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Comment by tomp | Hacker News Reader

I wonder why there's inflation in Venezuela, and not e.g. in the EU or the US. In particular, how is the printing of money by Venezuela different from the printing that goes on in the West (Quantitative Easing).

I guess the only difference is that in the West, the money goes mostly to the banks, which distribute it to the companies or invest it in the stock market and real estate. Consequently, the rich get richer and the poor don't see any of this money.

But I can't see why the situation in Venezuela would be any different. I can't imagine the printed money reaches poor people - I mean, the recipients are most likely big companies and people close to the governments, the elite, exactly the same as in the US.

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>I wonder why there's inflation in Venezuela, and not e.g. in the EU or the US. In particular, how is the printing of money by Venezuela different from the printing that goes on in the West (Quantitative Easing).

Printing money doesn't cause inflation. Spending does.

QE doesn't directly cause spending. It just lowers interest rates and hence shifts investors' investment preferences from treasuries to equities/land/housing/riskier debt as they try to get back the yield they used to have. This pushes up the price of housing and equities to absurd levels, among other things. That is, until they both crash.

That actually, perversely, causes CPI deflation. People are spending less on consumer goods as they need to spend extra service their mortgage/rent/retirement fund/student loan repayments.

It's because there's demand for US dollars. More importantly, people see value in US goods and services (which are bought in US dollars), whereas there's no demand for Venezuelan goods and services (and this currency). This drives down their currency relative to imports and foreign currencies.

> I guess the only difference is that in the West, the money goes mostly to the banks, which distribute it to the companies or invest it in the stock market and real estate. Consequently, the rich get richer and the poor don't see any of this money.

Poor people see it when they can still get loans because the government provides liquidity in the MBS market(specifically, subprime mortgages). Middle/Upper class see it when the government supports bond prices.

The situation in Venezuela is different because they used the state-owned oil producers to balance their deficit. My guess it that now that oil prices have tanked, they are dipping into their cash reserves to pay for the debt accumulated expanding their oil production

The only thing I can see that bears on this is that Venezuela's chief, and basically only real export is oil. With oil prices depressed across the globe to what they are, this is perhaps bearing on their economy in ways that defy explanation.

> I wonder why there's inflation in Venezuela, and not e.g. in the EU or the US. In particular, how is the printing of money by Venezuela different from the printing that goes on in the West (Quantitative Easing).

Because we do it better than Venezuela. And honestly, that's all that there is to it. Injecting money into an economy is not necessarily a bad thing... depending on your goals.

For example, China is lowering the price of its Yuan (not necessarily through QE, but through similar means). This has the effect of encouraging factories to be built in China and arguably creates a net-gain.

Venezuela however is not playing anywhere close to the same game as the other world powers. They are printing money because they are out of money, and that is simply a bad situation to be in.

The Fed doesn't "give" money to anyone. They buy treasury bonds from the US government.

You mean, instead of giving the government money directly, there's an extra step whereby the government issues bonds and the central bank buys them?

Yes. The money doesn't go to banks or stocks or real estate.

Well, yes and no. The money goes to bondholders, and whoever held the assets the Fed purchased. Basically investors.

The important thing to notice is that this is all a marginal effect. The Fed bought stuff already on the market, so the asset holders already wanted to liquidate those assets, but with the Fed entering the market and driving [bond] prices up (thus keeping [bond] yields down) investors can't just roll over the money, and other investors are discouraged to invest into low-yield assets, thus they try to invest into other stuff, bonds of riskier companies, foreign markets! (The QE programs drove yields down all across the globe, foreign currencies up http://www.bloomberg.com/news/articles/2015-01-23/rupiah-phi... and as a QE program ended this caused problems http://www.reuters.com/article/2013/08/19/us-india-markets-r..., because governments - just like in pre-2008 - saw cheap loans and went to town.)

So, all in all, money goes where the investor things it'll grow best (low righ and high yield). Real estate was that after 2000, nowadays it's all over the place. (RE is picking up again, look at the insane prices in SF and London; VCs pour billions into emerging sectors - look at the valuations here on HN; and naturally people look for riskier things, abroad, which is good for the global economy.)

Yes, eventually the central bank will be repaid the dollars it spent, the money spent and injected into the economy will be withdrawn as QE winds down.

Assuming QE ever ends of course.

US QE has ended as far as I know. (https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1.2C_...)

The purchased assets (treasury bonds and so on) are idling on the Fed's balance sheet. Eventually as bonds mature the Fed just cancels the newly-created-debt it used to buy the bond, and the asset just disappears from the balance sheet.

The fed "gives" the proceeds of the monopoly on taxation, which is the only backing bonds have. Some people like to call this "free" because anyone could trivially use it to create value for themselves.

No.

The Fed conducts open market operations, and buys treasury bonds on the open market, directly. Because the goal is to keep the sovereign bond yields low. (To steer investors toward riskier investments with higher returns/yields.) So they basically buy up assets (return producing things) for cash (which loses value with inflation).

They then sit on the assets. (People say it's on their balance sheet, and that's why it's sort of an expansionary monetary policy, because it expands the central bank's balance sheet.) That's why it's not free money to the Government. (Whereas in Venezuela, the Government directly prints money for itself to pay wages and utility bills. Basically seigniorage.)

The first thing to look for is magnitude. Venezuela probably prints vastly more money, in relation to the entire money supply.

"He who refuses to do arithmetic is doomed to talk nonsense." --- John McCarthy

>how is the printing of money by Venezuela different from the printing that goes on in the West

In the west you produce things, so you need to print money to buy those things, or money would depreciate.

In third-world countries like Venezuela the gov needs money, so he prints a lot of it. There are no new things. Nothing get produced or imported, so you have a lot more money for the same things. Thats inflation.

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