Wednesday, 21 January 2015

Completely ignorant IASB and FASB members mean perpetual bad luck for Venezuela

Arepa (a Venezuelan national delicacy) prices are following the (daily) US Dollar black market rate in Caracas:

Comment from BoludoTejano on the Devil´s Excrement blog: "Looks like the Arepa prices reflect the black market rate, not any of the official rates."

Which is very good for the VZ economy. The only problem is salaries and wages are not adjusted likewise: the normal set-up in an un-indexed hyperinflationary economy. 

Brazil had no such problems during their 30 years of daily indexing almost all items in their economy during high and hyperinflation. Unfortunately it was too long ago (1964 to 1994). No-one can remember Brazil indexed their entire economy for 30 years. 

Or rather, it was called monetary correction or “correção monetária" not indexation. Everybody expects the Central Bank to do it. If the Central Bank does not do it, then it will not be done – while in fact it is actually an accounting policy. No-one believes (understands) that. 

Obviously, if the International Accounting Standards Board members as well as the US Financial Accounting Standards Board members do not understand that, it is logical that ordinary people and accountants won´t understand it either. 

And that is exactly what is happening. Completely (daily indexing) ignorant international and US accounting standard setters mean perpetual bad luck for Venezuela. 

Sorry Venezuela, but that is how the cookie crumbled: IASB and FASB members are as stupid regarding economics (the effect of daily indexing in a hyperinflationary economy) as your President is regarding most other aspects of economics too. 

Nicolaas Smith 

Copyright (c) 2005-2015 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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