Thread: Venezuela – An Economic Catastrophe In Images The Final Stage of a Crack-Up Boom

Venezuela – An Economic Catastrophe In Images

As assorted socialists continually assure us, what they have in Venezuela is luckily not 'real socialism'...

Sat, 09/01/2018 - 14:30

Authored by Pater Tenebrarum via Acting-Man.com,

The Final Stage of a Crack-Up Boom

For economists the dire downward spiral of Venezuela’s economy holds the same fascination black holes hold for physicists. Both illustrate what happens amid the most extreme conditions imaginable. It is thought that this may potentially provide clues of a more general nature. The remnants of massive imploded stars are inanimate and many light years distant; regardless of how violent conditions in their vicinity are, they cannot touch us. Unfortunately, extreme economic conditions definitely involve a great deal of human suffering.


“We are the humanist socialism that will save the world”, from Venezuelan cartoonist Weil (he always draws the dear leaders with big wads of dollars sticking out of their pockets, making them look like otherworldly birds – look for his work on the intertubes).
From the perspective of Austrian economic theory, a hyperinflation event essentially represents a highly compressed, extreme version of the boom-bust cycle referred to as a “crack-up boom” (note: the original German term coined by Ludwig von Mises was “Katastrophenhausse” – the literal translation would be “catastrophic boom”).
In a past article on forced saving we inter alia discussed the post WW I crack-up boom in the Weimar Republic, one of the most infamous hyperinflation events in history. The data available on this disaster are remarkably comprehensive and detailed and demonstrate that Austrian capital and business cycle theory indeed offers the by far most accurate explanation of the boom-bust cycle.
Recent developments in Venezuela are very similar. There is definitely a crack-up boom underway, but it differs of course in a number of details from the Weimar experience. Every slice of economic history is unique in some way after all, but the underlying economic laws driving economic history nevertheless remain universally and time-invariantly applicable.
Not too long ago our good friend Keith Weiner also mentioned Venezuela, mainly in the context of criticizing too simplistic views of the factors driving price inflation such as the quantity theory of money). Obviously the supply of money is just one of these drivers – the demand for money and the supply of and demand for goods and services are the others.
This is also why the purchasing power of money is not truly measurable, as no fixed yardstick to measure it with exists. There is no such thing as a “general level of prices” anyway – this is a logical fallacy. Keith correctly points out that in Venezuela – and this is something one can observe in almost all hyperinflation cases – it is not only money printing that has triggered the slump in purchasing power, but also a collapse in production, which has happened for more than one reason.



As assorted socialists continually assure us, what they have in Venezuela is luckily not 'real socialism'. They were definitely full of praise for “Chavismo” though when high oil prices still helped mask the crumbling of the country’s economy. Some people such as Jeremy Corbyn no longer even mention Venezuela nowadays, after frequently informing us in the past how wonderful Chavez-style socialism was.
In Venezuela production collapsed very quickly after the socialist dictatorship of Chavez (and later Maduro) weakened property rights to such an extent that no sane person was prepared to take entrepreneurial risks with their capital any longer.
The entire gamut of interventions from the imposition of price controls to outright confiscation of businesses was implemented with the aim of transforming Venezuela into a full-scale command economy. Amid heavy money printing and a concomitant slump in production and imports, the demand for money eventually collapsed as well – triggering the hyperinflation phase.
It should be pointed out that capital consumption was already quite advanced before the advent of Venezuela’s socialist rulers, as their predecessors had gradually undermined the market economy for decades. Naturally, these previous interventions were also accompanied by a lot of money printing.
All interventionist governments consider the suppression of interest rates to be a cure-all – and it can of course mask structural economic problems for quite some time, as a rule up to the point when the bulk of previously accumulated capital has been consumed.


Empty shelves in supermarkets in Caracas have been the “new normal” for more than four years now. Not only has domestic production collapsed, but imports have declined precipitously as well. Holding on to cash balances denominated in the domestic currency makes no sense and a major “flight into real values” has been underway for quite some time.

Pictures of an Economic State of Emergency

We have quite a comprehensive collection of charts pertinent to the hyper-inflationary crack-up boom in Venezuela and decided to put the most interesting ones into a post (most of the charts are fairly up-to-date, but keep in mind that things are moving very fast in late stage hyperinflation).
Recently the government decided to shave off five zeros from its currency (on August 18 to be precise), which is reminiscent of the 1000 for one reverse split applied to the IBC stock market index in Caracas a few years ago (i.e., they took off just three zeros in this case).
One similarity is already ominously obvious: the collapse of the value of the Venezuelan bolivar (VEF) has immediately accelerated in the wake of the “currency reverse split”. The stock market rally also accelerated shortly after the index was robbed of three zeros.
Presumably this is mainly a psychological effect. Anyway, we have made charts of the exchange rate in which we simply ignored the removal of the five zeros. Eventually we will adjust all past numbers, but it won’t really make a difference – the charts will look exactly the same. For starters, here is a log chart of the black market rate of the VEF vs. the USD (“black market rate” in this case simply means “market price”).

A log chart of the VEF-USD exchange rate. In 2010 VEF-USD traded just above 8 bolivares per dollar in the black market. As of today it stands at more than 8.7 million bolivares per dollar (or 87.22 using the post-split value, which compares to a VEF-USD rate of 0.0008 in 2010) – note the acceleration after the “reverse split” – on August 18, one day before the five zeros were shaved off, VEF-USD stood at around 5.9 million.
A linear chart from August 2014 to today shows how the move in the exchange rate accelerated as hyperinflation really took off and the bolivar essentially ceased to be a viable medium of exchange. Moves prior to 2017 are not really visible on this chart, but it is inter alia easier to show clearly at which point the “reverse split” was implemented. As noted above, the decline in the exchange rate accelerated even further in the wake of the decision.

A linear chart of VEF-USD from 01 August 2014 to 31 August 2018. Within just 12 days after the introduction of the “new” bolivar, it moved from 59 to 87 (or from 5.9 million to 8.7 million in “old” bolivar terms).
Professor Steven Hanke of John Hopkins University runs the “Troubled Currencies Project” for the Cato Institute – he uses exchange rates to derive an implied inflation rate for the countries concerned. Although price inflation is not really measurable, this does provide us with a rough idea of how quickly the purchasing power of these currencies is vanishing.
The most recent chart of Venezuela’s implied inflation rate we have found is as of August 19, shortly after the government introduced the “new” bolivar. Since implied inflation stands at 61,670% as of August 30, it seems actually likely to us that a typo was made in the annotation and the chart refers to the situation as of August 29 rather than August 19. In any case, it is fairly current.

Venezuela’s implied annual inflation rate via Professor Hanke – on August 30 it reached 61,760%.
The next chart shows Venezuela’s narrow money supply M1 since 2008 – unfortunately we could not find a log chart going back that far, so one can only discern the “parabolic printing phase” that began in 2016 – 2017.
We calculated that Venezuela’s money supply growth amounts to 46.68 billion percent since the early 1960s. On a log chart one would no doubt see that extremely generous money printing has been practiced for a very long time (it would probably look very similar to the log chart of the exchange rate above).

Venezuela’s narrow money supply M1 – up 46.68 billion percent since the early 1960s. Its growth rate has accelerated markedly in the past several years.
This brings us to the miraculous Caracas stock market, which has soared amid a collapse in economic output – a symptom of the “flight into real values”, as stocks represent claims on real assets.
Despite the little joke we have pinched from Kyle Bass and added to the annotation, the stock market has actually preserved purchasing power quite well in recent years. There is only one problem: once the inflation phase ends, which it must one day, the subsequent “stabilization crisis” will result in a sharp fall in the prices of the stocks that have rallied the most, as the economy’s structure of production will have to be completely rearranged.
Many investors will find it very difficult to decide when to get out and move into different sectors or different types of investments – and the class of investors as a whole won’t be able to escape the coming losses anyway. In Weimar Germany several of the biggest and most prominent winners of the crack-up boom lost their entire fortunes after hyperinflation came to a sudden halt in late 1923.

IBC Index, monthly – a gain of 4.11 billion percent since the low of 2002.
With respect to declining production, we have two more charts – one shows the slump in Venezuelan oil production compared to the surge in US oil production (note that Venezuela has the largest oil reserves in the world) and the other shows official GDP growth numbers – which are only released intermittently these days.

US vs. Venezuela crude oil production from early 2005 to April 2018

Annualized GDP growth according to official statistics – since 2016 these data are only released sporadically, and we are not sure how accurate they are.
So there you have it – the symptoms of a crack-up boom.

Nicolas Maduro, the remarkably well-fed current Dear Leader of Venezuela.


An all too familiar sight in Caracas these days: somewhat less well-fed Venezuelan citizens are hunting for food in the garbage. We are sure they will be happy to learn that it isn’t the fault of “real” socialism.


The situation is apparently not much better in rural areas – here a hungry mob is seen stoning a milk cow.

https://www.zerohedge.com/news/2018-...strophe-images

Give them nothing!

No aid, no oatmeal, no money!

They have oil...take that to feed them!

AND DO NOT ALLOW THEM TO COME HERE! WE DO NOT WANT THEM!

THEY HAVE A WHOLE OCEAN FULL OF FISH...GO GET SOME!

Venezuela sues neighbors for ... not treating its flood of refugees well enough

Socialism makes comeback in U.S. politics | devastating effects to national economy

Venezuela EL NACIONAL stops printing: Govt pressures, paper shortages...

Michael Moore Flashback: In Praise Of Venezuela

"Oil for the People": Michael Moore is in praise of Chavez ending poverty in Venezuela...

Mon, 09/03/2018 - 14:20
Authored by Mike Shedlock via MishTalk,

"Oil for the People": Michael Moore is in praise of Chavez ending poverty in Venezuela.
I captured that Tweet as an image in case Moore deletes it.

It was retweeted 6,684 times. 1,862 fools liked it.
Michael Moore, please check this out.

Prof. Steve Hanke‏Verified account @steve_hanke

There is a scarcity of everything in #Venezuela; except suffering.

6:07 AM - 31 Aug 2018





Oil for the People Question

Mike Mish Shedlock‏ @MishGEA
Michael Moore Flashback: In Praise of Venezuela @MMFlint https://moneymaven.io/mishtalk/economics/michael-moore-flashback-in-praise-of-venezuela-1uQbfKEzi0qpmfItuE76Sg/ …



10:26 AM - 31 Aug 2018

Mike Mish Shedlock‏ @MishGEA

Michael Moore Praises Venezuela for "Giving oil to the people and ending poverty in Venezuela". 1. Moore now feels a bit stupid 2. Moore now feels very stupid 3. Moore is too stupid to feel stupid https://moneymaven.io/mishtalk/economics/michael-moore-flashback-in-praise-of-venezuela-1uQbfKEzi0qpmfItuE76Sg/ …

10:30 AM - 31 Aug 2018

https://www.zerohedge.com/news/2018-...aise-venezuela

Chicago mayor Rahm Emanuel suddenly concerned Trump may...invade Venezuela

September 21, 2018

What fresh idiocy is this?

By Monica Showalter

(Language warning.)

With all of Chicago's problems and scandals, from its Caracas-level violence to its financial straits to its corrupt and sex-harassing pols to its Obama library sweetheart deal to its issues with illegals to even Catholic Church scandals, Mayor Rahm Emanuel is concerned about...Venezuela – and, more specifically, the prospect that President Trump might invade it, which, in his mind, could only be for political gain.
CNBC's John Harwood reports:

Rahm Emanuel, the former top aide to President Barack Obama who is now Chicago's mayor, is publicly warning that the mercurial commander-in-chief may blow past the hesitation of national security advisors in search of a rally-around-the-flag political boost. He wants Congress to flash caution lights.
"We have a phrase in this country: the October surprise," Emanuel, Obama's first White House chief of staff, told me in an interview. "I think in this situation he is looking to do anything and will do anything."

So the number-one item on his agenda is the inside-baseball speculation that Trump might invade Venezuela to get his poll numbers up – as President Clinton did in the Balkans to get out of the Lewinsky scandal. Right, Rahm – we know that you know all about that.
CNBC doesn't do itself very proud, either, with Harwood buttressing his argument with claims that President Trump is against Latinos over the illegal immigration issue, followed by Marco Rubio's statement that he wouldn't be against such military action. Rubio, for Harwood's information, is Latino.
The response to all of this twaddle, from Venezuela itself, was harsh:

daniel duquenal @danielduquenal
Dear mayor
From Venezuela, a heart felt **** You!
Until Liberal USA comes up with a plan to counter Venezuela dictatorship, be nice enough to shut up.
Thx

Former Obama aide @RahmEmanuel warns Trump may order military action in Venezuela for political gain https://cnb.cx/2xtPQhK
12:51 AM - Sep 20, 2018



Former Obama chief of staff Rahm Emanuel warns Trump may order military action in Venezuela for...

Emanuel, a veteran of the Clinton and Obama administrations, is publicly warning that Trump may blow past the hesitation of national security advisors in search of a rally-around-the-flag political...
cnbc.com

• See daniel duquenal's other Tweets

It goes to show how unserious Rahm is, focusing on Washington issues in exclusively Trumpian terms, as if Trump lives rent-free inside his head, and apparently not recognizing that Venezuela is a real problem. His swamp focus certainly would explain why he's doing nothing in Chicago. You can take the swampster out of the swamp...
More to the point, the mayor doesn't seem to be aware that there's a mass exodus of Venezuelans fleeing a monstrous socialist hellhole, now amounting to at least 3 million people. Amnesty International just reported that Venezuela's extrajudicial killings number about 8,000 they can prove now, a massive crisis of state slaughter. Starvation is rife, and Venezuelans have lost an average of 24 pounds this year. Nicolás Maduro, the country's dictator, was last seen openly dining on steak and cigars in Istanbul. Inflation is heading for a million percent. The currency is garbage. The oil production has slipped to 1948 levels. Mass arrests of shop-owners as hoarders and wreckers have just thrown more than two dozen in jail against the backdrop of 40% of Venezuela's shops shutting down overnight. The chief of the Organization of American States brought up military intervention, and while he's since backtracked and many Latin nations protested, Colombia and Guyana, Venezuela's most menaced neighbors, went mysteriously silent. Something serious is going on over there.
And in Rahm's mind, it's all a matter of Trump wanting to engineer an October surprise, with Venezuela as some ginned up artificial issue.
Nope, Rahm. It's serious. What it really sounds like is that Rahm is trying to distract attention from his own failures as mayor in his own crisis-ridden city, by drawing attention to Venezuela and Trump. Sorry, Rahm: This one's for the big boys. Do what Señor Duquenal tells you.

Image credit: Daniel X. O'Neil via Flickr, CC BY-SA 2.0.

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https://www.americanthinker.com/blog...venezuela.html

Chevron to stay in Venezuela as inflation tops 830,000%

Video at the page link

By Brittany De Lea
Published November 09, 2018
Business LeadersFOXBusiness

Venezuela's inflation to hit 1.37M percent in 2018: IMF

Wall Street Journal columnist Mary Anastasia 0'Grady on the unrest in Venezuela and the election in Brazil.

American energy giant Chevron says it is not considering pulling its operations from Venezuela, despite years of weathering the country’s political and economic problems.
After The Wall Street Journal Opens a New Window. published a report that executives at the second-largest U.S. oil company are mulling whether it is time to exit the poverty-stricken country as its economic crisis deepens, Chevron’s regional executive said during an interview that it is “committed to Venezuela” and plans to be there “for many years to come.”

The company is the last U.S. oil company in the country and has been operating there for nearly 100 years. It is one of the largest foreign investors there.
Earlier this year, Chevron reportedly evacuated executives Opens a New Window. from Venezuela after President Nicolás Maduro’s government arrested two employees. Venezuela has defaulted on more than $6 billion in payments, as reported by the Journal.

The United Nations said on Wednesday that 3 million Opens a New Window. people have left the country throughout recent years as the economic and political conditions have deteriorated. Food shortages, rampant inflation and widespread violence remain serious challenges for residents.

More from FOXBusiness.com...

• Venezuela: Home of the $35,000 fast-food meal? Opens a New Window.

Earlier this week, the opposition-controlled Congress published a report stating that the inflation rate rose more than 833,997 percent over the past year, as reported by Reuters. Month over month, consumer prices rose 148 percent.
The International Monetary Fund cautions inflation could reach 10 million percent next year.
The country’s central bank stopped publishing economic data about three years ago.

https://www.foxbusiness.com/business...hQgfFmu-inyxII

Socialism Can Kill You, But It Won't Bury You



Forget the #Fightfor1... Venezuela, a failing socialist state, has gifted its people with the sixth minimum wage hike in one year...

Fri, 12/28/2018 - 20:25
82 SHARES

Authored by Daniel Greenfield via Sultan Khish blog,

Venezuela, a failing socialist state, has gifted its people with the sixth minimum wage hike in one year. The 150% increase last week won’t help too much because inflation is up to 1.7 million percent.
Yes, you read that correctly.



Minimum wage hikes don’t help when your currency isn’t worth the cost of the paper it’s printed on. That’s literally true in Venezuela, which has tried switching to an even more worthless cryptocurrency.
Forget the #Fightfor15, in Venezuela it’s a fight to afford basic food supplies or even a cup of coffee.
The cost of a cup of coffee rose 285614% in a year and doubled in seven days. Under the new currency, you can grab a cup of the good stuff for 400 bolivars. Too bad that the minimum wage is 4,800 bolivars and 90% of the population is impoverished. It isn’t looking to buy a cup of coffee, but is starving because it can’t actually buy food. Alternatives have included eating zoo animals, pets and wild donkeys.
“Juntos: todo es possible”, the Obamaesque slogan of the regime declaring, “Together, anything is possible”, looms over a frightened starving population from billboards decorated with socialist icons.
The trouble is that anything really is possible. It’s possible to starve to death, to sit in the dark because there’s no power, to be unable to go to work because there’s no fuel, to be killed in food riots by government thugs, to have your savings wiped out, or to die of a treatable illness because there’s no medicine. Socialism has made “anything” possible in Venezuela. But all the possibilities are horrifying.
The regime’s other election slogan was, “Vamos Venezuela”. And Venezuelans are going.
10% of the population has fled Venezuela escaping through Simon Bolivar Airport, which has no water, no working toilets, no air conditioning and barely any power, where government thugs demand money and jewelry from passengers, or just marching on foot to escape the socialist mess any way they can.
Those Venezuelans who remain can’t find medicine, lack drinking water and can’t even afford to die.
The death rate in Venezuela is high. Between gang violence, outbreaks of disease and food riots, the corpses are piling up, and no one can afford to bury the dead.
Two years ago, a public cemetery charged 240,000 bolivars for a burial, while private cemeteries charged 400,000. The casket alone could cost 100,000 bolivars. Not that it matters because caskets have become hard to obtain due to shortages of wood and metal.
The number of zeroes may have changed with the new currency, but has become no more affordable.
Meanwhile, cemeteries, like every business, have seen employees vanish to wait on food lines or work in the black market, which means that not only can’t you bury the dead, but there’s no one to do the burying. Not only did socialism force Venezuelans to wait on line to buy food to live, they also had to wait on line after they were dead. Socialism is defined by the line. You are born into it and die on line.
After funerals became unaffordable, Venezuelans settled for cremating the dead. But the iron law of supply and demand quickly fell into place. As demand for cremation increased, so did the cost.
It wasn’t just the cost of a cup of coffee that doubled in a week: the cost of cremation rose 108%.
Major General Manuel Quevedo , the 2019 president of OPEC, is Venezuelan even as the country’s mourners can’t afford the cost of the gas with which to burn their dead.
Quevedo, a leftist Lenin-praising thug, was dispatched to take control of Venezuela’s collapsing oil industry, but instead dealt it a fatal blow. Protests were put down by force. Anyone who committed the crime of actually knowing anything about the industry was locked up and replaced by a regime loyalist.
The socialist thug ordered workers to denounce anyone who opposed the government. Instead, 25,000 workers out of 146,000 resigned last year. And it’s worse than the numbers make it look because many of those resigning are engineers and managers who can’t be replaced by hiring just anyone.
Under the socialist military regime, oil production fell 29% as drilling rigs lacked crews and fires broke out in refineries. Those workers that haven’t quit have been selling their uniforms in exchange for food.
Fuel shortages broke out in an OPEC nation as its former production of 2 million barrels of oil dropped to 1.2 million. The situation is now so bad that Venezuela will import 300,000 barrels.
Venezuela is so broken that one of the world’s top oil producers and exporters is now forced to import oil to be able to sell it at artificially subsidized low prices to its population and to repay Russia and China. The Maduro regime keeps touting Russian and Chinese deals as the answer, but the problem is that Venezuela only has one thing that Russia and China want, and it’s too socialist to even get at it.
With a worthless currency, Venezuela is paying America, Russia and China in crude and buying back barrels of oil because under military socialist control, its refineries are no longer functional.

It’s also trading natural gas for barrels of oil, and so Venezuela may have the eight largest gas reserves in the world, but the families of the dead can no longer manage to get natural gas to burn the bodies.
There’s no cooking gas, long lines at gas stations and no way to even cremate the dead.
In the final triumph of socialism, Venezuela’s energy industry has collapsed. There isn’t even enough gas left to burn the corpses left in the aftermath of the failed socialist experiment forcing loved ones to dump them in pits and mass graves.
You can’t live under socialism. You can die under it. But you can’t be buried under socialism.
Socialism killed Venezuela as it will kill any country given enough time. First, you run out of other people’s money. Then wage and price controls destroy the supply and demand of the marketplace. And when there’s nothing left in the stores, a government takeover will consolidate the destruction.
It happened in Venezuela. And it can happen here too.
Seven years ago, Senator Bernie Sanders wrote an editorial, claiming that the, “American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger.”
“Who's the banana republic now?” he asked.
It’s the socialist dictatorship with no food, no power, no water, no hope and true income equality.
Incomes are more equal in Venezuela. Everyone, except the regime and its loyalists, has nothing. Not even a grave in which to bury the dead. That’s not the American dream, that’s the socialist nightmare.

https://www.zerohedge.com/news/2018-...-wont-bury-you