wage has been raised countless times since its creation. Yet, it doesn’t seem to be working. If raising the wage floor worked then people would no longer be in poverty and all would be prosperous. The solution is simple. America must return to sound fiscal policy and abandon the Federal Reserve’s fiat monetary system. Until this occurs, minimum wage will continue to be adjusted upwards. Soon enough the wage floor will be $100.10/ hour and a happy meal will cost $70.00. The wage is not the problem. It’s the money itself.

Follow Michael Lotfi on Facebook and on Twitter.

Politics, US

Fmr. Head of Fed Reserve QE Program Confesses The Program Is Nothing More Than Wall Street Welfare

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Story by Sonya Sandage and Ben Swann

“I’ve come to recognize (Quantitative Easing) for what it really is: the greatest backdoor Wall Street bailout of all time”, writes Andrew Huszar, former head of Federal Reserve QE program in a stunning “confession” in the Wall Street Journal this week.

Consider the fact that up until 2008, virtually no American was aware of the economic term, Quantitative Easing. QE, as it is called by media is the Federal Reserve Bank’s policy of bond purchases in order to support bond prices. Bond buying via Fed Open Market Committee is a typical practice, but the $4 Trillion in QE we’ve seen over the last five years is anything but typical.

The Fed essentially is printing $85 Billion per month, out of thin air, using that digital money to buy bonds up, and trade them out with cash reserves or ultra-short term notes. Banks and hedge funds that owned the original bonds are then supposed to pump that money into the economy, creating a virtuous cycle.

What we now know, five years after the start of QE1, is that Quantitative Easing does virtually nothing to improve the U.S. economy. The reason for that is actually pretty simple, most of the loose money courtesy of Fed printing is being reinvested into even more bonds, as well as derivatives and stocks.

It’s not being invested in creating new businesses, or significantly increasing lending. The $85 Billion per month is not being reinvested into biomedical research, tech, space exploration, or really anything innovative that will create economic growth. This does not help the common man, aka Main Street. It does help investors, including 401(k) and IRA owners, and has made them richer than ever in their accounts. If there is a major market correction when a taper does start though, those gains could evaporate.

So what is the QE policy all about? According to Huszar, again the former head of Federal Reserve QE program, Quantitative Easing is really nothing more than Wall Street welfare.

“It has allowed QE to become Wall Street’s new ‘too big to fail’ policy.” writes Huszar.

Huszar goes on to write, “Unless you’re Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.”

Long have critics alleged the policy is actually designed to prop up the balance sheets of the very same “Too Big to Fail” banks that caused the financial crisis by deregulation of Glass-Steagall, and irresponsible gambling in derivatives, as well as outright fraud.

To read the full confessional piece by Andrew Huszar, click here