Watching Venezuela Implode

Well, they weren't calling for a forced regime change, they were calling for a referendum. That's what the people want, and of course the government isn't letting them have it. What alternative do they have? All out armed revolution? Because that's where this thing is headed.

That talk about "states rights" overriding "human rights" is infuriating.

Wow, that's so sad and infuriating. How can you even have a dialogue with something that isn't the authorities? It's crazy and it shouldn't happen this day and age. Having said all that. I don't see any Western countries reaching out either. Ignoring at has hard as they can.
And not to derail too much, lets have a good look at our own modern, western and 'democratic' governments these days. Crooked like hell and squeezing us out more and more, making crazy decisions all the time.

With all the sh*t going on, what's on the docket of Venezuela's top court? Banning videos of lynchings. After all, we wouldn't want to create "anxiety and uncertainty" in a country that's tearing itself apart.

87% of Venezuelans say they don't have money to buy enough food

Over the last few months, President Nicolás Maduro has tried out some unorthodox things in response to the economic catastrophe, including changing the time zone to make more favorable daylight hours, urging women to cut use of hair dryers to save electricity, and forcing holidays for state employees.

He also declared a 60-day state of emergency in mid-May because of "what he called plots from Venezuela and the United States to subvert him," according to Reuters.

Notably, Venezuela's economic future is not looking very bright. Central-bank data suggests that Venezuela's gross domestic product contracted by 5.7% in 2015, and International Monetary Fund figures forecast that it will shrink by 8% in 2016.

Inflation is around 180.9% - the second highest in the world - and is expected to rise to a mind-blowing 720% in 2016, according to a January estimate from the IMF.

Oh Venezuela, you never go full Communist.

Chairman_Mao wrote:

87% of Venezuelans say they don't have money to buy enough food

Over the last few months, President Nicolás Maduro has tried out some unorthodox things in response to the economic catastrophe, including changing the time zone to make more favorable daylight hours, urging women to cut use of hair dryers to save electricity, and forcing holidays for state employees.

He also declared a 60-day state of emergency in mid-May because of "what he called plots from Venezuela and the United States to subvert him," according to Reuters.

Notably, Venezuela's economic future is not looking very bright. Central-bank data suggests that Venezuela's gross domestic product contracted by 5.7% in 2015, and International Monetary Fund figures forecast that it will shrink by 8% in 2016.

Inflation is around 180.9% - the second highest in the world - and is expected to rise to a mind-blowing 720% in 2016, according to a January estimate from the IMF.

Oh Venezuela, you never go full Communist.

It's not a joke.

I have two employees from Venezuela; one who's father is still there terminally ill while her brother takes care of him. They got trapped there at some point unable to get out and now her father (who is a retired admiral) can not get the basic medications he needs to survive. When her father passes she suspects her brother will be arrested because she lives and works in the US if the current government stays in power.

So I have a human face to this crisis nearly everyday.

Personally I cannot see how the regime makes it through the year; it isn't North Korea where the government has control of every aspect of society (and are able to threaten regional stability for food and money). With Cuba now virtually in the US camp and the left wing governments throughout Latin America falling there just are no more allies left. What comes next may be worse though because people just want medicine, food, and other essentials and will be willing to accept another strongman who can guarantee them.

Oh, I should make another prediction, for posterity: the minute the Venezuelan government stops printing money and removes price caps, things will start to get better. You'll see improvement within weeks. Not years, weeks, and probably low-single-digit weeks.

The economy will be badly damaged, and will take years and years to recover fully, but people will be able to eat once the monetary abuse stops.

Until those two things happen, the situation will only get worse.

Maybe, but they still need to get goods from somewhere. Everything is shut down now (or severely depressed). The end to printing money and price controls is a start, but prices will be very high for a while and people will not be able to afford goods until either imports ramp up (slow process) and (or) local production ramps up (an even slower process). The process will be months with the likely abandonment of the currency.

Maybe, but they still need to get goods from somewhere

Well, it is absolutely possible to destroy an economy completely from hyperinflation and price controls. There is no end state where it gets better. It just keeps getting worse, forever, no matter how bad it already is, unless and until the economy moves to some other form of exchange.

Venezuela was very prosperous not so long ago, and they should be able to export enough stuff to at least eat. Their standard of living will be much lower, post-Chavez, but they should be able to keep themselves fed. But that's entirely dependent on the monetary abuse stopping.

Until it does, things will continue to get more dire.

Once that crap stops, assuming that the capital goods (factories and the like) are still functional, the economy can rebound fairly quickly. But if the degeneration has proceeded to the point that the capital goods have been looted to feed people, then they're really, really screwed.

Malor wrote:

Venezuela was very prosperous not so long ago, and they should be able to export enough stuff to at least eat.

Because oil prices were high. They did not use the oil profits on development (even in their oil extraction) and instead put it into social programs. Oil prices have fell to 20% of the previous levels (~33% in the last month) but their largest export market was the US and Canada both who have bumped up production.

Once they beat off the hyper inflation they will eventually produce goods, but it is likely that foreign goods will be cheaper which will make it difficult for local production to even start unless the government steps into either impose import taxes or price controls. They do both of these today too, which is part of the problem.

Unless you are Argentina (the Political Economic saying goes there are three types of economies, developed, developing, Argentina, and Japan) bumping back from this type of crisis takes years maybe a generation. Although oil prices may rebound, they are not likely to do so anytime soon.

Their next steps in monetary policy should be default then pegging the bolivar to the USD. This is something that the current government will not do mostly be cause of BS nationalism. That would be textbook though and there should be smarter people than me working on the problem (likely some of my classmates).

bumping back from this type of crisis takes years maybe a generation

For a full recovery, sure. But the *instant* they stop printing money and remove the price caps, things will start to get better, and there will be a fast initial restart on the economy. It might never return to where it was, but they'll come out of crisis mode very quickly.

Look how fast Zimbabwe came out of urgent crisis when they went to the dollar. I'm sure they're still badly damaged, but at least the entire population stopped starving, almost immediately.

We're saying the same thing, peg the currency to the USD which is more than just stopping the money tap.

They did not use the oil profits on development (even in their oil extraction) and instead put it into social programs.

Am I wrong to wonder if there can be social programs that are "development," or is this one of those econ/finance euphemisms like "energy" (which only means fossil fuels)?

wordsmythe wrote:
They did not use the oil profits on development (even in their oil extraction) and instead put it into social programs.

Am I wrong to wonder if there can be social programs that are "development," or is this one of those econ/finance euphemisms like "energy" (which only means fossil fuels)?

Many social programs do not develop anything. This doesn't make them bad. In this case I was talking in particular reinvestment. The way that Chavez handled the state oil company (re-nationalization if you will) was to add the company profits to the government income. As a result he spent money on things like unemployment payouts and free healthcare (which is fine for governments to d) using the oil money to do so instead of upgrading equipment, training, and even maintenance means that they are producing less oil than they were pre-Chavez (in addition to lower oil prices). In addition he lowered taxes which made the government even more dependent on oil revenue.

Am I wrong to wonder if there can be social programs that are "development," or is this one of those econ/finance euphemisms like "energy" (which only means fossil fuels)?

Typically, social programs are mostly consumption. Resources used there are destroyed, and while some programs will improve the economy's ability to generate later resources (like basic healthcare), payoffs are strongly negative for all but the most efficient programs. (things to keep people alive, and simple/cheap healthcare that prevents major illnesses.)

Then there's investment, typically creating factories and infrastructure. Education can also fit into this category. Nearly all of these have huge payoffs for early investment, and gradually become less cost-effective over time. A million dollars spent in the US, for instance, will have little overall effect in that ocean of existing infrastructure, where a million dollars spent in Haiti could be transformative for at least a small area. Dimiinishing returns may be the curse of modern economies, that the fifty-millionth mile of road may be a net negative, even though the first fifty miles were the best thing ever.

To all appearances, Chavez took most of his oil money, plus a bunch of extra that he printed up from nothing, and spent it on pure consumption items, things that had no payback. It's the economic equivalent of blowing your trust fund on hookers and cocaine, and going into massive debt to boot.

Just want to say I'm glad Malor's back and posting. It's a good voice to have in P&C, even if I don't agree with it often.