Printing Money Goes Haywire in Venezuela
bloombergview.com
bloombergview.com
As the federal bank buys the bonds, it not only floods the markets with more $$$ it also drives the interest rate down which devalues the currency as nobody wants to hold something which isn't giving them a return.
This causes prices to rise as the value of your currency decreases. You have to keep doing this if you can't pay your bills (which is what the US did via QE).
see here: https://research.stlouisfed.org/fred2/series/TREAST
M0 is the closest economic measure of what you and I consider physical money though it does include some non-physical assets that can be quickly converted to cash. In the USA today, M0 is about 15% of the total money system.
But what I don't get are the leftwinged fans that the regime has in the west.
Do you see that you are being manipulated and that the socalism propaganda is all bullshit? That the corrupt insiders are funnelling billions of dollars out of the country, while arming goons, harrising opposition and just plain wrecking the country.
I know some of you go there on "cultural exchange" visiting happy, passionate, friendly Chavistas. Have you learned nothing from history? Can you not see that this is the same blatant manipulation that created the western european fanclubs of Eastern Germany, Albania and even Pol Pot's Cambodia in the 70-80'es?!
To me the country of Singapore should be closer to the ideals of socialism with its big government housing programs, active cooperation with private sector, strong political correctness, low corruption, lifting millions of out poverty etc.
Yet sadly it is not.
I wish you guys would pick your politics on the consequences it actually creates.
Do not scapegoat Venezuela's social spending and socialist ideals for the hyperinflation problem.
Norway has much more generous social programs and yet they do not suffer from the same problem.
Is it really hard to admit that economics of a nation is really complicated and doesn't just boil to an argument about ideology ?
Venezuela's problem is corruption, nepotism and having an economy that is highly dependent on a single export.
What happens to america if tomorrow ppl stop treating dollar as the reserve currency ? America's main export to the world.
Anyway - I do not expect the mouthpieces of wallstreet at bloomberg to think outside their shell.
http://www.nytimes.com/2015/03/07/opinion/francisco-toro-dor...
In 2003, a beleaguered President Hugo Chávez imposed currency controls to try to hold down inflation and prevent a speculative run on the Venezuelan bolívar. Over the years that followed, these controls evolved into the byzantine tiered system by which the government’s oil dollars are sold at three different official prices — while hard-currency dollars fetch a fourth, higher price on the black market.
An importer who pledges to purchase basic necessities to bring into the country can buy a dollar for about six bolívars. But walk up to a bank teller and the same dollar costs 178 bolívars: nearly 3,000 percent more. For the 264 bolívars that it cost at the time of this writing to buy one black-market dollar, you could buy 42 dollars at the official rate.
The system gives rise to a mind-bending tangle of economic distortions. By one calculation, with a single $100 bill exchanged at the black market rate, you can buy enough subsidized gasoline in Venezuela to drive a Hummer around the world 28 times. A new Toyota Corolla retails for about 1.9 million bolívars — that’s either about $300,000 (at one exchange rate) or around $7,200 (at another), take your pick. As in our fable, the exchange-rate regime creates huge incentives for importers to pocket their cheap dollars rather than bring in goods — and that gives rise to lines. Long lines. For all the basics.
Alongside scarcity, a new specter — or rather, an old one — has emerged. For the last two weeks, the bolívar has been in free fall, evoking fear of devastating hyperinflation ...
Most true socialist parties and groups worldwide are a laughing stock as a result, and quite rightly seen by wider society as hopeless rabble.
Another problem is that economics is barely a science. It does have its merits, but it is certainly not a set of statements backed by experiments that we can repeat in order to find counterexamples. Before the collapse of the Soviet Union, we even had two "economic sciences". The one of the West and the one of the Soviets. You cannot pull that off with mathematics or physics. There have never been two variants of those. It is perfectly feasible, however, to do that with economics. That is how incredibly unsolid that thing is. Now, based on that house of cards, go and convince the Venezuelan popular masses that the hated right-wing parties would be right ...
Economics is not a science, and trying to understand it with equations is wrong. Economics is the study of human behaviour in a world of restricted resources and choices. You can study human behaviour quite well and determine theories, which can be tested between different countries.
At this point, there is no argument, socialism fails each and every time it is tried, usually in desperate conditions for the people involved. But the route back to prosperity is difficult if not impossible because people are welded to the dream of something for nothing. You don't need a highly educated population to build a successful economy and country, but the people do need to be able to resist the siren song of socialism, and those at the top need to shun corruption and society needs functioning institutions.
[1] http://www.nationmaster.com/country-info/stats/Energy/Oil/Re...
"The resource curse, also known as the paradox of plenty, refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy, a phenomenon known as Dutch disease), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities). The resource curse may not be universal for all countries with an abundance of natural resources, but "for many countries it is real."
Norway escaped this partly due to being aware that it was a problem:
"The Iraqi who saved Norway from Oil"
http://www.ft.com/cms/s/0/99680a04-92a0-11de-b63b-00144feabd...
Yet, most would find such claim to be debatable or even unacceptable.
Frankly, no planning is bad planning.
In the end, Venezuelans were certainly trying to 'have the right plan' and 'build a better Venezuela', but because of the complexity of the economy, they were not able to grasp the tiny details and failed on their mission.
Like alcoholics, 'a few beers' won't hurt. It's the same with planning - just a little five year plan. It won't hurt.
I'm not sure I buy the argument about investing in oil production but what does seem to be clear is that as long as the money is flowing in due to high oil prices then everything seems to work. Once prices collapse, as Warren Buffet put it, we can see who was swimming without their bathing suits on...
Please tell me it's Yankee Imperialism. It's always our fault.
> Every time I wrote that Chavez was in fact direly mismanaging the economy, diverting investment funds that were needed to maintain oil output into social spending, I knew that I could look forward to receiving angry e-mails and comments accusing me of trying to sabotage his achievements for the benefit of my corporatist paymaster. And in fairness (though without minimizing his appalling authoritarianism), those policies undoubtedly did improve the lives of some incredibly poor people.
The problem here is that there's nothing to enlighten anyone not already in the know about who this "paymaster" is. As near as I can tell this is some libertarian journalist publishing an "I told you so" article ("This was predictable. Indeed, many people predicted it, including me [...]").
I assumed that the respondents were saying there was some big, obvious conflict of interest, like a stake in the money made off of their oil. However, Google could not enlighten me as to what that might be and her bio on Wikipedia only lists her working for media outlets, so I'm left in the dark here. I probably wouldn't ever read Bloomberg if it had not appeared on HN.
Someone made a comment just like those emails.
Pretty simple.
It's already a reference, no reason to assume it's a deeper reference.
Sorry about this, guys. I messed up.
I've read Megan McArdle off-and-on for years. I am familiar with her writing. So when I read the part that said "angry e-mails ... my corporatist paymaster", I thought "well, of course you will get those". And that was the end of it. My brain was thinking of the messed up situation in Venezuela, and probably just set aside the "paymaster" remarks.
And then Ted remarked on exactly those words. My brain wasn't thinking of Megan's lament, it was thinking about Venezuela. That's why Ted's comment seemed out of the blue for me.
In retrospect I should have re-read the article to see if I missed anything before I replied to Ted.
Once again, sorry.
I will grant you that it looks like blah blah capitalist ideology versus blah blah socialist ideology with your usual helping of US backyard imperialism and Latin American defiance thrown into the mix.
I support wealth distribution in Venezuela. I feel for the people of Venezuela. At the same time I am forced to recognise that the ideals of the regime in Caracas are not translating into a robust economy even though I wish they were.
If the level and rate of increase of inflation is as bad as it is being claimed then I really feel for the average person in Venezuela. I have never lived through times of rampant inflation and I hope I never will.
I am not an economist but as far as I can tell the only way to generate inflation is buy cranking the printing presses. And I guess that is what is happening in Venezuela. Unless there is some kind of hidden outside pressure that would force the Central Bank to do this? Is that even possible? I thought it might be the case with Zimbabwe, an act of covert economic warfare by the West, but I know of no mechanism.
What about prior to 1999? The people running Venezuela had many decades and centuries to create a "robust economy" in Venezuela. I wasn't seeing constant US headlines about how Venezuelan leaders were mismanaging the economy in those times.
Venezuela is being hurt by the same thing hurting every oil producing state - low oil prices.
Those in Venezuela who wanted to create a "robust economy" had decades to do so. As soon as power falls from their hands, everything becomes a crisis, they suddenly notice Venezuela lacks a "robust economy".
The PSUV has been continually reelected since 1999, they must be doing something right, the people of Venezuela keep putting them into power.
Remembering the New York Times editorial page celebrating the coup d'etat against Chavez's elected government, by the head of the Venezuelan business council, who, surrounded by the heads of the military, abolished the parliament, I'm slightly skeptical of the concern of the owners of US media outlets for the economic well-being of the average Venezuelan.
Venezuela is being hurt by the same thing hurting every oil producing state - low oil prices.
Those in Venezuela who wanted to create a "robust economy" had decades to do so. As soon as power falls from their hands, everything becomes a crisis, they suddenly notice Venezuela lacks a "robust economy".
So it's okay for the economy to be mismanaged now, because it was mismanaged before 1999, as long as the people doing the mismanagement are different? We shouldn't criticize the current leadership and wish for something new because the previous one was also bad?
The people running Venezuela now have had over a decade in power with the highest oil windfall in its history, you'd expect things to be better or at least the same as before 1999, not far far worse, as they are now.
The PSUV has been continually reelected since 1999, they must be doing something right, the people of Venezuela keep putting them into power.
They must be doing something right to keep getting elected, which is not the same as doing something right to improve social conditions and the lives of Venezuelans for today and in the future.
Remembering the New York Times editorial page celebrating the coup d'etat against Chavez's elected government, by the head of the Venezuelan business council, who, surrounded by the heads of the military, abolished the parliament, I'm slightly skeptical of the concern of the owners of US media outlets for the economic well-being of the average Venezuelan.
The fact that US media outlets are not concerned about the well-being of the average Venezuelan does not mean that the rampant crime, sky-high murder rate, shortages, inflation, lack of disaster prevention in poor areas prone to flooding, government-promoted homophobia, government control of the media, gross environmental mismanagement, use of state funds to promote the ruling party, pervasive corruption, lack of medicines and medical supplies, etc. don't exist.
Really wasn't sure if you were talking about Venezuela or the U.S. for a moment there.
This says it all. I am from India and I believe its the governments job to help social security measures rather than helping corporate.
Compare for example with Norway, which also made its oil industry completely state-owned, but is not in any way relying on oil profits to run the country.
Not sure if it has recovered since the 1990 war, but Kuwait was an example of a better long-range strategy if your main immediate source of income is oil -- you invest a large share of the profits from that in other things, while using some of the proceeds from both oil and the other investments on services for citizens. Its not as much short term benefit in citizen services, but its better for long-term stability (well, up until the fact that you have invested in a way that makes your returns better when oil prices are low gives you conflicting interests to your neighbor who hasn't invested in other things the way you have, forming one of the reasons they use their investment in one of the largest militaries in the region to invade, occupy, and ravage your country.)
For a healthy economy and happy people you have to tend to both business and individuals pushing money and regulations this way and that so that both are successful. When both are successful you only need minimal resources to keep them that way. What you can be sure of is that both pure hands-off capitalism and 20th century communism lead to serious social ills. The societies doing best in the world seem to be social democracies which though experience have taken the best of the extreme ideals of previous centuries.
It's much harder, though, to rally for careful deliberate moderation. People around the world try to make complex matters simple and take them to extremes because it's easy. Real progress, real improvements, real better futures require careful consideration and balance.
The governments job should be to maintain a peaceful society, protecting property rights and give people personal, economic and speech freedom. Those conditions lead to improvements in wealth,and at that point some of the he tax money can be diverted into safety net spending.
Arguing for it from the top down 'it's the governments job to help social security measures' fails to give the credit for generation of the wealth in the first place. Failing to understand the difference - the governments don't have and don't make money - leads to a fundamental mistake of 'the government has all the money, why not give some to me?'.