It's Been Tried Before …

Mish already wrote about the latest escapades in the ongoing Venezuelan crack-up boom/hyper-inflation catastrophe. In the meantime, Bloomberg has updated its original report, noting inter alia that the latest news have provoked a mini-crash in the country's bonds.


“Venezuelan bonds tumbled, sending yields to a 22-month high, after President Nicolas Maduro dispatched the military to take over a retail chain as part of his effort to quell inflation that’s soared above 50 percent.

The country’s benchmark bonds due 2027 fell 3.9 cents to 72.1 cents on the dollar as Maduro’s seizure of electronics retailer Daka and his warnings to other businesses to cut prices to “fair” levels deepened investor concern that growth is being choked off by government controls. Yields on the bonds soared 0.79 percentage point to 13.82 percent, the highest since January 2012, at 3:19 p.m. in New York.

Maduro, who took over as president this year after his socialist mentor Hugo Chavez died of cancer, is stiffening government-imposed price controls that have contributed to food and goods shortages across the South American country. Maduro blamed the “parasitic bourgeoisie” and said he’d impose limits on profit margins throughout the economy after inflation surged to 54 percent in October, the fastest pace in 16 years.

“In the 20 years that I’ve been managing emerging markets, I have never seen the mismanagement of the scale that I’m seeing in Venezuela today,” Ray Zucaro, who oversees $375 million of emerging-market debt at SW Asset Management LLC in Newport Beach,California, wrote in an e-mailed response to questions. “The government effectively is promoting anarchy. This disconnect with reality, I’ve never seen it bigger than it is now.”


(emphasis added)

If only it were 'promoting anarchy'! Then Venezuelans would be set free from their government (anarchy is not a synonym for 'chaos' – it describes a society without State and government). But the government is of course promoting Marxism, or let us rather say a garbled version thereof. Price controls enforced at the point of a gun (or a spear, or a sword) have been popular on countless occasions with inflationist governments throughout history. It is not difficult to count the number of times they have 'worked': precisely zero.


Calculating and Ignorant Comrades

As we have pointed out previously, some in Venezuela's government circles are well aware that their policies produce shortages and misery. They actually relish the fact, because they regard scarcity as a good basis for socialism. As a reminder:


Not everyone thinks these shortages spell bad news. Planning Minister Jorge Giordani, an avowed Marxist, famously quipped in 2009 that “socialism has been built based on scarcity.” Elias Eljuri, head of the National Statistics Institute, said in late May that toilet paper scarcity showed “Venezuelans are eating more.”


However, we also think that most of the people in charge are simply inept and economically ignorant. They probably just don't how to get rid of the Chavez baggage, and since Chavez had great success in elections (the Lord knows why), they may actually still be eager to emulate his policies.

One can only hope for the sake of the citizenry that none of them get the idea to emulate his several hour long speeches on television, although these were probably a balm for Venezuelans suffering from insomnia. President Maduro assures everyone though that he is a great believer in the 'spiritual forces of love and peace', at least with respect to other people than himself.

The Bloomberg article continues:


“Shoppers were lining up outside electronics stores in Caracas today seeking discounted appliances before Christmas. In a televised address, Maduro urged them not loot the stores, saying he trusts “the spiritual forces of love and peace of the Venezuelan people.”

Maduro’s approval rating fell 6 percentage points in September to 41 percent ahead of the local elections, Barclays Plc said in report today, citing a Datanalisis poll. The survey found 72 percent of Venezuelans perceive the country’s situation as being negative, compared with about 52 percent when Maduro was elected in April.

Venezuela’s inflation rate has more than doubled since the beginning of the year as a shortage of dollars crimp imports in a country that buys 70 percent of its goods abroad. The scarcity index that measures the amount of goods out of stock at any given time rose to 22.4 percent in October, the highest level since January 2008, according to the central bank.

The government, which devalued the bolivar by 32 percent in February to 6.3 per dollar, has been unable to stem the currency’s decline on the black market, where companies and individuals not authorized to use the official rate pay about 60 bolivars per dollar.

Chief price regulator Eduardo Saman said Nov. 9 on state television that it’s illegal for stores to raise prices on existing inventory. The government has set prices for everything from medical services to flour.

“I won’t accept the closing of stores; if a store is shut, it will be transferred to the employees,” Maduro said in a televised national address Nov. 9. “This is just the start of what I’m going to do to protect the Venezuelan people.” National Assembly President Diosdado Cabello, speaking on state television yesterday, said that Congress this week should approve a law to give Maduro special decree powers.

The state oil company seized about $1 million worth of equipment from Houston-based Superior Energy Services Inc. last month. Chavez took control of more than 1,000 companies or their assets during his 14 years in office as part of his self-proclaimed socialist revolution.

“The rhetoric and to a certain point the actions are becoming very radical and obviously the market is not going to react positively to that,” Fernando Losada, a Latin America economist at Alliance Bernstein LP, said in a telephone interview from New York. “The people who are making the decisions don’t believe in the rules of the market.”


(emphasis added)

Giving Maduro 'special decree powers' of course isn't going to do anything about relieving shortages or stopping inflation. We also doubt that the spiritual forces he is prone to raving about are going to help much.

Maduro's announcement that “this is just the start of what I’m going to do to protect the Venezuelan people” certainly sounds more like a threat than a promise. If we were part of the 'people' we would fervently wish not to be protected.

However, the crux of the problem is identified in the last sentence: “The people who are making the decisions don’t believe in the rules of the market.”

They might as well not believe in gravity and hope that all of Venezuela starts to levitate tomorrow. That they don't believe in the market, and therefore implicitly, believe that the laws of economics don't exist, does not bother the laws of economics in the least. They, just like gravity, will continue to apply.




President Maduro of Venezuela. He reminds us faintly of a bouncer or some other type of enforcer. We wouldn't hesitate to cast him in a movie about the mob. Getting 'protection' from this dude sounds like a slightly scary prospect.

(Photo credit: URBE GUAYANA via




It sure sounds like things will get even worse in Venezuela before they get better.





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