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A Modest Proposal: Devaluation AND Price Controls In Venezuela.

Tyler Durden's picture




 

While we at Zero Hedge observe and lament the passage of America from a once great superpower into a second-rate banana republic, on occasion we do witness that rare example, somewhere in the world, of complete and utter political and economic lunacy that inspires us to think, "wow, not even Bernanke could have thought of this... yet. "After devaluing the currency on Friday, Venezuelan president Hugo Chavez "threatened to deploy troops and expropriate businesses that increase their prices." This is just one such example.

“I want the national guard on the streets with the people to fight against speculation,” said Mr Chávez during his weekly television show, Alo Presidente. “Go ahead and speculate if you want, but we will take your business away and give it to the workers, to the people,” he said, stating that there was no reason for businesses to be raising prices.

You read that right: first you destroy the value of goods and services denominated domestically, and then you prohibit supply and demand to intersect under fear of death. This is Henry VIII meets V.I.Ulyanov. We are just waiting to see where Ben Bernanke will get incorporated in this mess. Who benefits from price controls: the oil industry, which if not completely nationalized already, soon will be. It is good to see that Latin America is fully reverting to its wild type Chaotic state. First Argentina fires its central banker for refusing to release funds to avoid bankruptcy, and now this. The US administration can't be far behind.

Here are the blueprints for full economic insanity:

The official value of the dollar, which has remained at 2.15 bolivars since March 2005, will now be fixed at 2.6 bolivars, a rate reserved for the import of essential goods such as food and medicine. 

The “oil dollar”, pegged at 4.3 bolivars, is for non-essential goods, while a third floating rate – what has until now been known as the parallel rate and currently values the dollar at just over 6 bolivars – will be formalised and managed by central bank intervention.

And just to demonstrate how overriding the rules of Econ 101 is actually a brilliant thing in our day and age, "Foreign investors will also welcome the news, with analysts expecting a rally in Venezuelan dollar bonds this week as the government will need to issue less debt to finance its fiscal deficit and control the parallel market rate."

Bottom line: when in doubt destroy the currency. Of course Venezuela is a rank amateur compared to the activity of the Federal Reserve which has a 97 year start, in which time it has accomplished a 97% reduction in the purchase capacity of the greenback. Damn it feels good to be a reserve currency printer.

 

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Sun, 01/10/2010 - 22:04 | 189468 bugs_
bugs_'s picture

Beware the Invisible Hand...er...Fist.

 

Sun, 01/10/2010 - 22:08 | 189470 Gilgamesh
Mon, 01/11/2010 - 01:33 | 189629 DoChenRollingBearing
DoChenRollingBearing's picture

Lots of hate for the mofo Chavez here in S FL, as many rich Venezuelans have decamped to here.

Looks like Venezuela is going to have to go through the wringer before they revolt or otherwise get rid of him and his system.  Might take awhile though, the Cubans still have not booted "los hermanos Castro" even after 60 years!!!

As they say in Texas: Don't hold your breath, you'll die.

Sun, 01/10/2010 - 22:09 | 189472 phaesed
phaesed's picture
Court Reinstates Fired Central-Bank Chief

http://online.wsj.com/article/SB126296529801421655.html?mod=WSJ_WorldMar...

So much for Argentina and central bank independence, the fist of the covetous rich tightens.

Sun, 01/10/2010 - 22:23 | 189488 Mad Max
Mad Max's picture

This sounds like an exact repeat of Zimbabwe.  No real surprises.  Despotic third-world dictator, falsely claiming to be "for the people," prints money like mad and gets angry when it doesn't work for him.  This is what, chapter 83 in the history of hyperinflation?

What is scary is that various parts of this are easy to imagine in the US, especially since price controls have been tried here before (Nixon's 1970's, FDR/Truman's WWII, and continued by Truman well after WWII ended).

The natural result is obvious: businesses will simply cease operating.

Sun, 01/10/2010 - 22:24 | 189489 Cursive
Cursive's picture

Don't call it a Greenback!  I would rather we still had Greenbacks:

http://en.wikipedia.org/wiki/United_States_Note

United States Note, also known as a Legal Tender Note, was a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for over 100 years, they were issued for longer than any other form of U.S. paper money. They were known popularly as "greenbacks" in their day, a name inherited from the Demand Notes that they replaced in 1862. They were called United States Notes by the First Legal Tender Act, which authorized them as a form of fiat currency, but because their value derives from their status as legal tender they bear the inscription "This Note is a Legal Tender" and are often called Legal Tender Notes. They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous emissions were undertaken by the Treasury.

 

Both United States Notes and Federal Reserve Notes are parts of the national currency of the United States, and both have been legal tender since the gold recall of 1933. Both have been used in circulation as money in the same way. However, the issuing authority for them came from different statutes.[19] United States Notes were created as fiat currency, in that the government has never categorically guaranteed to redeem them for precious metal - even though at times, such as after the specie resumption of 1879, federal officials were authorized to do so if requested. The difference between a United States Note and a Federal Reserve Note is that a United States Note represented a "bill of credit" and was inserted by the Treasury directly into circulation free of interest. Federal Reserve Notes are backed by debt purchased by the Federal Reserve, and thus generate seigniorage for the Federal Reserve System, which serves as a lending intermediary between the Treasury and the public.

Sun, 01/10/2010 - 22:45 | 189509 bugs_
bugs_'s picture

Bluebacks Snake?

Sun, 01/10/2010 - 22:25 | 189490 EconomicDisconnect
EconomicDisconnect's picture

These kinds of things deserve more attention.  If devaluation happens it happens overnight not in slow motion so CNBC can warn you.  What a joke fiat has become.

Mon, 01/11/2010 - 00:20 | 189578 glenlloyd
glenlloyd's picture

I think overnight would be generous, I give it a few hours when it happens.

Sun, 01/10/2010 - 22:26 | 189491 AN0NYM0US
Mon, 01/11/2010 - 01:48 | 189640 MarketTruth
MarketTruth's picture

Needs to be in bold and everyone on ZH needs to realize the USD is on its way to the Money Hole....

As such, ZH'ers better have some...
GOLD!!!

Sun, 01/10/2010 - 22:36 | 189503 Carl Marks
Carl Marks's picture

I have it on good authority that Hugo took this step on the advice of Sean Penn.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sun, 01/10/2010 - 22:39 | 189505 Ned Zeppelin
Ned Zeppelin's picture

DUDE!

Sun, 01/10/2010 - 22:45 | 189510 Edna R. Rider
Edna R. Rider's picture

Dollar moving its way down again; the Venezuela situation a great wag-the-dog catalyst; lots of excitement in the oil futures tonight.  Shall we say $100 before 1 March and $147 before end of year?  Only something as obvious as this would make the sheeple finally wake up and realize that ONLY the speculators were rewarded during the great panic of 08/09.

Mon, 01/11/2010 - 01:22 | 189621 Gordon Freeman
Gordon Freeman's picture

Well, yeah, 'cept...we're the speculators! LOL

Sun, 01/10/2010 - 22:57 | 189518 Gimp
Gimp's picture

  The onion news site is more real than the real news media or is it all part of the same...so confused, up is down, left is right, AK47 anyone?

Sun, 01/10/2010 - 23:02 | 189521 lsbumblebee
lsbumblebee's picture

First of all you can thank the CIA and the Rockefeller interests for creating the paradise that is Third World South America. And thank you Financial Times for some truly great hypocrisy. Blame the evil left-wing boogeyman while we here in the civilized states no nothing about price controls, manipulated markets, military force and rigged elections.

Sun, 01/10/2010 - 23:14 | 189526 Anonymous
Anonymous's picture

speaking of manipulated markets, looks like it is going to be another gap up higher monday for the markets. What is that like 14 in a row or so? That venezuela move is like a fucking joke from a hazlitt book or ayn rand. How do idiots ever vote for these fucsticks like chavez and obama.

Mon, 01/11/2010 - 10:53 | 189848 Anonymous
Anonymous's picture

The problem actually might be better framed that many idiots such as anonymous #189526 cannot discern the large differences between Chavez and Obama.

There were a lot of reasons intelligent rational people, Warren Buffet being just one, thought that reasoned Harvard educated Obama was far more qualified than erratic McCain.
The previous ignorant poster might want to see how Cheavez views Obama, and look up McCain's record in the S&L crisis
We'll ignore for a moment the constant propaganda attacks of the fox network ("we are smart and everyone else is wrong and dumb" is a constant news theme.)

Chavez is showing the problems often associated with unfettered government rights. But in strange paradox, the US RW currently advocates the same policy. But they differ in wanting themselves in charge.

2 examples are the torture debates and the "tyranny of majority" op ed piece which ran in the WSJ.

For the US torture debate, the so called left argues the rules matter; the neo cons lead by Cheney argue they can gnore the rules whenever they declare the situation an emergency--forgetting that those rules were specifically tailored to apply in the case of emergency. As a pretext, the torture advocates claim its not torture because they are too dumb to know what torture means. (Cheating and lying is the common terminology for what was done)

The WSJ op eds basically run that the rules are bad and the majority who enact them are stupid and have no right to set rules or regulations. Among others who disagree, the philosopher Mr. Hayek whose work is miscited by the RW for the opposite propositions.

Sun, 01/10/2010 - 23:25 | 189534 Anonymous
Anonymous's picture

A little history lesson from the "Great Depression",
Enter "Joseph Maged, a 49 year old tailor in Jersey City, NJ father of four children."
Sentence "30 days in jail and $100 fine for charging .35 for pressing a suit instead of the NRA/FDR price imposed .40."
"In court yesterday he stood as if in a trance when sentence was pronounced. He hoped that it was a joke."
After this judicial threat he went along with the program...

Mon, 01/11/2010 - 00:22 | 189579 lsbumblebee
lsbumblebee's picture

Could you please post the source/link to that? if you don't do that some people may think you're just making shit up. Thanks.

Mon, 01/11/2010 - 00:50 | 189597 i.knoknot
i.knoknot's picture

google kicked up a coupla hits on "joseph maged tailor".

didn't go to snopes...

i like substantiation too. not sure if google qualifies sometimes.

Mon, 01/11/2010 - 09:00 | 189754 Reductio ad Absurdum
Reductio ad Absurdum's picture

Normally you can locate any quotation using google. In this case, at the site given by narlah below are a series of optical scans of newspaper pages containing the (incredible) story of the tailor. I guess the scans haven't been digitized anywhere yet so they aren't showing up on google.

Are the scans real? They look real. It's hard to believe that the U.S. got so messed up under FDR that someone could get thrown in jail for charging too little for his services.

One wonders how FDR and his NRA goons would react to the Free Software Foundation?

Mon, 01/11/2010 - 19:29 | 190458 Anonymous
Anonymous's picture

First name "Jacob" will get more hits.

Mon, 01/11/2010 - 09:51 | 189795 Anonymous
Anonymous's picture

Why would you think that is a joke? I once got fined for going 51 in a 40 and it cost me over $100. Granted, that was in 2008 dollars, but still. The absurdity of government is all around us at all times, it is nothing novel at all.

Sun, 01/10/2010 - 23:43 | 189554 Anonymous
Anonymous's picture

I always suspected Chavez was a Vampire Squid plant. Doubly amazed when he survived the coup attempt in Bush's first term. Maybe he was just being chastised for not exactly following the orders of the Tri-Lateral Commission.

After the extremely large purchase of AK-47's from Russia some time back during the Bush administration, (somewhere on the order of over 100,000 rifles), maybe Chavez is preparing his own stimulus package somewhere along the lines of the Conglese.

Almost came to blows with Columbia a year or two back, I guess they weren't exactly ready to exchange rounds of hot lead with American supplied forces just yet. Can we expect a flare up within a year?

If anything we could always start a war with our neighbor to the south since essentially they have run out of oil to supply our addiction. But, of course that might interfere with the illegal drug trade which is needed to placate the lower classes and fill the coffers of the wealthy and political elite, all the while the upper classes get their drugs from the pharmaceutical industry.

Just read elsewhere a couple of our enlightened elite are talking about mandating that the 401(k) and IRA plans be given a mandated choice of investing in Treasuries. Just the next step in siphoning the remaining wealth of baby boomers.

Mon, 01/11/2010 - 01:41 | 189633 DoChenRollingBearing
DoChenRollingBearing's picture

Wow a lot of nuggets Anon 189554.

I doubt that Chavez is a Vampire Squid plant, too mercurial to obey any "masters".

Colombia would kick his ass in a hot war, they are battle-hardened, Venezuela is not.  Bunch of pansies in Venezuela IMHO...   :)

Your points re the oil / drug businesses as well as plots to steal IRA and 401(k) plans by our .gov pals are very plausible.  I pulled my dough from my ex-IRA in 2008.

Mon, 01/11/2010 - 09:53 | 189798 Anonymous
Anonymous's picture

I'm pretty sure they were AK105s or some later variant and not the 47, which nobody produces anymore.

Sun, 01/10/2010 - 23:59 | 189558 Fish Gone Bad
Fish Gone Bad's picture

So this is what happened because Hugo Chavez nationalized the oil companies?  Ouch.  Time to get out the popcorn.

Mon, 01/11/2010 - 00:57 | 189603 faustian bargain
faustian bargain's picture

Mainly it happened because Chavez is a lunatic.

Mon, 01/11/2010 - 01:28 | 189626 DoChenRollingBearing
DoChenRollingBearing's picture

Chavez is the best example of a buffoon who is both dangerous and crafty all at the same time.  He does have competition though: Evo Morales (Bolivia), Rafael Correa (Ecuador, "un charlatan agitado" -- Jaime Bayly), Kirchner (Argentina), Daniel Ortega (yes, again, Nicaragua), and others...

I hope that Lat Am can get over its romance/curse of dancing with stupid & thieving socialists.  Ohh!  I hope we do too!  Enough already...

Mon, 01/11/2010 - 03:03 | 189680 Anonymous
Anonymous's picture

The Bolivarian Revolution has a lot more credibility than the Chicago School or the Ludwig Von Mises crowd. Just sayin'.

Chavez fed the poor, nationalized their petroleum industry, and squeezed out multinationals. He's gotta get money to pay for it somewhere, hence the devaluation. Obanka had the opportunity to be the hero in a similar manner, and hid behind Goldman instead.

Mon, 01/11/2010 - 01:24 | 189623 Gordon Freeman
Gordon Freeman's picture

Wow, this is wild, wacky stuff...;-)  This could be some week...

Mon, 01/11/2010 - 01:56 | 189645 Anonymous
Anonymous's picture

TD said [the Fed had] "a 97 year start, in which time it has accomplished a 97% reduction in the purchase capacity of the greenback"

Oh yes, if only we could go back to 1913, life would be so much better. The average joe had no car to worry about breaking down, no dishwashers driving up electricity and water bills, no internet service that is occasionally interrupted, no problems with losing cell phone service, and no cable bills. Oh, those were the days of economic prosperity for sure! If it weren't for the Federal Reserve, we'd be just as wealthy now as we were back then! Damn, Fed!

Mon, 01/11/2010 - 03:50 | 189695 Shortbus Bully
Shortbus Bully's picture

...I think you missed the point.

Mon, 01/11/2010 - 11:36 | 189888 Anonymous
Anonymous's picture

In other words, "Screw freedom, I want bread and circuses!"

Mon, 01/11/2010 - 02:43 | 189668 Anonymous
Anonymous's picture

Which country is Venezuela going to attack first, I wonder?

Mon, 01/11/2010 - 06:15 | 189716 Anonymous
Anonymous's picture

I recommend a documentary (IDFA) called Eyes Wide Open. It tells a story about the presidents of south america and speaks of a new movenement. The western media makes them look bad but are they??
South America is waking up and is doing everything it can about the western capitalism what is to me a failed system.

Mon, 01/11/2010 - 10:34 | 189833 Anonymous
Anonymous's picture

Just gotta say, every system will fail when it is corrupted.
Left-field examples...Is marriage corrupt because Tiger cheated? Is my lawn corrupt because of the weeds? Is capitalism corrupt because of Goldman Sachs? Is a child corrupt because he has cancer?

Are you corrupt because you fail to diagnose the problem?

Mon, 01/11/2010 - 10:41 | 189839 Lndmvr
Lndmvr's picture

Can one explain to me the difference between a 1st class banana republic, 2nd class banana republic and a 3rd class banana republic?

Mon, 01/11/2010 - 13:45 | 190014 viahj
viahj's picture

the average age of the automobiles that the masses drive

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