5 ms·

Printing Money Goes Haywire in Venezuela

44 points by cdvonstinkpot 11y ago

tedunangst 11y ago
Another blatant smear for the benefit of the author's corporate paymaster!
- PhantomGremlin 11y ago
  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 11y ago
    You saw the end of the article, right?
    - Natsu 11y ago
      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 11y ago
        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 11y ago
        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 11y ago
        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.
  - mehwoot 11y ago
    Read the article.
  - PhantomGremlin 11y ago
    Replying to myself. 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.
- igravious 11y ago
  I really don't think so. 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.
  - matthodan 11y ago
    Another way to generate inflation is by increasing the velocity of money in an economy-- i.e. people spending money faster by borrowing more and saving less. Doing so increases the amount of money in the economy, but instead of the source being a printing press it is a bank balance sheet.
  - obrero 11y ago
    > 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. 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.
dataker 11y ago
History has proven how destructive central planning and government intervention is. Yet, most would find such claim to be debatable or even unacceptable.
- FullyFunctional 11y ago
  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 11y ago
    '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 11y ago
      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.
  - brc 11y ago
    I believe the OP means governments know that central planning is a compete failure but they just can't help themselves. Like alcoholics, 'a few beers' won't hurt. It's the same with planning - just a little five year plan. It won't hurt.
  - BurningFrog 11y ago
    Central planning is a single point of failure.
msandford 11y ago
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 11y ago
  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.
- brc 11y ago
  The constant A/B testing of socialist policies alongside free economies does help to provide and endless list of economies ruined by socialism, though. It's tragic for the populations involved, but it helps blunt the constant cacophony of agitators everywhere for socialist policies. Most true socialist parties and groups worldwide are a laughing stock as a result, and quite rightly seen by wider society as hopeless rabble.
jestinjoy1 11y ago
"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.
- colechristensen 11y ago
  The problem I have with your response is the implication that it is a binary choice. 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.
- henrikschroder 11y ago
  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 11y ago
    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.
blazespin 11y ago
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 11y ago
  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 11y ago
    I meant sad act of MONETARY inflation. I didn't know I had to specify that.
- sytelus 11y ago
  But doesn't someone needs to print some money at some point? Let's say government issued $1B bonds, central bank bought it but in return there needs to be some extra cash needs to be printed and handed over to government? Government can't pay road construction crew with bonds or some credit notes, right?
  - dingaling 11y ago
    No, the overwhelming majority of money is purely digital. For example in 2009 the Bank of England issued £200 billion of quantitative easing, not a single penny of which was physical. 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.
jayess 11y ago
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 11y ago
  ...and they never learn.
ZoeZoeBee 11y ago
By Geographics and Resources Venezuela could be a beautiful and thriving nation, unfortunately its future is not as pretty as its beaches.
fiatjaf 11y ago
Governments don't resort to this trick? Are you kidding?
gizi 11y ago
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 11y ago
  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 11y ago
    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.
Steko 11y ago
A bit more background on how Venezuela got here: http://www.nytimes.com/2015/03/07/opinion/francisco-toro-dorothy-kronick-venezuelas-currency-circus.html 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 ...
YZF 11y ago
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...
chvid 11y ago
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.
sytelus 11y ago
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/Reserves-per-capita http://www.nationmaster.com/country-info/stats/Energy/Oil/Re...
- shalmanese 11y ago
  Dutch Disease: https://en.wikipedia.org/wiki/Dutch_disease https://en.wikipedia.org/wiki/Dutch_disease
- ZeroGravitas 11y ago
  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-00144feabdc0.html http://www.ft.com/cms/s/0/99680a04-92a0-11de-b63b-00144feabd...
1971genocide 11y ago
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.

44 points by cdvonstinkpot 11y ago

tedunangst 11y ago

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

PhantomGremlin 11y ago
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 11y ago
  You saw the end of the article, right?
  - Natsu 11y ago
    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 11y ago
      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 11y ago
        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 11y ago
        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.
- mehwoot 11y ago
  Read the article.
- PhantomGremlin 11y ago
  Replying to myself. 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.
igravious 11y ago
I really don't think so. 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.
- matthodan 11y ago
  Another way to generate inflation is by increasing the velocity of money in an economy-- i.e. people spending money faster by borrowing more and saving less. Doing so increases the amount of money in the economy, but instead of the source being a printing press it is a bank balance sheet.
- obrero 11y ago
  > 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. 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.

dataker 11y ago

History has proven how destructive central planning and government intervention is. Yet, most would find such claim to be debatable or even unacceptable.

FullyFunctional 11y ago
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 11y ago
  '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 11y ago
    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.
- brc 11y ago
  I believe the OP means governments know that central planning is a compete failure but they just can't help themselves. Like alcoholics, 'a few beers' won't hurt. It's the same with planning - just a little five year plan. It won't hurt.
- BurningFrog 11y ago
  Central planning is a single point of failure.

msandford 11y ago

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 11y ago
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.
brc 11y ago
The constant A/B testing of socialist policies alongside free economies does help to provide and endless list of economies ruined by socialism, though. It's tragic for the populations involved, but it helps blunt the constant cacophony of agitators everywhere for socialist policies. Most true socialist parties and groups worldwide are a laughing stock as a result, and quite rightly seen by wider society as hopeless rabble.

jestinjoy1 11y ago

"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.

colechristensen 11y ago
The problem I have with your response is the implication that it is a binary choice. 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.
henrikschroder 11y ago
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 11y ago
  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.

blazespin 11y ago

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 11y ago
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 11y ago
  I meant sad act of MONETARY inflation. I didn't know I had to specify that.
sytelus 11y ago
But doesn't someone needs to print some money at some point? Let's say government issued $1B bonds, central bank bought it but in return there needs to be some extra cash needs to be printed and handed over to government? Government can't pay road construction crew with bonds or some credit notes, right?
- dingaling 11y ago
  No, the overwhelming majority of money is purely digital. For example in 2009 the Bank of England issued £200 billion of quantitative easing, not a single penny of which was physical. 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.

jayess 11y ago

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 11y ago
...and they never learn.

ZoeZoeBee 11y ago

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

fiatjaf 11y ago

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

gizi 11y ago

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 11y ago
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 11y ago
  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.

Steko 11y ago

A bit more background on how Venezuela got here: http://www.nytimes.com/2015/03/07/opinion/francisco-toro-dorothy-kronick-venezuelas-currency-circus.html 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 ...

YZF 11y ago

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...

chvid 11y ago

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.

sytelus 11y ago

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/Reserves-per-capita http://www.nationmaster.com/country-info/stats/Energy/Oil/Re...

shalmanese 11y ago
Dutch Disease: https://en.wikipedia.org/wiki/Dutch_disease https://en.wikipedia.org/wiki/Dutch_disease
ZeroGravitas 11y ago
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-00144feabdc0.html http://www.ft.com/cms/s/0/99680a04-92a0-11de-b63b-00144feabd...

1971genocide 11y ago

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.