Today former Chavez Minister of Finance Tobias Nobrega was trying to justify that monetary liquidity is not too high, by saying that it was only 25% of GDP. Well, that may be true in a country with positive returns on savings, but when banks pay 6% and inflation is running at 15%, money is looking to get out, which is why the current large liquidity is pushing the swap or parallel market up. The size of GDP is irrelevant, in fact, the devaluation will simply shrink GDP and bring it down to the right size.
Below, I have a different version of the chart I showed earlier, that tells the same story: Just because Milton Friedman died, it does not mean that you can print money and nothing will happen.
The chart shows the “implicit” exchange rate, what you get if you divide all of the liquidity by international reserves (blue line) and compares it to the red triangles which is the parallel swap rate given by that market. As you can see, after the implicit rate being below the parallel rate all of 2006, in June they began crossing and the swap rate jumped sharply up and right now they are still very close to each other. Exchange rates are also a function of confidence and lower oil prices and excessive spending do not help confidence either.Given all the money spent in November (not all of it included in the chart), then by now the implicit exchange rate is even higher, which simply means the parallel “swap rate” should also move in that direction: UP!
The Devil's Excrement 
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