
Printing Money Goes Haywire in Venezuela - cdvonstinkpot
http://www.bloombergview.com/articles/2015-08-28/printing-money-goes-haywire-in-venezuela
======
blazespin
There are easier ways to 'print money' than running the printing press. You
can just sell bonds (used to pay bills) and then have your federal bank buy
them using computer accounts with numbers in them. In the US this trick is
done first through Goldman Sacks who takes their cut for performing this sad
act of inflation.

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](https://research.stlouisfed.org/fred2/series/TREAST)

~~~
guelo
The US has been fighting deflation not inflation. The point of QE is to solve
the zero-bound interest rate problem where the central bank can't reduce rates
below zero. If there ever were to be an inflation threat here (which
conservative economists have been inaccurately predicting for 8 years now)
there is plenty of room for the Fed to raise rates in response.

~~~
blazespin
I meant sad act of MONETARY inflation. I didn't know I had to specify that.

------
chvid
What happens in the beautiful country of Venezuela is so sad.

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.

------
1971genocide
Oh Please.

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.

------
Steko
A bit more background on how Venezuela got here:

[http://www.nytimes.com/2015/03/07/opinion/francisco-toro-
dor...](http://www.nytimes.com/2015/03/07/opinion/francisco-toro-dorothy-
kronick-venezuelas-currency-circus.html)

 _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 ..._

------
msandford
I can't tell if it's hilarious or tragic that despite knowing how these
policies will end, they're enacted regularly by governments. Maybe it's both.

~~~
meric
People say hyperinflation will never happen because the road to it is quite
clear and governments would never make that mistake ever, and yet here we have
a government doing it with eyes wide open.

------
gizi
One problem is that the majority of the population is not just poor. They are
also intellectually limited in certain ways. They cannot easily assess the
truth of what you say to them. In fact, they usually don't even try. They just
trust you, or else they don't. Because of historical reasons, these people
prefer to trust Chavistic parties on the left and prefer to distrust parties
on the right. You see, the demographics behind the right-wing parties most
likely have a history of contempt for these poor and often illiterate masses.
Therefore, I would perfectly well understand that there is no love lost
between both.

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 ...

~~~
brc
Blaming the population for being poor and stupid is inherently unfair.

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.

~~~
gizi
Yes, but then you will sound like the right-wing parties. They have been
saying things like that for decades. Then, they will not trust you. If they
don't trust you, they will not follow your advice. That's it. Check mate.

------
sytelus
Venezuela has higher per capita oil reserves than countries like Norway [1].
Why is it in such a bad state then? Shouldn't they have at least decence
economy if not as good as Norway?

[1] [http://www.nationmaster.com/country-
info/stats/Energy/Oil/Re...](http://www.nationmaster.com/country-
info/stats/Energy/Oil/Reserves-per-capita)

~~~
ZeroGravitas
[https://en.wikipedia.org/wiki/Resource_curse](https://en.wikipedia.org/wiki/Resource_curse)

 _" 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...](http://www.ft.com/cms/s/0/99680a04-92a0-11de-b63b-00144feabdc0.html)

------
ZoeZoeBee
By Geographics and Resources Venezuela could be a beautiful and thriving
nation, unfortunately its future is not as pretty as its beaches.

------
dataker
History has proven how destructive central planning and government
intervention is.

Yet, most would find such claim to be debatable or even unacceptable.

~~~
FullyFunctional
Huh, how does that follow? This was clearly a case of terrible planning and
disastrous intervention. That doesn't mean that all planning and all
intervention is bad.

Frankly, no planning _is_ bad planning.

~~~
dataker
'Terrible planning' ends up being 'too much 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.

~~~
zxcvcxz
This is why I don't think top-down socialism will work in the US, we're just
too economically, politically, and culturally diverse for one system. Now, on
a state level I think in some places it could definitely thrive, but for some
reason the leftists want everything done on a federal level, making it much
harder to institute social programs and make them work.

------
YZF
3m - 2.7m = 300k. Not 700k as the author calculated.

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...

------
jayess
When economics and government collide, economics always wins. So many people
believe they can fight the immutable laws of economics, but alas, they always
lose.

~~~
Frozenlock
...and they never learn.

------
tedunangst
Another blatant smear for the benefit of the author's corporate paymaster!

~~~
PhantomGremlin
Huh? Is that sarcasm? If not, perhaps you can enlighten us as to the root
cause of the problems with the Bolivarian Republic of Venezuela.

Please tell me it's Yankee Imperialism. It's always our fault.

~~~
Dylan16807
You saw the end of the article, right?

~~~
Natsu
I assume you mean this part:

> 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.

~~~
Dylan16807
That would be a strange, rude and unhelpful way to point out a conflict. It's
just poking fun at the politically paranoid that lash out at anyone that
points out their mistakes.

~~~
Natsu
Hmm, well, we ended up closer to confusing. I couldn't make sense of your
comment at all, not knowing anything at all about this author I assumed there
was some reference I was in the dark about.

~~~
Dylan16807
The author mentioned nonsense emails calling them a shill because people don't
want to accept reality.

Someone made a comment just like those emails.

Pretty simple.

It's already a reference, no reason to assume it's a deeper reference.

------
fiatjaf
Governments don't resort to this trick? Are you kidding?

------
jestinjoy1
"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. "

This says it all. I am from India and I believe its the governments job to
help social security measures rather than helping corporate.

~~~
henrikschroder
But in this case, the oil industry of Venezuela is completely state-owned, and
the government was relying on profits from this to fund social programmes.
This is not an inherently bad idea in itself, but if your government spending
is directly dependent on a single commodity, fluctuations in its price will
affect your entire population.

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.

~~~
jestinjoy1
Thats correct. I dont know that much about Venezuela. Do we have records to
show that its entirely funded from oil profits? What if a country doesnt have
any other thing to make profits than oil. Same is the case for gulf countries.

~~~
dragonwriter
> What if a country doesnt have any other thing to make profits than oil. Same
> is the case for gulf countries.

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.)

