Essay Sample on The Economic Issues

Introduction

The article by Buttonwood (p.51) discusses the rate of hyperinflation in Venezuela, and how the country and the citizens are trying to save the value of their money. The country's inflation rates keep on increasing at a rate of beyond 50% every day. The price of the products keep on increasing and even the ordinary citizens of Venezuela cannot afford to purchase some of the basic products. Some of the companies have fled the country due to its poor economic states. However, since the issue seems to be more devastating individuals in Venezuela have decided to take the bull by its horn and deliberate on how they will preserve their savings from hyperinflation. The article relates Venezuela's crisis to France's 1790s inflation that took a lot of efforts to neutralize the situation.

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Hyperinflation (What Is It, What Does It Mean for Individuals and the Country as a Whole)

According to Hanke (n.p), hyperinflation refers to the extremely high and typically accelerating inflation which rapidly erodes the real value of the local currency caused by the increase in the price of all goods. Hyperinflation has a devastating impact on the individual citizen together with the country as a whole as it lessens the value of the currency rendering it worthless. The ordinary person in a country will experience sap tax revenues, increased unemployment, and closure of business as well as the high increase in the cost of living that is preceded by political unrest. The increase in the price of commodities means that the cost of doing business is high, chances of borrowing money, the mortgage is low, and decline of the government and corporate bond yields; all those effects influence other facets of the economy (John p.3).

What Does It Mean to “Hedge” Against Inflation and What Are Venezuelans Doing?

An inflation hedge is an investment that safeguards against the decreased purchasing power of the currency that leads to loss of the value that is prompted by increasing prices (inflation) (John 6). Due to hyperinflation situation in Venezuela, people have improvised new methods to ensure that the value of their money is safe, and some of the inflation hedges practiced include: (a) Keeping chunks of saving offshore in dollar accounts. (b) Purchase of property and later sell them when the issue escalates. (c) Taking interest in the stock market as a sort of inflation-linked bank by purchasing shares to deposit cash and later sell them to withdraw the cash Buttonwood (51).

Why Might Inflation Affect the Rich Differently Than the Poor?

As supported by the article, Buttonwood (51), the poor have a few ways guard against the hyperinflation. The rich and educated people make limited mistakes with their money as they invest widely in assets, fast in refinancing their debts once the interest change is favorable and pay lower expenses, whereas the poor people who lack the wise financial tactics pay the price for the rich individuals.

The Impact Hyperinflation Might Have on the Country in Terms of its Economic Future

Hyperinflation can ruin the country's economic and upset its GDP. Investors will flee if they cannot see the value of their money through their investment. The cost of operating the business will be higher in such a country and the sales rate of products and services will decrease due to the high cost of living that denies people the purchasing power. Some firms will lead to closure and retrenchment of workers will increase the unemployment rate of the country.

Works Cited

Buttonwood. "How Venezuelans Preserve Their Savings From Hyperinflation- And The Lessons For Everyone Else" (21st July 2018). The Economist: 51.

Hanke, Steve. "Venezuela's Hyperinflation, 24 Months And Counting". Forbes.Com, 2019, https://www.forbes.com/sites/stevehanke/2018/10/23/venezuelas-hyperinflation-24-months-and-counting/#1faa14c6162d. Accessed 9 Feb 2019.

John, Mauricia. "Venezuelan economic crisis: crossing Latin American and Caribbean borders." Migration and Development (2018): 1-11. DOI: 10.1080/21632324.2018.150200