A Modest Proposal: Devaluation AND Price Controls In Venezuela.
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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