Blood gold

The price flashes up on the till in front of you again. “I’m sorry,” says the cashier. “It looks like you don’t have enough.”

There’s a sinking feeling in the pit of your stomach.

There’s a queue of people forming behind you. People have stopped to watch. And your face is burning hot with embarrassment…

“There must be some mistake,” you say to the cashier. “Can you check again, please? It’s only a few things. I was only here a few weeks ago.”

On the checkout in front of you is a pint of milk, a loaf of bread and six eggs.

But every time the girl on the checkout scans an item, the prices flashes up wrong on the till. It’s four times what you expected to pay. And more cash than you have on you.

You look at the price again.

“That can’t be right,” you say. It doesn’t make sense.

A man taps you on the shoulder. You turn around and he smiles. “Here,” he says. “Let me help.”

He hands the cashier a stack of banknotes. You put the food in your bag and walk out.

It’s strange. But now you’ve noticed in, you can’t stop seeing it everywhere. You come to dread every time you have to buy anything. Petrol. Food. Coffee. Seemingly every transaction surprises you. Everything seems to be getting more expensive, almost by the day.

Soon, it’s impossible to know how much cash you need to buy anything.

Petrol stations up their prices twice a day. Supermarkets stop marking the price of anything. You have to guess. It’s hard. Increasingly, there’s nothing on the shelves at all. What is there costs tens of times what you think it “should”.

What’s going on?

It’s hard to make sense of anything. You’re semi-retired. You built your own business and sold it ten years ago. Now you live off the income your investments pay out. Which seems not to go very far at all.

You live in a prosperous country… the richest on the continent. The nation has vast natural resources to exploit… a big middle class… and wealthy cities.

At least that was once the case. Now things seem to have broken down. The price of everything just keeps going up, faster than you can keep up with. Everything is rising, but really it feels like you’re falling.

Your neighbour has become a millionaire. In fact, most people you know are millionaires now. But they’re not happy. And they’re not rich. 

How can you have tens of millions in the bank and look like a pauper?

This isn’t fiction, by the way. It’s not some version of the future cooked up in my imagination. It’s the recent past. It’s actually unfolding right now, in Venezuela.

It’s what happens when your currency rapidly loses value in a hyperinflation. Some of the stories are heartbreaking.

The inflation rate hit 1,000,000% last year. One million per cent. That’s after a prolonged period of hyperinflation prior to that.

A currency collapse like that is devastating. A litre of milk costs a quarter of the average wage. Imagine that. Working five days flat out and having a cup of milk to show for it at the end.

Such instability makes a mockery of the very idea of “work”. Some people’s salaries have declined by 98% in real terms over the last 18 years.

A rapid decline in living standards must be hard enough to take. But imagine you’re on a fixed income. For the old and the retired hyperinflation is a living nightmare. It untethers you from reality.

“It is no longer about remembering a price or having a perspective on when something is cheap or expensive. It is difficult to make the decision to buy based on the price,” one Venezuelan father told the press.

“Older people have a lot of trouble. The most outgoing ask for help or advice in line to pay, others pass the product by the barcode reader and seeing the price their eyes are filled with a void and an outrage and a misunderstanding that had never seen.”

It’s so bad the government can only maintain order via the threat of violence. It still has control of the army. And it only keeps control of the army by operating a monetary apartheid: it pays soldiers in hard currency (gold) and everyone else is forced to deal with the worthless bolivar.

There’s a brutal logic to that. Gold is money. It cannot be manipulated. It can’t be printed. It’s just a lump of metal. But a metal that people – including governments – have turned to when faith in paper currency evaporates.

In a horrible twist, the Venezuelan government is allegedly forcing people to become “artisanal” gold miners.

Artisanal in the literal sense. By hand. Mining gold by hand. Sending poor people down into the hot dark places of the world to claw what gold they can from the earth. That gold is then sold by the tonne internationally or used to pay the army.

“Just like the blood diamonds [in Africa], the gold that is being extracted from Venezuela, outside of any protocol, is bloody gold,” the former head of Venezuela’s intelligence service said.

So why am I telling you this story today?

As a reminder. I told you yesterday we were going to spend the week looking at the problems in the existing financial system. I don’t think what we have will survive.

We may not go the way of Venezuela, though I wouldn’t rule it out. But we have a system that is set up entirely the same: a paper currency, issued by the government and open to abuse by politicians.

The moral of this story is that the more control the authorities have over the financial system, the more control they have over your life.

That’s a risk. It means when things go wrong… the consequences can be catastrophic.

Their mistakes become your losses.

Their errors become your financial catastrophes.

Their grand dreams of prosperity become your nightmare.

By the way, gold soared 3.1 million per cent between January and August last year, when measured in bolivars. Serves as a reminder faith in money and authority may evaporate. But it rarely evaporates in gold.

But wait. I hear you. “That will never happen here… not in Britain.”

Just wait. We might be closer than you think.

More tomorrow.

Best,

Nick O’Connor
Publisher, Exponential Investor

Category: Cryptocurrency

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