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Which still doesn't matter, if it's the secondary market. You can't borrow $100 and get more than that.

jessaustin 9y ago
What stops Maduro from issuing a bond for $1000 and selling it for $100? After all he knows he'll be dead or in Switzerland when the bond matures. He just cares about the $100 now.
- jevgeni 9y ago
  What's the difference between issuing a bond by Maduro and selling it?
  - jessaustin 9y ago
    When he issues a bond, he takes a piece of paper (perhaps not literally...) and stamps "Venezuela will pay bearer $1000 on 1 January 2025" (or whatever) on it. When he sells it, he gives the piece of paper to someone else and in return they give him money, theoretically the present value of the bond. The discount between the two amounts is mostly an indication of Venezuela's creditworthiness, but of course a portion of the difference is just a reflection of the discount rate for assets to be delivered in future. This is exactly the same as when any other entity issues a bond.
1zq 9y ago
But you can be the Venezuelan central bank and buy $2.8 billion in PDVSA-issued bonds and later sell those bonds at a 70 percent discount (i.e. around 840$ million) to Goldman Sachs. Until the moment of the sale to GS the money had only been transferred between two entities associated with the government.
- jevgeni 9y ago
  Yeah, but how does that generate free money for the Venezuelan state?
  - 1zq 9y ago
    It doesn't generate free money. On the contrary, it generates very expensive money. For this operation, the central bank received about $840 million in cash from GS, and PDVSA must now pay back $2.8 billion plus interest to GS. Whereas before this operation, PDVSA (owned by the Venezuelan state) had to pay back $2.8 billion plus interest to the central bank (also owned by the Venezuelan state).
    - jevgeni 9y ago
      But where did the central bank get the 2.8 billion USD? Venezuelan central bank can't print USD. So, net the country owes 2.8 billion USD + interest either way. It's just that the ultimate creditors have changed.
      - josefx 9y ago
        The 2.8 billion are PDVSA-issued bonds not USD, they only exist on paper and aren't worth a cent unless Venezuela can pay. Afaik Venezuela can print as many of those as it wants. > So, net the country owes 2.8 billion USD + interest either way. Venezuelas right hand owes money to Venezuelas left hand, both are Venezuela so Venezuela owes nobody. Now we have Goldman buying that dept from Venezuelas left hand and some more ( it can print as much as it wants of that ) for $5, Venezuela now owes 2.8 billion to someone else it has to pay back in the future in exchange for having $5 now. Those $5 benefit the current government and will affect any future government negatively.
        whatok 9y ago
        Venezuela cannot print USD and needs USD to pay coupons/principal.
        josefx 9y ago
        I may be missing something. They make USD by selling bonds, as long as they make more USD then the scheme has running cost they can increase the amount of USD they have right now by selling more bonds below value, leaving any future government in dept.

What stops Maduro from issuing a bond for $1000 and selling it for $100? After all he knows he'll be dead or in Switzerland when the bond matures. He just cares about the $100 now.

jevgeni 9y ago
What's the difference between issuing a bond by Maduro and selling it?
- jessaustin 9y ago
  When he issues a bond, he takes a piece of paper (perhaps not literally...) and stamps "Venezuela will pay bearer $1000 on 1 January 2025" (or whatever) on it. When he sells it, he gives the piece of paper to someone else and in return they give him money, theoretically the present value of the bond. The discount between the two amounts is mostly an indication of Venezuela's creditworthiness, but of course a portion of the difference is just a reflection of the discount rate for assets to be delivered in future. This is exactly the same as when any other entity issues a bond.

1zq 9y ago

But you can be the Venezuelan central bank and buy $2.8 billion in PDVSA-issued bonds and later sell those bonds at a 70 percent discount (i.e. around 840$ million) to Goldman Sachs. Until the moment of the sale to GS the money had only been transferred between two entities associated with the government.

jevgeni 9y ago
Yeah, but how does that generate free money for the Venezuelan state?
- 1zq 9y ago
  It doesn't generate free money. On the contrary, it generates very expensive money. For this operation, the central bank received about $840 million in cash from GS, and PDVSA must now pay back $2.8 billion plus interest to GS. Whereas before this operation, PDVSA (owned by the Venezuelan state) had to pay back $2.8 billion plus interest to the central bank (also owned by the Venezuelan state).
  - jevgeni 9y ago
    But where did the central bank get the 2.8 billion USD? Venezuelan central bank can't print USD. So, net the country owes 2.8 billion USD + interest either way. It's just that the ultimate creditors have changed.
    - josefx 9y ago
      The 2.8 billion are PDVSA-issued bonds not USD, they only exist on paper and aren't worth a cent unless Venezuela can pay. Afaik Venezuela can print as many of those as it wants. > So, net the country owes 2.8 billion USD + interest either way. Venezuelas right hand owes money to Venezuelas left hand, both are Venezuela so Venezuela owes nobody. Now we have Goldman buying that dept from Venezuelas left hand and some more ( it can print as much as it wants of that ) for $5, Venezuela now owes 2.8 billion to someone else it has to pay back in the future in exchange for having $5 now. Those $5 benefit the current government and will affect any future government negatively.
      - whatok 9y ago
        Venezuela cannot print USD and needs USD to pay coupons/principal.
        josefx 9y ago
        I may be missing something. They make USD by selling bonds, as long as they make more USD then the scheme has running cost they can increase the amount of USD they have right now by selling more bonds below value, leaving any future government in dept.