it's been said that the artificial oil boom price run up was a move to destabilize oil rich nations by letting their greed run wild till the boom went bust as is the case with Yugo, while Dubai is another...
Posted on 01/11/2010 3:59:54 PM PST by La Lydia
As President Hugo Chavez seems to be having an epiphany that most of his economic policies of the last few years were wrong, I do wish someone would explain to him that taking US $7 billion from the international reserves simply works against him and insures that next year, he will be forced to devalue again...There will be 50% (it is actually more, but who cares?) more Bolivars in December than yesterday. This will drive inflation and devaluation, as simple as that.
Nobody seems to have told Hugo about this, in contrast with Argentina, where a Court has voided a decree to use international reserves to pay debt and stopped the firing of the President of the Central Bank by Mrs. Kirchner over the issue. Gee, if Chavez had done that with reserves, Venezuela would have no international debt by now, but Argentineans realize it would debase the currency and create inflation, precisely what nobody seems to have explained to Hugo.
Meanwhile, the next few days are going to be filled with confusion. You have all seen reports that Venezuelans are out buying everything and they are. But beyond that, I have seen supermarkets with shelves empty of all imported things, even if they did not get dollars from the government, like soap, or fancy cereals. And as an anecdote, all imported dog food disappeared from Friday to Saturday from the shelves, as the store simply decided to hide the stff until things get cleared up.
And there is a lot to clear up. First of all, what will be approved at the new 2.6 Bolivars per dollar. For example, will veterinary medicines will be included or not? All foodstuffs? It will be days before we find out. The same with the second rate, where nobody really knows what will or not be included.
Beyond that, there is the problem of accounting. Currently, most companies had to register their foreign currency at 2.15 Bolivars per dollar (There were some exceptions, but I would bore you with that). On top of that there were rules for exporters, mostly that they had to exchange 95% of their foreign currency revenues at the official rate.
Well, now we have two official rates, so that the Government or the accounting board will have to tell companies what to do. We had a dual exchange system in the 80’s, the rules were complicated. Expect the same. Then, some companies with access to the second rate, could register things at the higher rate....
Inflation will be horrible in the next few months, the poor are going to feel it, just the basic foodstuffs will have to go up 20%, but there is a whole range of things that will come at the higher rate of Bs. 4.3 per US$. I do expect the swap rate to go down first, but in a few months it will be higher. Inflation is in the end a monetary phenomenon and there will be a huge monetary imbalance in Venezuela in the next few months. We will be lucky if GDP grows this year.
The sad part is that nothing has been learned from all this. Controls have never worked, because they end up exploding in your face at some point. Chavez has devalued five times. This is his second explosion (The other one was in February 2002). This one did not happen earlier because oil went sharply up in 2008. But the conditions that created are still in place. Some PSF’s have asked periodically about my dire economic predictions, here is the first explosion with more to come. Any gain in the purchasing power of the poor will be decimated over the next few months, but their surroundings, health, crime, electricity, housing, water are worse than when Chavez came to power in 1998. Eleven years and and a huge oil boom lost. As easy as that. That is the price of ignorance and doing things for politics sake. Venezuelans have seen this movie before, this time on steroids...
Such as foreigners like Obama.
Would love to see his own people string him up for the world to see.
Coming soon to the USSA.
That would be too good for him. True justice and punishment would be for the Venezuelans to throw him out, and for him to be forced to find asylum in Iran, and live there for there for the rest of his miserable life.
it's been said that the artificial oil boom price run up was a move to destabilize oil rich nations by letting their greed run wild till the boom went bust as is the case with Yugo, while Dubai is another...
Hyper inflation underway. This is the crackup boom. Get ready for the dissolution of Venezuelan society. This is a cautionary tale for the US.
No worries, he’ll simply blame America and Colombia, and then charge over the borders of Colombia for all out war. He won’t go down without an attempt to blame it on innocents.
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