Six more zeros are to be removed from Venezuelan currency

Mocking the situation helps nobody. But Venezuelans had fair and free elections not that long ago. The precursors to these policies were wilfully elected into office by the populace. That confers at least some responsibility; more than in the cases of kings, colonisers, invaders or revolutionaries.

I doubt that there are many people that will be really hit by it, because it is like rain in a tsunami.

It is a joke. The world we live in is absurd. Government inflates its own currency so bad it wipes out the entire economy. Citizens are left holding worthless paper. That happened in my country too. It could happen in yours. Actually it's only a matter of time before it happens to every currency in the world: they're all inflationary. The solution? More of the same. Start from scratch by creating a new currency to inflate. This is exactly what they did. Multiple times.

We either laugh at this insanity or we cry.

Disincentivize this function and the few producers still left in the market have less competition, and hence more ability to raise prices. Eliminate the private sector altogether (as the Soviet Union did) and you don't have inflation, you have shortages.

Inflation is damaging to ants who keep money aside in case of medical emergency or unemployment or retirement. It also eliminates short term debt interactions, such as where a business buys goods with 30 days to pay. This adds friction across the economy.

Rich people own assets, not money. Rich people have debt collateralized by their assets, so they get double benefit from inflation. Their debt gets wiped off, and their asset prices increase. And because they are the ones who get low interest rate debt first, they also benefit from the Cantillion effect, which means that they're not hurt by inflated prices, so much as those who try to buy assets later with their wages.

Inflation hurts workers and entrepreneurs most because their savings are wiped off, and their income or revenue lags behind inflated prices. There is no way to save and use the savings to plan and invest in a better future. The ability to save and invest later is the base of a prosperous economy. Inflation also destroys reliable price signals, which makes it very difficult for an economy to work.

The weakest assumption of MMT and the reason it isn't considered a school or economics is that issuing government debt won't affect private sector debt.

>The government prints as much of it as it wants

This don't think it's quite fair. MMT thinks that the amount of money it would take to reach full employment is the maximum limit of which you can issue debt. I don't really see how that's much different from just issuing infinite debt though, especially for a case like Venezuela.

In such an economy, there is little difference between the government "printing" a bond and the government "printing" a reserve -- especially as modern economies pay interest on reserves. These are both perfectly liquid instruments, with the government bond being a cash-equivalent. What makes it a cash equivalent is that a modern financial sector is able to convert the liabilities that people want to hold into the liabilities present in the economy, thus in such a modern economy if the government issued a mix of 10% reserves and 90% bonds, but people wanted to hold 50% deposits and 50% debt, then the banking system would step in and convert one into the other (for a small fee).

This is as opposed to most mainstream economies which assume that the liabilities that people hold are the ones the government issues and there is no financial sector to intermediate between the two.

So in the modern economy, it's silly to obsess about the number of reserves but ignore the number of bonds, bonds and reserves are all the same and as there is no difference you might as well only issue reserves that pay whatever the policy interest rate happens to be and stop bothering with bonds altogether. Then there are other parts of MMT that are a bit zany -- for example the belief that savings demands are inelastic and thus the policy rate can always be at zero, but that has nothing to do with reserves/bond distinction.

That is not the situation in Venezuela, which does not even have a functioning market economy let alone a modern financial system. Venezuela is closer to the situation in Zimbabwe where the banking system has collapsed, the economy has collapsed, and people have lost faith in the currency.

So let's say that the private workers need to eat 100 units of food, and the government workers need to eat 100 units of food, but only 100 units of food is produced. In a well organized economy you admit there is a food shortage and issue rations so everyone gets a coupon for 1/2 a unit of food. In that ration system, it doesn't matter how much money you have -- money is a bit worthless for buying food -- but the hope is that the situation is temporary and prices go back to normal, so people don't rush to try to unload their paper money for food they just leave their paper money alone and the government doesn't fire up any printing presses. In effect those ration cards are a new currency that is temporarily introduced to prevent the old currency from going haywire. That's what the US did in WW2.

But what if there is no public admission of shortages and the government isn't competent enough to create an effective rationing system? Then it prints up enough money to buy 100 units of food and gets into a bidding war with the private sector. So now the price of food goes way up, and the people in the private sector have lots of money but not much food, and the people in the government sector have the printing press and more food. Then day 2 happens, and the government has to print up even more money to buy 100 units of food, because they are bidding against the same people who were overpayed with printed money in period 1. So the price of food goes up even more. Then day 3 happens, and the government must print even more money to buy up the food. Thus you have this spiralling inflation where the ability of the people to outbid the government in period n is the sum of all the overpayments that happened in the previous periods. Thus, mathematically this is an exponential function. Ultimtely farmers refuse to sell their food for any amount of government money at all and the currency becomes completely worthless.

That was the situation when Zimbabwe kicked out the white farmers, and it is the situation of Venezuela in which the non-productive sector eventually exceeded the productive sector. It is also what happened in Weimar when there was a perfect storm of economic collapse from the Depression, a promise to pay massive war debts (with printed money), and massive social unrest due to worker strikes (whose higher wages were also provided by printing money).

Note that Modern Monetary Theory, as it is purely about the financial side of things, has no magic when there are too many people and not enough to eat. MMT deals with modern economies that face problems of overproduction rather than underproduction, and demand shortfalls are the cause of recessions rather than supply shortfalls. It is also about finally shredding the distinction between bonds and reserves in an economy in which both are perfectly liquid cash equivalents.

[1] https://www.investopedia.com/terms/r/repurchaseagreement.asp

What happens is that first, the shelves are emptied very quickly because the price is too low, second the shelves aren't refilled because there is no profit to be made, finally businesses shut down because fixed expenses can't be paid.

It's clear that the government should have instated a very very high VAT or sales tax to counteract the inflation. Maybe a VAT as high as 50%.

Government destroys production by confiscating farms etc from the rich/ the white and giving them to poor locals.

The farm which used to produce hundreds of tons of food for everyone now has has few subsistence farmers feeding themselves.

The people who used to get the food say we're hungry.

a: The govt prints money and gives it to them to buy food.

But more money chasing not enough food causes food prices to go up. People say they are hungry.

GOTO a:

The whole process is fairly dumb which is why you only get it in a few places with dictators like Mugabe or Maduro who threaten to shoot anyone who tries to stop them.

Could see the technical implications, also the random price swings

They 100% did, an article from 2011/2013 about the government distributing low cost appliances[1] and free houses[2]. They were getting tons of free and cheap stuff and the people were celebrating it.

[1] https://venezuelanalysis.com/news/6189

[2] https://venezuelanalysis.com/news/10258