HYPERINFLATION Belarusian Madness Triggers another Weimar

I checked out Zerohedge today, as I tend to do at least once a day, and saw the news that Belarus had a sudden 30% collapse in its currency, the Belarusian Ruble. For those who don’t know Zerohedge, it’s a good resource, but don’t take it too seriously. According to Tyler Durden, the sky falls every day. It will at some point, but we’ll all see it when it starts, and we won’t need Zerohedge to tell us it’s happening.

When the dollar falls 10% in a day, we’ll know we’re there.

Anyway, I don’t usually read full Zerohedge articles, just the snippets on the homepage to get a feel for what’s going on in wacky world of Keynesian finance. Anything especially interesting I double check at RT, which is sort of like a toned-down Zerohedge, libertarian-leaning news outlet that is favorable to Putin. I found at RT the reason for the sudden 30% drop in the Belarusian Ruble.

The national currency lost 30 percent of its value shortly after the country’s national bank introduced a 30 percent tax for individuals and businesses purchasing foreign currency. The Belarusian ruble reached 14,150 against the US dollar, and 17,400 against the euro, with the net cost of $1 amounting to 11,000 Belarusian rubles, and €1 to 14,000.

It’s really beyond words how stupid central banks are. In order to protect its currency, the central bank of Belarus instituted a 30% tax on people who want to sell it. This, they thought, would prevent people from selling the currency and stabilize its exchange rate.

Instead, what happened is that all the demand to sell the Belarusian Ruble for foreign currency translated itself into a demand to sell the Belarusian Ruble for any physical asset anybody could get their hands on in Belarus.

Electronics Store in Belarus, December 2014

You can’t legislate prices. Not wages, not exchange rates, not anything.


CURRENCY COLLAPSE Russian Ruble crashes, only backing with gold will save it

In what is the first major crash in what will likely be a series of currency collapses in the coming year, the Russian Ruble crashed another 20% today against the dollar, the euro, and even 13% against the shekel. Now is the time to buy Russian goods if you know of any good Russian equivalents to Amazon. They want your currency and will sell you stuff cheap.

If you’ve never seen a currency collapse before, this is what it looks like on paper:

Russian Rubles per USD
Russian Rubles per USD

Putin is trying to save the currency by raising interest rates, but it is doubtful that will work at this point. This is crisis of confidence in paper, and the only way to reverse it is to get rid of the paper, meaning back it with something real. Make it exchangeable for some unit of something at a fixed ratio and don’t cheat.

If Russia makes the Ruble convertible into gold – and it certainly can do this given the amount of gold Russia has been buying of late, it will stop the Ruble collapse in its tracks and reverse it.

When people stop believing in your paper, the paper returns to its intrinsic value of zero. If you turn that paper into gold, the paper becomes something. But then, of course, you cannot print anymore. If Putin wants to save his economy, he has to give up the ability to print money.

Otherwise, Russia will default again, just like it did in 1998, and Fight Club style, everyone’s savings will be entirely lost and the country will start over again.

The wonders of fiat money.