Venezuela on Brink of Hyperinflation
economist.com
economist.com
It's possible that if their economy (amid new US sanctions) collapse that this could trigger the regime change we've been eyeing and the energy security we've been wanting to establish there.
We do have to be careful about CALEC and UNASUR, however. South American countries have been ever moving closer to isolating the US from its multilateral diplomatic plans and are regularly condemning the US for its interference, funding of death squads, war on drugs, and unilateral sanctions of various South American countries. If we take Venezuela we need to make sure that we don't isolate the rest of the continent.
Why?
Sweden is already in pretty bad shape due to immigration. But a large part of the govt, and dominant information channels are intent on concealing that fact as much as possible for some reason, hard for some people to admit they were wrong I guess.
Shockingly enough, Sweden leads the world in rape and school arson.
Informative report on the horrible rape numbers: https://www.youtube.com/watch?v=UCGedOGCrnQ
Last year the cost for fires in Sweden’s schools ended at about SEK one billion. 457 schools burned in 2009. About half of the fires were caused by arson. However, compared with 2008 fires in schools has decreased, that year 512 schools burned, also then half of them caused by arson.
http://www.stockholmnews.com/more.aspx?NID=5029
(Saying in both years that only half of that already large number were caused by arson seems a little suspect, that seems like a high rate for schools to be combusting from other factors. Well, maybe they are counting chemistry lab mishaps and the like, and the bulk of the cost is coming from schools actually being burned down in arson attacks.)
“I don’t know why anybody would want to burn our school,” Ms. Bromster said. “I can’t understand it. Maybe they are not so happy with life.”
The riots are not unprecedented here. In 2008 and 2010, immigrants clashed with the police in the southern port city of Malmo. But the past week’s arson attacks in Stockholm, the capital, and the spectacle of teenagers hurling stones at firefighters have left many Swedes wondering what went wrong in a society that has invested so heavily in helping the underprivileged.
http://www.nytimes.com/2013/05/27/world/europe/swedens-riots...
Yes, it is clear. When you have a system in place that is predicated on having enough productive citizens to support the non-productive ones and your birth rates have fallen off a cliff you're in for trouble.
> Free market capitalism has its own problems and its flagship country, the US, is increasingly considered to be in decline.
Never said the US doesn't have problems. Just pointing out that socialism also has its own problems. No economic system is perfect.
Every country with falling birth rates has that problem, regardless of the political/economic system. Barring extremist solutions like euthanasia, you need to support non-productive citizens and the resources for it need to come from productive citizens in some way, be it with government intervention or not.
Agreed with the first point. Ultimately though, if you can't generate enough revenue to support the social safety nets something has to give (the old Thatcher quote "socialism works until you run out of other people's money to spend" applies here). The problem with incredibly generous (read: expensive) social programs like Scandinavian countries offer is that the day of reckoning will come much sooner.
Inefficiencies develop across the system because people can't afford to make a change. Firing people or shutting down a factory becomes a massive struggle of life and death, frequently with literal deaths. (If unemployment means your family's livelihood is at stake, you wouldn't just walk away, would you?)
Source: grew up in a country like that.
That time is already here, let's hope a change of course can be made soon.
Sweden's irresponsibility and malfeasance should really be of concern to the whole world, as in some ways the country has become like Afghanistan under Taliban rule, in the providing of a safe-haven for and cultivation of terrorists. (yes, that sounds crazy, and it is, but it is the conclusion one must draw unfortunately)
Sweden has a revolving door for terrorists. Literal terrorists are moving in and out of the country unchecked. It is absolutely insane.
An in addition to that, Sweden has become a hugely fertile breeding ground for ISIS fighters.
http://foreignpolicy.com/2015/02/23/from_the_welfare_state_t...
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...we found links to terrorism or intelligence threats, which we judged that the person should not be granted asylum in Sweden. Then it is up to the Immigration Bureau to weigh that risk against the right to asylum. Many remain in the country,” Sjöö remarked. Excuse me? Oh yes. In this country, even an internationally red-flagged terrorist can be granted asylum. By the bizarre Swedish logic, a person at risk of “inhumane” treatment or death sentence in his home country qualifies for protection.
And as for terrorists? Open doors and open hearts. Here’s an article from neighboring Denmark(http://www.dagens.dk/udland/mist%C3%A6nkte-terrorister-f%C3%...) where they, for good reason, express grave concern over the extreme naivitee of Swedish immigration policy. At least 20 internationally known terrorists were granted asylum in Sweden in 2014 alone, which is a problem for Denmark too considering its capital Copenhagen being only 20 minutes away from Malmö, one of the immigrant hotbeds. The capital of European ISIS recruitment remains Gothenburg, however. Sweden’s second largest town produces more ISIS-fighters than the entire United States. This baffling statement sounds made up, but it it’s not.(http://swedenreport.org/2015/02/04/more-isis-fighters-from-o...)
“A pantry full of cannon fodder for ISIS”(http://www.aftonbladet.se/nyheter/article20427940.ab) is the headline of this remarkably frank (by Swedish standards) article about the muslim-dominated no-go zones around Gothenburg. The headline is an actual quote by one of the residents of the area. I encourage you to use the translate-feature in your browser and read the article in its entirety for a chilling insight into the total meltdown of societal control of these areas.
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^
http://swedenreport.org/2015/03/23/sweden-facing-systemic-co...
http://swedenreport.org/2015/05/18/police-yes-there-are-no-g...
There does appear to be some growing sanity in the electorate though.
http://www.thelocal.se/20150820/swedens-nationalists-lead-po...
Put yourself in that situation for a second. I really resent Islam as a religion because its at odds with our culture and values, but I'm willing to let go of that resentment in the hopes of helping some of these people. And hopefully the 2nd or 3rd generation of these immigrants will be completely absorbed and integrated into Swedish way of life. If you escape that kind of situation, at the ending of the day, a normal person would feel some gratitude to the country that took them in.
Either way, this policy is a stark contrast with what the utopian US "freedom" policy has done for that region, but of course, it not without its rough edges.
So sad to see a beautiful country and people run into the ground by a corrupt regime.
http://www.cato.org/human-freedom-index http://www.cato.org/economic-freedom-world
Scandinavia has very free market open economies coupled with extensive welfare states financed by high taxes. You can call that socialism if you want, but it is a very different system than the criminal tragedy that is Venezuela.
I guess that metric is derived from formal, and institutional freedom or non-freedom promoting policies, but unfortunately, in some respects Sweden is looking increasingly out of place in such a high position on that list.
Anybody who points out that the country's immigration policies are close to destroying the country faces harsh backlash. Anybody just raising questions on the matter really.
Disturbingly, there has been some recent talk of actual formalized anti-freedom measures.
A couple weeks ago there was a stabbing and beheading attack at an IKEA store that killed a mother and son, and now some people in the govt are making noises about limiting freedom of the press because people are discussing it online.
I guess their main concern, according to them is that it is such a shocking, horrific, and in your face illustration of how insane the Swedish government's immigration policies are, that they are concerned people might exercise their democratic rights of guiding the government in what they see as a reasonable direction.
The Press Ombudsman Ola Sigvardsson is concerned that the Swedes are turning to sites run by political motives rather than journalistic ambitions.
Traditional journalism is characterized by a willingness to unconditional search for the truth and make it as good as possible. The other sites are characterized by having a political agenda, said Ola Sigvardsson.
So apparently, now that there is such glaring evidence of the need for political change Sigvardsson is interested in restricting any political discussion that are not inline with his own views.
Freedom of speech and freedom of the press is something that we can not take for granted. Politicians give us the right to print and give our opinion, but requires that we do so in a responsible manner. If we do not do it, maybe freedom curtailed, says Ola Sigvardsson.
https://translate.google.com/translate?sl=sv&tl=en&js=y&prev...
This is the kind of things that worry people in the top freest countries.
In the lower ranked countries there is far more than talk about such things going on.
What I find most disturbing about this guy's rhetorik is that he says "Politicians give us the right," when that is exactly opposite how things are understood to work in modern democracies. The people give their consent to politicians and by extension the government to govern.
That's a contradictory statement. High taxes represent a high level of intervention in the economy/market, which is the opposite of a free market.
It's not "working" in Scandinavia either, by the way.
There's a limit to how much you can intervene in your economy before it collapses. We're just not as far along the path as Venezuela.
The one critical difference is property rights- such a thing does not exist in Venezuela. Say what you will about Pinochet...
I don't discount American involvement but I'm not sure that oil is the great driving factor it may have been historically, the Americans are producing enough of their own.
Recently the conflict over oil off the shore of Guyana and the documents I linked to above (where it is STATED that the coup is motivated by oil) show recent actions by the US that contradict you.
And further it is not merely about TAKING the oil (though it is). Venezuela uses its energy economy to unilaterally fix political outcomes. Think their shipping of oil to Cuba despite US sanctions. The US wants control of that oil.
So you don't see a problem with "you" "taking" Venezuela, as long as the consequences aren't too bad for "you"?
Nevermind that other countries are not supposed to be your colonies and nevermind that you, as in, ordinary citizens, won't even benefit from the US "taking" Venezuela.
1. Build massive external debt in _foreigin_ currency.
2. Have fixed exchange rate.
Its very hard to create hyperinflation using bad fiscal policy alone if you are not in debt in foreign currency and have floating exchange rates. Floating currency will balance exports and imports and printing money to pay debt in your own currency works.
You can find the dollar price here -> dolartoday.com You will find how poor all venezuelans are :(
Actually, external debt in foreing currency is not an important factor in what's happenig. Even with the oil price collapse in the last 12 months, Venezuela current account balance is positive, and it's debt to GDP ratio is a lot more manageable that US or EU (although of course that depends on which exchange rate you calculate the GDP).
The hyperinflation (which we are not on the brink of, we are already living through) is caused, IMHO, by three primary reasons (each one is composed or caused by several others). 1- The total dependency of external supply, well in finished goods or inputs for production. Last reliable numbers put us in order of 90% of everything we consume is either imported or requires imported material to produce. 2- The lack of enough cash to import either consumers goods or prime materials to produce 3- The irresponsible printing of inorganic Bolivares.
Any short of resetting the economy, which may or may not include dollarization (or eurozation), is useless at this point, but once we are done with that, it will take maybe 3 years or less to sort this mess.
When I lived in Miami, we were fed incessant articles and anecdotes from Venezuelan emigrants about how the government meddled with the allocation of basic household goods.
Since middle of last year, they started meddling with how supermarkets sells to customers, for example, you can go to a supermarket only two days a week to buy "price regulated products" which are every simple thing like pasta, milk, flour, meat, cleansing products, soap, shampoo etc. Also they are trying to implement a biometric system so you can buy only certain number of such products once you are validated with your fingerprints. But of course they have botcheted that as well, so now you are fingerprinted but on the 2 days a week your are allowed to go, is a nightmare.
Probably the most of Venezuelan expats in Miami are antichavistas, but I tell you one thing, nothing like this happened while Chavez was alive. OTOH, it seems obvious that the problems of today are rooted in some of Chavez's policies.
I guess the only difference is that in the West, the money goes mostly to the banks, which distribute it to the companies or invest it in the stock market and real estate. Consequently, the rich get richer and the poor don't see any of this money.
But I can't see why the situation in Venezuela would be any different. I can't imagine the printed money reaches poor people - I mean, the recipients are most likely big companies and people close to the governments, the elite, exactly the same as in the US.
The important thing to notice is that this is all a marginal effect. The Fed bought stuff already on the market, so the asset holders already wanted to liquidate those assets, but with the Fed entering the market and driving [bond] prices up (thus keeping [bond] yields down) investors can't just roll over the money, and other investors are discouraged to invest into low-yield assets, thus they try to invest into other stuff, bonds of riskier companies, foreign markets! (The QE programs drove yields down all across the globe, foreign currencies up http://www.bloomberg.com/news/articles/2015-01-23/rupiah-phi... and as a QE program ended this caused problems http://www.reuters.com/article/2013/08/19/us-india-markets-r..., because governments - just like in pre-2008 - saw cheap loans and went to town.)
So, all in all, money goes where the investor things it'll grow best (low righ and high yield). Real estate was that after 2000, nowadays it's all over the place. (RE is picking up again, look at the insane prices in SF and London; VCs pour billions into emerging sectors - look at the valuations here on HN; and naturally people look for riskier things, abroad, which is good for the global economy.)
Assuming QE ever ends of course.
The purchased assets (treasury bonds and so on) are idling on the Fed's balance sheet. Eventually as bonds mature the Fed just cancels the newly-created-debt it used to buy the bond, and the asset just disappears from the balance sheet.
The Fed conducts open market operations, and buys treasury bonds on the open market, directly. Because the goal is to keep the sovereign bond yields low. (To steer investors toward riskier investments with higher returns/yields.) So they basically buy up assets (return producing things) for cash (which loses value with inflation).
They then sit on the assets. (People say it's on their balance sheet, and that's why it's sort of an expansionary monetary policy, because it expands the central bank's balance sheet.) That's why it's not free money to the Government. (Whereas in Venezuela, the Government directly prints money for itself to pay wages and utility bills. Basically seigniorage.)
Poor people see it when they can still get loans because the government provides liquidity in the MBS market(specifically, subprime mortgages). Middle/Upper class see it when the government supports bond prices.
The situation in Venezuela is different because they used the state-owned oil producers to balance their deficit. My guess it that now that oil prices have tanked, they are dipping into their cash reserves to pay for the debt accumulated expanding their oil production
In the west you produce things, so you need to print money to buy those things, or money would depreciate.
In third-world countries like Venezuela the gov needs money, so he prints a lot of it. There are no new things. Nothing get produced or imported, so you have a lot more money for the same things. Thats inflation.
Because we do it better than Venezuela. And honestly, that's all that there is to it. Injecting money into an economy is not necessarily a bad thing... depending on your goals.
For example, China is lowering the price of its Yuan (not necessarily through QE, but through similar means). This has the effect of encouraging factories to be built in China and arguably creates a net-gain.
Venezuela however is not playing anywhere close to the same game as the other world powers. They are printing money because they are out of money, and that is simply a bad situation to be in.
Printing money doesn't cause inflation. Spending does.
QE doesn't directly cause spending. It just lowers interest rates and hence shifts investors' investment preferences from treasuries to equities/land/housing/riskier debt as they try to get back the yield they used to have. This pushes up the price of housing and equities to absurd levels, among other things. That is, until they both crash.
That actually, perversely, causes CPI deflation. People are spending less on consumer goods as they need to spend extra service their mortgage/rent/retirement fund/student loan repayments.
"He who refuses to do arithmetic is doomed to talk nonsense." --- John McCarthy
Indexes are down 7% in Dubai/Saudi and 3% in USA.
The US economy is actually doing quite well. Stocks are not overvalued, commodities are cheap, jobless rate is going down, and housing is at 2004 levels. Fundamentals suggest the bull market could last at least a few more years, yet cash levels are at their highest since 2009. This correct is a great buying opportunity for anyone who has stood out of the market for the past few years.
http://www.xe.com/currency/vef-venezuelan-bolivar
So I guess the situation improved in June/July?
Easily, year to year (aug-14 to aug-15) is around 300%, maybe 400%.
Of course that depends on which items you calculate it. Maybe some industrial supply is been less affected (if you can find those) and of course any inflation number is artificially affected by the free gasoline, which not even in this catastrophic situation has been adjusted.
But if you are like me, a middle class salary dependant professional, anything you usually spend has been increased in 300-400%. A breakfast in a bakery (panaderia) on aug-14 was around 100 Bs, now is between 400 and 500 Bs. On aug-14 I averaged a weekly visit to the supermarket around 4.000 Bs, now is 12.000-15.000 Bs. I tire for your car was around 3.000 Bs, now is 20.000 Bs (and you can't find them). And so on...
Of courses salaries has been, in most cases, or freezed or marginally adjusted, so you can see where this is heading.