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.

Effect of deflation eliminated by daily deflation-indexing of entire money supply

Only the effect of deflation would be eliminated from all un-adjusted monetary items when the entire un-adjusted money supply is deflation-adjusted on a daily basis in terms of the Daily CPI during deflation. This would do nothing to actual deflation in the short term. It would, however, immediately be as if there were no deflation in these monetary items (as qualified) during deflation.

This would only remove the effect of deflation from only un-adjusted monetary items. Some (not all) government inflation-indexed bonds provide for deflation-indexing.

Implementing Capital Maintenance in Units of Constant Purchasing Power in terms of the Daily CPI (instead of Historical Cost Accounting) during deflation would maintain the constant purchasing power (real value) of  all constant real value non-monetary items constant during deflation.

The two measures together would, ceteris paribus, remove the distortions caused by the implementation of the stable measuring unit assumption under Historical Cost Accounting from the economy during deflation.

Nicolaas Smith


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