Inflation is one of the worst scourges of the modern world. With our interconnected and highly complex economy and its huge amount of ever-increasing variables, it gets more and more complex.
Under the current setup, the signals for a devaluation to take place in the largest economies seem to be consolidating.
Our hyperinflation process was so brutal that it wiped off any mortgage debt I had, and my money that was in the local equivalent of the 401(k) after 17 years of hard work.
Now, in my mature age with two elders needing medicines and a child, jobless (yes, the industry where I used to work is not there anymore), I am finding everything increasingly hard.
I don´t want that happening to anyone. We don´t deserve it, plain and simple.
The bias to mask this inflationary behavior can be too much. That´s why we have to learn to read the signals and have a plan.
Accurately predicting the effects of a dollar devaluation in 2025 is a complex task, and impossible to do in such a limited space.
Nevertheless, we can analyze the potential impacts of such an event based on historical experiences, economic models, and current market trends. Most importantly, we can take some measures to protect against it.
What is a devaluation and why does it occur?
A devaluation is an intentional decrease in the value of a currency relative to others. Governments often resort to this measure to stimulate exports, reduce imports, and combat inflation. The causes of a devaluation can be diverse: imbalances in the balance of payments, expansive monetary policies, economic crises, or speculation in financial markets.
Hint: having goods, preps, and other supplies (like home canned food, spices, and other staples like olive oil, sea salt, and similar ones) is a very good method to shield yourself against inflation. Daisy also recommends precious metals as a hedge against inflation.
Possible effects of a dollar devaluation
- Inflation: A devaluation typically generates inflationary pressures as imported goods become more expensive. This can erode consumer purchasing power and negatively affect those with fixed incomes.
- Countermeasures:
- Don´t hoard paper money. Get assets that will generate revenue in the future instead. Like consumables for a business if you own one.
- If you decide to store value in the form of precious metals, be very cautious and put together a trusted trade network to work with. Otherwise, you could get in trouble with scammers or thieves.
- Don´t rely on LEOs to keep you safe. Budget cuts on police departments can motivate varmints to get out of their hideouts.
- Increase your OPSEC.
- Countermeasures:
- Balance of payments: In principle, a devaluation can improve the balance of payments by making exports more competitive and reducing imports. However, if external demand is inelastic, the effect may be limited.
- If you produce something unique or have unique skills, this will work in your favor. Like the guys in our Andes mountains producing blue and blackberries and barley for their crafted beer! They add a lot of value and offer excellent products at fairly competitive rates. The devaluation of our currency actually made them even more competitive and attractive to foreign markets.
- Interest rates: Central banks often raise interest rates after a devaluation to control inflation and attract capital. This can make credit more expensive and slow down economic activity.
- Countermeasure: Don´t get into debt if you can avoid it. I know, it´s easier said than done. But unless your income can manage the additional load of the interest, don´t do it if you don´t expect some profit out of the money you borrow. For instance, a new well pump with a price you can´t miss; or a pallet of batteries at a discount.
- Think twice before purchasing things like a new car. Sure, you may be getting something reliable for the next 5 years, but the loss of value is overwhelming. Research the brands and what you may need.
- Economic growth: The effects of a devaluation on economic growth are ambiguous. In the short term, it can stimulate economic activity by boosting exports and production. However, in the long term, inflation and uncertainty can create a less favorable investment climate. And that is the exact effect we´re experiencing right now, with a huge impact on our lives. Any foreign investor will see their money disappear in the black hole formed by the financial infrastructure that made possible to disappear billions of dollars, like the Odebrecht case
- Labor market: A devaluation can create both winners and losers in the labor market. Exporting sectors and those that compete with imported products can benefit, while other sectors may be affected by rising costs. It is wise to do business with or get jobs in those companies.
- Investments: A devaluation can generate uncertainty among investors and lead to a capital flight. This can weaken the currency even further and make it difficult to finance the economy.
- External debt: Countries with high external debt denominated in dollars will be negatively affected by a devaluation, as the real value of their debt will increase.
Impact on different economic sectors
- Export sector: Exporting companies would benefit from a devaluation, as their products would become more competitive in international markets.
- Importing sector: Importing companies would be negatively affected, as production costs would increase.
- Financial sector: The financial sector could experience volatility and greater risks, especially if the devaluation triggers a financial crisis.
- Consumers: We consumers would be affected by the increase in prices of imported goods and, possibly, by higher inflation.
- Countermeasure: Produce as much as you can. Even if that means only getting seasoning herbs. It´s a start. Don´t store paper money.
Which countries would be most affected? Countries that would be most affected by a dollar devaluation are those that have a high dependence on imports from the United States, significant external debt denominated in dollars, or an economy strongly integrated with the US economy.
How Venezuelans Coped with the Effects of Hyperinflation: 2017-2023
The hyperinflation that plagued Venezuela between 2017 and 2023 was an unprecedented economic phenomenon in our recent history. The accelerated loss of the currency’s value, the scarcity of basic goods, and economic uncertainty forced Venezuelans to develop a series of survival strategies to face this crisis.
Mechanisms of Popular Adaptation
- Dollarization of the Economy:
- Dollar transactions: Informal dollarization became a widespread practice. We Venezuelans began using the US dollar as a reference currency for purchases and transactions, especially in the informal sector of the economy.
- Saving in dollars: Many citizens sought to protect their savings from the constant devaluation of the bolivar, opting to accumulate dollars in cash or in bank accounts abroad.
- Underground Economy:
- Bartering/Trading: In the face of shortages and price instability, bartering became a common way of exchanging goods and services.
- Informal markets: Numerous informal markets emerged where basic necessities were traded, often at higher prices than official ones.
- Cryptocurrency trading: Many unemployed people have installed crypto miners in their homes.
- Family Production:
- Self-consumption: Many families were forced to produce their own food in home gardens or by raising small animals to ensure their subsistence. Backyard chickens and hens are not seen now as “lower class” things. Go figure. LOL.
- Crafts and services: The development of artisanal skills and the provision of small-scale services became a source of income for many people. Cakes, bread, takeout lunches, fried chicken, hamburgers, and all types of sweets and beverages are now valid forms to make ends meet. Sewing, cobblers, and other crafts are appreciated. Even knife repairing.
- Migration:
- Mass exodus: Millions of Venezuelans emigrated to other countries in search of better economic opportunities and quality of life. This mass migration relieved pressure on the country’s internal resources, but also generated a deep humanitarian crisis. Most of the migrant crowd are rootless: no home, no real state, and no education. Nothing to lose, indeed.
- Community support networks:
- Cooperatives: Community support networks and cooperatives were strengthened, allowing Venezuelans to access food, medicine, and other essential goods at more affordable prices.
- Neighborhood groups: Neighborhood groups were organized to share resources, knowledge, and mutual support.
Social and Economic Impact
Hyperinflation had a profound impact on Venezuelan society, generating:
- Extreme poverty: Millions of Venezuelans fell into extreme poverty, with difficulties in accessing food, medicine, and basic services.
- Social inequality: The economic crisis exacerbated existing inequalities, benefiting primarily those with access to dollars and international networks.
- Deterioration of public services: Lack of economic resources led to the deterioration of public services such as water, electricity, and transportation.
- Breakdown of the social fabric: Hyperinflation generated a climate of uncertainty and distrust, weakening social and community ties.
Venezuelans demonstrated a great capacity for adaptation and resilience in the face of adversity, developing creative strategies to survive in this extremely difficult economic environment.
However, hyperinflation has left deep scars on Venezuelan society, and our economic and social recovery will be a slow and complex process.
Final Reflections
- Hyperinflation is a devastating phenomenon that can have long-term consequences for an economy and a society.
- Informal dollarization and the underground economy are common adaptation mechanisms in economic crises, but can also generate informality and make it difficult to measure economic activity.
- Mass migration is a frequent response to economic crises, but also poses significant challenges for both the countries of origin and destination.
- The importance of community support networks and social solidarity became evident during the crisis.
The effects of a dollar devaluation in 2025 are difficult to predict and will depend on an array of economic, political, and social factors, both domestically and internationally. While a devaluation can generate short-term benefits for some sectors of the economy, it can also have negative long-term consequences. However, it is possible that this presents to some degree.
Disclaimer:
Please note: this is NOT intended to be a free financial consulting article. It´s the story of how we could manage the blows received when the induced inflationary process hit us and the subsequent crisis.
My family and I surely appreciate any donations, especially these days: health issues with our elders and no insurance are hitting us very hard.
What a timing, when we are at the beginning of the most important transition of our history, to recover our democracy.
Stay tuned, and be safe!
What are your thoughts?
Do you think such a devaluation could occur in the US? If so, would the results be the same? What differences would you expect?
Let’s discuss it in the comments section.
About Jose
Jose is an upper middle class professional. He is a former worker of the oil state company with a Bachelor’s degree from one of the best national Universities. He has an old but in good shape SUV, a good 150 square meters house in a nice neighborhood, in a small but (formerly) prosperous city with two middle size malls. Jose is a prepper and shares his eyewitness accounts and survival stories from the collapse of his beloved Venezuela. Jose and his younger kid are currently back in Venezuela, after the intention of setting up a new life in another country didn’t go well. The SARSCOV2 re-shaped the labor market and South American economy so he decided to give it a try to homestead in the mountains, and make a living as best as possible. But this time in his own land, and surrounded by family, friends and acquaintances, with all the gear and equipment collected, as the initial plan was.
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One Response
Inflation ist eine dem System eigene, durch Produktion und Reproduktion auch im Finanzsektor hervorgerufene Profit Generierung. Was sie hier beschreiben ist nur Ausdruck des Kampfes gegen Inflation. Und dieser Kampf wird wie beispielhaft für das Gesundheitswesen an den Symptomen ausgeführt, nicht an den Ursachen. Die Ursache finden sie nicht in der Börse oder auf eine Finanz Bank. Denn die Ursachen für Inflation sind im kapitalistischen System selbst zu suchen. Und wenn sie sie gefunden haben, werden sie feststellen das sie antagonistisch (unlösbar) sind. Das Kapital ( seine Eliten) sucht seine Schulden einzulösen und findet nur eine Lösung, Krieg! Deshalb habe ich eine Kurzdefinition für euch in den USA dieses System betreffend.: Kapitalismus = Krieg- Wideraufbau- Krise- Krieg! Das ist ein unlösbarer Widerspruch!