Watching Venezuela Implode

A volatile government, reeling from inflation

See? See? You can't print money without consequence, and inflation always destroys the poor first.

Printing money never solves problems, it only hides them, and lets them fester.

And it gets worse: Venezuela freezes private hospital fees for three weeks.

They're willing to hold down prices for three entire weeks -- can you imagine what that's like to live under?

They're following the goman prescription, and the wheels are starting to come off the cart. From the article:

Last month, President Chavez signed a new price control measure.

Under the Law for Fair Costs and Prices, businesses in a wide range of sectors will have to set prices at levels fixed by the government.

The government says the measure will not hurt "honest" businesses but target speculation.

Once broad price controls go in place, the economic damage starts for real. Watch and learn what goman would do this country.

And you watch it too, goman. When the starvation starts there, note how it's the poor that are dying first.

Has goman *ever* advocated price controls? Deficit spending balanced to inflation is not price controls...

Well, price controls are imposed because the poor are suffering, which is what goman steadfastly refuses to believe happens when you print money. The alternative is to print even MORE money and give it to the poor, but then the people who aren't quite poor enough to qualify take the load instead. And you have to print more for them too, and then the people even RICHER get wiped out, so you have to print even more....

I posted this paragraph last week, before I'd heard about the latest Venezuela news, and I'll copy it here:

I, in the Put Your Money Where Your Mouth Is thread, wrote:

Money printing is dangerous in and of itself, but where it becomes hideously destructive is when the government also tries to impose price controls. They like to demonize 'profiteering' as the reason prices are skyrocketing. So by imposing price controls, anyone that has one of the price-controlled goods can only sell it for less than the cost of replacement materials. So at best, they lose all their inventory and can't replace it; at worst, when the government insists they keep producing and selling their goods at a loss, they will shortly be utterly destroyed, all their capital sucked out the front door in goods they were taking huge losses on. Price-controlled items very rapidly start disappearing from shelves, and the economy grinds to a halt.

Fundamentally, the Venezuelan government is trying to take more wealth out of its economy than that economy can provide. If they were doing it through taxation, they would strangle their economy that way... the big advantage there is that everyone would understand what the problem was. By printing money, they steal that wealth from the poor, the people least able to even understand what's going on.

It's about the most reprehensible approach to governance short of outright fascism. Instead of taking wealth from people who understand what you're doing and can fight back, you steal it from the weak and helpless, while telling them you're making their lives better. I think some of the people who do this even believe that.

But it doesn't work. It never works.

Price Controls are not bad temporary fix if enough people believe in them. For a country like Venezuela to do it - Good luck with that. Too much corruption and distrust of the powers at be. Whether it is Chavez or the private sector.

For Venezuela to get their inflation under control. How about stop subsidizing gasoline.

Malor - Lets just stop putting words into each others mouth. I know I have done it is the past and I am sorry.

Price Controls are not bad temporary fix if enough people believe in them.

It doesn't matter what people believe. It matters what the goods cost to acquire. Everything in the economy is bid for through the pricing mechanism; the people with the most currency win. The people with the least currency can no longer afford it. Because the government prints the currency, it can take whatever it wants from the economy, and then everyone else has to squabble over the remainder with the suddenly-increased pool of cash. People who were closest to that cash get to bid highest, and it's typical for those industries to be non-wealth creating. The people actually making the goods get the money last, and then can't cover their own costs, because everything else has gotten more expensive.

Inflation steals from the poor.

Lets just stop putting words into each others mouth. I know I have done it is the past and I am sorry.

Okay, I'll try, but I thought I was being fair here. Isn't Venezuela doing pretty much exactly what you think they should be?

Stop arguing about unimportant stuff! Chavez has CANCER! don't you forget he has Cancer, for he has (Cancer) You know what is it that he has? if you answered "Cancer" you would be correct (Cancer). You dare mock the Cancer Cancer has Cancer? How dare you? (Cancer) Chavez Cancer Cancer Cancer Cancer Cancer.

CANCER

Have you heard that Chavez has Cancer?

Feeank wrote:

Stop arguing about unimportant stuff! Chavez has CANCER! don't you forget he has Cancer, for he has (Cancer) You know what is it that he has? if you answered "Cancer" you would be correct (Cancer). You dare mock the Cancer Cancer has Cancer? How dare you? (Cancer) Chavez Cancer Cancer Cancer Cancer Cancer.

CANCER

Have you heard that Chavez has Cancer?

You know what's funny? I had no idea he had cancer until now.

If you are somehow offended by that [size=16]^[/size], imagine living in a country where the President goes on TV for hours and hours about how the opposition wants him to die, how they are cheering for his illness to defeat him yadda yadda yadda rinse repeat rinse repeat everyday. Nevermind the collapsed structure, the public health system in ruins, the electrical system about to implode on itself, a mere faint shadow of what used to be the most advanced electrical network in the subcontinent. None of that is important, Chavez fighting Cancer?, now we're talking. Imagine our political prisoners that have been battling their own very real, very deathly illnesses behind bars without the benefit of having their families taking care of them, to just name one single example of the Revolutionarian concept of justice, let alone basic human decency.

the collapsed structure, the public health system in ruins, the electrical system about to implode on itself, a mere faint shadow of what used to be the most advanced electrical network in the subcontinent

Goman, pay attention to this. This is what inflation does. Listen to the guy being wrecked by it on a daily basis. This is what endless liquidity buys. It diverts wealth from where it's supposed to go, like infrastructure and healthcare and power generation.

edit to add: Oh, and feeank, I'm sorry, man. I know it sucks. Make sure people know why this stuff is happening, that you're all being slowly impoverished because he's abusing your currency.

Actually, I think this is what Chavez's government does. The inflation is just one of many symptoms. Nothing destroys infrastructure quite like crony communism. (Not that communism is a necessary ingredient--but it provides the simplest pretext for fast government takeovers of absolutely anything, and then the cronyism kicks in to give it to people who have no idea how to make it work, and are just trying to bleed as much as they can from stuff before the inevitable downfall of the government.)

Malor -Chavez never fixed inflation. I posted years ago here inflation rates pre-Chavez. They were actually worse than present. But that doesn't excuse Chavez for not getting it under control. My policies are not to let inflation get out of control.

Well, then what should they be doing? They've got the money printing part right.

Oh, I caught a bit of a blip on the BBC last night that Chavez is going to nationalize the gold mines. (ie, take them away from their owners.)

Malor wrote:

Well, then what should they be doing? They've got the money printing part right.

Oh, I caught a bit of a blip on the BBC last night that Chavez is going to nationalize the gold mines. (ie, take them away from their owners.)

I have already said what they should do. Stop subsidizing gasoline.

About goldmines. Chavez is again overreaching when all he needs is a stick, he brings out the bazooka. But perhaps it is just his rhetorical style. We will see what happens. From what I understand there is a lot of illegal mining in Venezuela. In other words, pretty laissez faire for a communist country.

Feeank wrote:
Malor wrote:

Well, then what should they be doing? They've got the money printing part right.

Oh, I caught a bit of a blip on the BBC last night that Chavez is going to nationalize the gold mines. (ie, take them away from their owners.)

Well, he's bringing Venezuela's International funds/savings (?) in gold to the country, so we can say goodbye to that. He's also transferring the majority of those funds in cash to Brasil, China and Russia, countries that hold most of newly acquired debts. (we have acquired New debts, after 12 years of the highest oil prices ever) [/b]China has been pretty much been given control over our oil riches for the next 30 years or so, as we have agreed on selling them our oil for a fixed price for that period of time. Good luck trying to squeeze ourselves out of that deal when Chavez leaves, and good luck trying to access our funds from now on. Rome burning and the parasits applauding Nero.

Isn't this a contradiction? He is either repatriating the gold or he isn't. If he is doing what you are saying he is just moving it from Europe to Brazil, China and Russia. Does this really change a thing?

Malor wrote:

Well, then what should they be doing? They've got the money printing part right.

Oh, I caught a bit of a blip on the BBC last night that Chavez is going to nationalize the gold mines. (ie, take them away from their owners.)

Well, he's bringing Venezuela's International funds/savings (?) in gold to the country, so we can say goodbye to that. He's also transferring the majority of those funds in cash to Brasil, China and Russia, countries that hold most of our newly acquired debts. (we have acquired New debts, after 12 years of the highest oil prices ever) China has been pretty much been given control over our oil riches for the next 30 years or so, as we have agreed on selling them our oil for a fixed price for that period of time. Good luck trying to squeeze ourselves out of that deal when Chavez leaves, and good luck trying to access our funds from now on. Rome burning and the parasites applauding Nero.

edit: Words! how do them work??

He is bringing all the Gold here, he's moving the rest of the reserves to our new creditors.

I have already said what they should do. Stop subsidizing gasoline.

What would that do? Wouldn't making energy more expensive worsen inflation? They're an oil producer.... hmm, I suppose they could just sell all the gasoline, that would improve their balance of payments significantly.

Malor wrote:
I have already said what they should do. Stop subsidizing gasoline.

What would that do? Wouldn't making energy more expensive worsen inflation? They're an oil producer.... hmm, I suppose they could just sell all the gasoline, that would improve their balance of payments significantly.

The cheap/practically free gas distorts the economy. Inefficiencies are promoted which lead to inflation. This is the one constant throughout all Venezuelan regimes. Cheap gas and high inflation.

Also because of other policies of the country. But I think this is the main policy that leads to inflation.

Gas is expensive in Europe yet their inflation is non-existent.

Goman is right about gas. Much of our troubles as a nation would be fixed if we effectively stopped subsidizing gas as much as we do. We're talking about day to day issues like traffic jams, insecurity, roads maintenance, but primarily by becoming citizens instead of "city dwellers". We're an overentitled, always abusive people, the law has no meaning whatsoever out in the street, by choosing to follow it you're putting yourself in the firing line and turning into an easy target for the bigger fish (the criminal, the law enforcer or the well-connected) you'll eventually cross the path of one of those types, so we avoid that by trying to outsmart the rest of the little fishes, in hope we don't get our turn this day. Hence, we jump red lights, turn on no U turn corners, park anywhere we like, honk the horn to make the idiot ahead hurry up and curse the bastard honking behind us.
Gas prices have no small part of responsability in shaping us into the mess we're today. Think about the recent London riots, these came about because "poor people" we're concerned about youth centers being closed (and one guy getting shot in the head). Here we had that happen to us back in 1989, the country exploded after the newly elected president at the time announced a series of economic measures designed to fight the crysis he was inheriting and the main bullet point was to raise the gas prices a 100 percent. To put that in perspective if we were to do that today it would bring the oil prices to a 10th of what people in most countries pay for the same good and yet we rioted and pillaged and robbed.

Goman I think that you extrapolate out single data points way more than you should. Just because Venezuela has inflation and cheap gas, while Europe has the opposite doesn't mean that you can directly map those things. Especially since inflation is a number that is driven by so many economical factors in working in tandem.

Not to mention the fact that what you posit is easily refutable. If energy prices were the main cause of inflation then Saudi Arabia would make Zimbabwe look like the UK.

Well, not subsidizing gas would mean that more of it would go overseas, pulling more value into Venezuela, so that would probably help the inflation problem. Plus, it would impair the economy, which would also slow inflation, although I'm not sure how much.

Goman might be right, although I think it may be for the wrong reasons. He's not very clear on how A gets to B, just pointing at the correlation instead of demonstrating causation, but there might actually be causation there, to a degree.

Honestly, feeank, with gas that cheap, I'd expect you guys to have a super-robust economy. Cheap energy is always good.

Malor wrote:

Well, not subsidizing gas would mean that more of it would go overseas, pulling more value into Venezuela, so that would probably help the inflation problem. Plus, it would impair the economy, which would also slow inflation, although I'm not sure how much.

Goman might be right, although I think it may be for the wrong reasons. He's not very clear on how A gets to B, just pointing at the correlation instead of demonstrating causation, but there might actually be causation there, to a degree.

Honestly, feeank, with gas that cheap, I'd expect you guys to have a super-robust economy. Cheap energy is always good.

Sure, it is great not thinking about what would cost me to fill the tank whenever I turn the car on and go about my daily business, it is a non-issue. It would be still a non-issue If I had to pay double, even triple of what I pay today. It is more expensive for me to commute to work for a week than it is for me to fill the tank and having it last 10-12 days without limiting myself much on what I do or where I go after work, etc. So take that for an starting point. Doubling/tripling the price for gas would still keep it cheap as a song and there would be all this potential money that could be used into I don't know, basic supplies for our public hospitals (where the unlucky majority of the population has to go when they get sick), fixing the electrical system or paying good salaries to doctors and educators. Instead, we buy military crap from China and Russia and give our money away to the continental club of Venezuela's Gangbangers (Cuba, Bolivia, Nicaragua, Ecuador, Argentina, to just name a few)

Edit: I was wrong on my figures up there, the correct numbers are even more laughable. It is more expensive for me to take the bus to work and back home in one day than it is to fill the tank and having gas for a week or longer. No wonder no one here with a car wants to take the bus unless forced to.

What Feeank says is true. There are many countries like Venezuela which have the pieces they would need to be successful in the global market but the blow the country's riches on cronyism and populism. They beef up security and military in order to enshrine their political party in perpetuity instead of lifting their society up.

It's a death spiral. Doesn't matter if it's Castro, Chavez, or any of the african nations.

The inflation problem and pricing etc are something we may see in the USA if we don't get our act together. Tough choices will need to be made and people are going to get hurt. The longer you put off fiscal sustainability the more painful the blow is going to be.

Feeank wrote:

There's also Commander Sheppard

I quote myself for great glory.

So, yesterday we had opposition primaries and over 3 million people nationwide chose HCR (Henrique Capriles Radonsky) to be the unitarian candidate against Chavez in the presidential elections next october. I think it is time for the thread to have a less grim title.

Forget about changing the title, a young student was killed today while trying to prevent police forces to seize "election notebooks" meant for burning, this document contains both the names and addresses of all voters from 1 election center and is signed by every voter before casting their vote. They were supposed to be burned after the election, but our supreme court equivalent said they could not be burned upon suspicions of "Fraud", just about the same time as they were being light-up in some regional centers. Most notebooks have already been destroyed, but in some places the police arrived and detained the opposition-based parties responsible for the burning.

I don't think Chavez will go quietly. He might put up a front of democratic elections but many dictators do that and somehow always win.

What kind of police kill a student to get some notebooks? Maybe if the kid had a gun and was defending them with it, but I doubt that was the situation. Sounds more like an example so the next time police come demanding something no one will say no.

Juan Hidalgo from Cato cites some research and anecdotal evidence that Chavez' electoral fraud "cushion" could be as high as 8%.

I'd be surprised if it's that low, but then, that's probably more than enough. Chavez will not go peacefully, not unless he's dying at the time and can't actually control his organization. One good question is whether he's got someone ready to step up and take the reins if he is actually very sick, or whether it's a real one-man show.