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"The Thread By Which Venezuelan Socialism Hangs May Soon Snap"

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Submitted by Pater Tenebrarum via Acting-Man blog,

Fixing the Dollar Drought

Say you are a socialist, and you have intervened heavily in the economy. Suddenly, things don’t work as you thought they would. Somehow, economic laws seem to refuse to bend to your will. However, you cannot really believe that since according to your convictions, wealth is a byproduct of government plans and decrees. Moreover, your predecessor (also a socialist revolutionary) had the best advice oil money can buy – even from people who are now advising socialist parties over in good old Europe. So the solution to the unintended consequences of the initial intervention is to intervene further, in an attempt to refine the plan, so to speak.

You may have heard about a certain proverb attributed to Einstein about insanity, but you can’t quite recall what it was. So you try again. And again. And again. Chances are, your name is Nicolas Maduro. But eventually, you quit trying – sort of.

 

 pear-shaped-body

Image via diyconfessions.com

As Bloomberg reports, Maduro wants to fix the dollar shortage in Venezuela by introducing the fifth parallel currency market in 12 years – Venezuela will end up with three different official exchange rates as a result, one of which should actually track what was hitherto the black market rate (i.e., the real market exchange rate):

Venezuela will create its fifth parallel currency market in 12 years to boost U.S. dollar supplies as plunging oil revenue worsens food and medicine shortages and pushes the nation deeper into recession.

The new market will allow private companies and individuals to trade the greenback through brokerages, President Nicolas Maduro told Congress in a televised address Wednesday night. The government will continue importing essential products at the primary exchange rate of 6.3 bolivars a dollar, while combining two other existing currency auctions into one, he said.

 

“This is the decision I have taken: a system of three markets,” he told lawmakers after being welcomed by live salsa, ceremonial cannon shots and chanting supporters. “This exchange system is a transitory system to attend the country’s development needs” while oil prices stabilize, he said.

 

Maduro has preferred tighter currency controls to ease economic strife as he seeks to avoid cuts to social spending. A 61 percent drop in the value of Venezuelan oil since June has brought it to the brink of a debt default, according to prices in the swaps market. Oil provides 96 percent of revenue to the country, which imports almost everything it consumes.

 

“The set of reforms announced in the annual report were incomplete and insufficient to disentangle accumulated distortions over 15 years,” Hernan Yellati, Miami-based head of research at brokerage BancTrust & Co., wrote in a note to clients after the speech. “Plus an unanticipated plunge in oil prices.”

 

Venezuela last sold dollars at the two secondary auction markets for 12 and 52 bolivars.

 

Maduro said he has approved $8.1 billion of food purchases this year at the preferential rate. This compares with the $11.4 billion allocated to importers at 6.3 bolivars per dollar in the whole of 2014, according to Barclays Plc estimates.

(emphasis added)

Below is an updated chart of the Venezuelan bolivar’s exchange rate against the US dollar on the black market in Cucuta, a town near the Colombian border. Interestingly, it seems to have temporarily stabilized in a volatile trading range since November last year. This is interesting mainly because the US dollar has continued to rise against almost every other currency, but then again, the bolivar has already plummeted rather precipitously for most of 2014:

 

Bolivar black market rate

Venezuelan bolivar vs. USD, black market rate (data via dolartoday) – click to enlarge.

 

Making free trade in bolivars legal is undoubtedly one of Mr. Maduro’s better ideas, quite possibly the best one he ever had. It is a result of desperation, and it appears it is also a case of too little, too late. Venezuela’s foreign currency reserves amount to slightly over $20 billion, while its total foreign liabilities amount to approx. $135 billion as of Q3 2014 (of which $11 bn. in government debt are coming due this year). After many years of heavy-handed regimentation of the economy, characterized by expropriation/nationalization and price controls, Venezuela has indeed not much it can export besides oil – and even oil production has steadily declined.

The inflationary regime has moreover undoubtedly pulled resources from the consumer stages to higher orders in those parts of the economy still in private hands, so that consumer goods production is likely especially subdued. According to Professor Steven Hanke, Venezuela’s implied consumer price inflation rate is around 194% at the moment, which is about three times what the country’s central bank has lately admitted to. While the ‘general level’ of prices is inherently impossible to ascertain – as there exists simply no fixed yardstick that can be used to measure it – Venezuela’s money supply growth has definitely exploded into the blue yonder:

 

venezuela-money-supply-m1

Venezuela’s narrow money supply M1 since 2004, in millions of VEF – click to enlarge.

 

Maduro even admitted that the official consumer price inflation rate of 64% was a little on the high side, and announced he would only approve a 15% minimum wage hike this year and would ponder whether to cut fuel subsidies. Even such tentative reform proposals may once have been received quite positively by the markets. However, due to the decline in oil prices, markets have refused to budge. Implied annual default probabilities for Venezuela’s government debt remain at a record high near 20% (based on 5 year CDS spreads and a 40% recovery rate), in spite of government debt only amounting to about 50% of GDP at the current juncture (this is set to rise even if no debt is added, as GDP is set to shrink sharply this year).

 

Venezuela default probability

Venezuela’s sovereign debt sports the highest CDS spreads and default probabilities in the world – click to enlarge.

 

Effects of Price Controls Are Getting Worse

Maduro would have to adopt a radical program of economic liberalization if he wanted to effectively counter the increasingly acute economic crisis Venezuela is faced with. However, even if he were aware of that – which he possibly isn’t – he seems to be afraid that cutting subsidies would worsen his already sharply declining popularity further.

Not surprisingly, price controls have denuded the shelves of shops of even the most basic goods, with the result that people are these days forced to queue for hours to buy food and other necessities – reminiscent of Soviet times. The situation is evidently becoming more desperate by the day, as the government has just announced it will deploy the military to “protect shoppers”. Meanwhile government officials are telling people with a straight face that the bare shelves are actually “full”, in an Orwellian twist that would be quite funny if it weren’t so sad for the citizenry.

Shoppers thronged grocery stores across Caracas today as deepening shortages led the government to put Venezuela’s food distribution under military protection. Long lines, some stretching for blocks, formed outside grocery stores in the South American country’s capital as residents search for scarce basic items such as detergent and chicken.

 

“I’ve visited six stores already today looking for detergent — I can’t find it anywhere,” said Lisbeth Elsa, a 27-year-old janitor, waiting in line outside a supermarket in eastern Caracas. “We’re wearing our dirty clothes again because we can’t find it. At this point I’ll buy whatever I can find.”

 

A dearth of foreign currency exacerbated by collapsing oil prices has led to shortages of imports from toilet paper to car batteries, and helped push annual inflation to 64 percent in November. The lines will persist as long as price controls remain in place, Luis Vicente Leon, director of Caracas-based polling firm Datanalisis, said today in a telephone interview.

 

Government officials met with representatives from supermarket chains today to guarantee supplies, state news agency AVN reported. Interior Minister Carmen Melendez said yesterday that security forces would be sent to food stores and distribution centers to protect shoppers.

 

“Don’t fall into desperation — we have the capacity and products for everyone, with calmness and patience. The stores are full,” she said on state television.”

(emphasis added)

It seems to us the time of “calmness and patience” is long past, and we wonder how the government plans to “guarantee supplies” that evidently simply don’t exist. We were also wondering what precisely shoppers are supposed to be protected from. Evil capitalists? Actually, it seems that they by now mainly need to be protected from each other, as fights over scarce goods have become quite frequent. Good queuing behavior has also gone out of the window.

 

Maduro and Melendes

Venezuelan president Nicolas Maduro and his heavily mil-bling adorned interior minister Carmen Melendez.

Photo credit: Prensa Miraflores

 

But worry not, true believers, an “economic counteroffensive” is in the works – as soon as the details have been worked out. And please take no photos of the full shelves dwelling in Ms. Melendez’ imagination:

“President Nicolas Maduro last week vowed to implement an economic “counter-offensive” to steer the country out of recession, including an overhaul of the foreign exchange system. He has yet to provide details. While the main government-controlled exchange sets a rate of 6.3 bolivars per U.S. dollar, the black market rate is as much as 187 per dollar.

 

Inside a Plan Suarez grocery store yesterday in eastern Caracas, shelves were mostly bare. Customers struggled and fought for items at times, with many trying to skip lines. The most sought-after products included detergent, with customers waiting in line for two to three hours to buy a maximum of two bags. A security guard asked that photos of empty shelves not be taken.

 

Police inside a Luvebras supermarket in eastern Caracas intervened to help staff distribute toilet paper and other products.

 

You can’t find anything, I’ve spent 15 days looking for diapers,” Jean Paul Mate, a meat vendor, said outside the Luvebras store. “You have to take off work to look for products. I go to at least five stores a day.”

 

Venezuelan online news outlet VIVOplay posted a video of government food security regulator Carlos Osorio being interrupted by throngs of shoppers searching for products as he broadcast on state television from a Bicentenario government-run supermarket in central Caracas.

(emphasis added)

Unfortunately VIVOplay is a subscription service, so we cannot post the video of government shill Carlos Osorio getting almost run over by shoppers mentioned above (he is known for regularly pronouncing that everything is perfectly fine on state-owned TV, and they prepare selected supermarkets for his appearances). Here is however a video by the FT summarizing the situation in early December:

Queues and shortages in Venezuela – note that annual imports amount to $43 billion – it will be quite difficult to pay for both imports and debt redemptions if oil prices remain near their current levels for an extended time period, hence the rising default probabilities.

 

Conclusion:

For many years, the Venezuelan government was able to mask the failures of Hugo Chavez’ “socialist revolution” somewhat with the help of the country’s oil revenues. However, it should be remembered that shortages of basic goods in Venezuela are nothing new; the first press reports appeared about two years ago, when oil prices were still quite high (see also this late 2013 article of ours: “The Hygienically Challenged Crack-Up Boom”). As we quoted from a press report on that occasion, some Marxists – as long as they are members of the ruling class – seem actually not overly worried about scarcity:

“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.”

Of course it was easy to make such quips, callous though they may be, back when the hugely popular Hugo Chavez was still around and able to distribute large oil revenues with both hands. The situation is a lot more difficult for Nicolas Maduro, who is probably slowly but surely getting worried about the potential for a counter-revolution (there has already been intermittent unrest in Caracas – and at the time the bolivar’s black market rate was still 85 to the dollar instead of 185).

Russia’s economy is likewise suffering from the decline in oil prices , but its government has a lot more breathing room in terms of debt and foreign exchange reserves and would be able to greatly help its economy merely by getting serious about tackling corruption.

Maduro has a much bigger problem, as he would essentially be forced to abandon the very ideology he so wholeheartedly supports if he wants to turn the floundering ship around. He does have one advantage over Putin though: he has very little to lose anymore in terms of his approval ratings. He probably must worry about his party comrades though, many of whom will be reluctant to abandon the late and great Hugo Chavez’ “socialist achievements”. It will be interesting to see how things will play out, in light of Maduro lately adopting steps he would never have taken a year ago. Still, given the government’s debt situation and Venezuela’s monetary statistics, a complete loss of confidence in the currency remains a very real possibility. In other words, the thread by which Venezuelan socialism hangs may soon snap.

 

venezuela-inflation-cpi

Venezuela’s official inflation rate is a (more or less) comforting fantasy concocted by its central bank, but it is nevertheless worth showing, as the chart illustrates that the rise in prices has greatly accelerated over the past two years – click to enlarge.

 

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Thu, 01/29/2015 - 22:19 | 5723254 thamnosma
thamnosma's picture

At least they have plenty of Coca Cola

Thu, 01/29/2015 - 22:27 | 5723273 DeadFred
DeadFred's picture

When Maduro gets the boot how long until the gold is back on a plane?

Thu, 01/29/2015 - 22:52 | 5723370 Buck Johnson
Buck Johnson's picture

HOurs, hours.  This is going to end badly.

 

 

Fri, 01/30/2015 - 08:46 | 5724292 PartysOver
PartysOver's picture

When it does end badly and normalcy (whatever that might be in todays bizarro world) returns, I am sensing very cheap real estate on the Caribbean. Beech House anybody?

Thu, 01/29/2015 - 22:33 | 5723293 max2205
max2205's picture

Coke with a cola back 

Thu, 01/29/2015 - 22:37 | 5723314 Bangalore Torpedo
Bangalore Torpedo's picture

la cola, muy divertido

Thu, 01/29/2015 - 22:37 | 5723307 booboo
booboo's picture

Fat people don't rebel.

Thu, 01/29/2015 - 23:23 | 5723518 El Vaquero
El Vaquero's picture

They do when they volunteered to take part in a government sponsored ultra rapid weight loss program.

Fri, 01/30/2015 - 08:09 | 5724168 MonetaryApostate
MonetaryApostate's picture

Epic Lulz +1

 

(So true.)

Thu, 01/29/2015 - 23:26 | 5723538 hungrydweller
hungrydweller's picture

Welcome to Greece.

Sun, 02/01/2015 - 21:20 | 5724228 MonetaryApostate
MonetaryApostate's picture

Something tells me that there are going to be a whole lot of Greece like nations popping up all around the world in the not too distant future...

Fri, 01/30/2015 - 00:06 | 5723662 samjam7
samjam7's picture

Funny you say that. Just today a Venezuelan friend told me that 2 liter bottles are hard to come by. But smaller ones were still plentiful so it seems to be getting more difficult in that respect as well. 

Fri, 01/30/2015 - 07:33 | 5724164 B2u
B2u's picture

only smaller sizes are plentiful....must be Michael Bloomberg working with the Venezuelan government.

Fri, 01/30/2015 - 03:56 | 5724016 StychoKiller
StychoKiller's picture

Sounds like "Baghdad Bob" has emigrated to Venezuela!

Thu, 01/29/2015 - 22:29 | 5723285 nmewn
nmewn's picture

Somebody nudge me when Maduro kicks Hugo's daughters out of the "Presidential Palace" onto the streets in search of toilet paper.

Prolly ain't gonna happen? ;-)

Thu, 01/29/2015 - 22:32 | 5723288 jez
jez's picture

No problem here. Maduro just needs to make one speech explaining that the shadow of crisis has passed.

Thu, 01/29/2015 - 22:32 | 5723296 Bangalore Torpedo
Bangalore Torpedo's picture

...as we enter the valley of the shadow of death...

Thu, 01/29/2015 - 23:19 | 5723494 Harbanger
Harbanger's picture

How do you say "Folks" in Spanish?

Fri, 01/30/2015 - 07:32 | 5724160 B2u
B2u's picture

gente o gente estupida

Fri, 01/30/2015 - 09:29 | 5724442 Benjamin123
Benjamin123's picture

Pueblo=People. Chusma=Riff-Raff. Monos=Monkeys.

Thu, 01/29/2015 - 22:33 | 5723289 Bangalore Torpedo
Bangalore Torpedo's picture

There's only one solution: MOAR GUVMINT

Thu, 01/29/2015 - 22:31 | 5723291 Salah
Salah's picture

A nation, which by any objective measure, should be one of the wealthiest, if not #1, in the Western Hemisphere.  Instead, it's a dog's breakfast of Spanish-conquistadore-miscegenated-Roman Catholic-goofball-socialist SHIT.  Tragic, genuinely tragic.

Fri, 01/30/2015 - 08:27 | 5724186 MonetaryApostate
MonetaryApostate's picture

The obese socialist government of Venezuela isn't any more hideous than America's, though I suspect that they will begin confiscating more from the rich soon enough, and out of desparation will likely increase the size of it's military to stem the rising revolutionary tides (Or risk a coup), but it's almost impossible to stop the greed of 1rst world countries who are more or less effectively oppressing the 3rd world nations with their insatiable greed via market & currency manipulation.

Nevertheless, you are correct, and it's due to their poor educational system & unwillingness to actually improve their country.

It's too bad that they simply wasted their countries wealth instead of demanding the people to work hard to build their nation's economy, and now their depency upon foreign nations will likely cost them far more than they were willing to pay, unfortunately.

(Ignorance & laziness are the largest contributing factors responsible for human suffering in most 3rd world nations, unfortunately.)

Thu, 01/29/2015 - 22:33 | 5723299 NoDebt
NoDebt's picture

"This is the position I have taken: a system of three markets"

Third time's the charm, I guess.  Yes, because just one or two isn't enough.

Would somebody just shoot this motherfucker already?  You could do so much better, Venezuela.

Thu, 01/29/2015 - 23:09 | 5723445 pipes
pipes's picture

So could we

But we won't

Thu, 01/29/2015 - 22:34 | 5723300 GFORCE
GFORCE's picture

Tyler Durden is now the 1%

Thu, 01/29/2015 - 22:56 | 5723302 fiftybagger
fiftybagger's picture

The guy is a lunatic.  And now he is tilting at windmills:

On Monday the Council of Ministers, Maduro announced the creation of a special pilot scheme to overcome the economic war, which summoned the municipalities, community councils, youth Party States of Venezuela (PSUV), members of the Frente Francisco de Miranda, National Guard and the Bolivarian National Armed Forces (FANB).

http://lainfo.es/en/2015/01/28/venezuela-investigates-destabilizing-plans/

"Therefore, the Government has articulated a plan against the economic war and smuggling, including the installation of anti-trafficking patrols of the basic food basket in border areas with Colombia, a country where they are illegally transferred as part of the strategy of the right to sow chaos in the South American country."

Thu, 01/29/2015 - 22:36 | 5723305 lakecity55
lakecity55's picture

Gee. They ran out of money.

Fri, 01/30/2015 - 08:02 | 5724203 MonetaryApostate
MonetaryApostate's picture

They sold their oil to China, then ran out of money, but then went back for more Chinese money, and in return China leveraged their fiat for assets in Venezuela (because they don't need anymore oil), and now they will find plenty of Chinese Stores all over Venezuela in the near future.  China of course with thier 1,200 million+ people strong slave labor force, can produce an enormous amount of GDP (Very cheaply) which it can sell & export to the open market, which means they pretty much have squeezed out the USA completely out of Venezuela's Oil supply, like forever.  

(Great job American dumbass economists, I bet you didn't see this coming, now did ya?  These lame Princeton yuppies can't smell the competition in the air, but they are going to wake up in one of these global hyper Chinamarts one day and realize where they all went wrong, thinking that we are impervious to the moves China is making today, and those moves, I should add, will likely result in China becoming the new economic world super power, real soon like.)

Thu, 01/29/2015 - 22:41 | 5723319 Bangalore Torpedo
Bangalore Torpedo's picture

And I'm a gnat on the turdpile?  that's a bunch of gibberish ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZz

 

If I ever heard it....or read it as may be the case.

Thu, 01/29/2015 - 22:45 | 5723335 Yen Cross
Yen Cross's picture

  Try clicking on one of the blue areas. You might learn something. Do you know what an Inverse trade is?

 Hit the books, you're gonna be eating your student loan equity tomorrow.

Thu, 01/29/2015 - 22:53 | 5723372 Bangalore Torpedo
Bangalore Torpedo's picture

LOL...yeah, I know what an effing hyperlink is.  When there are 15 of them in one post, even a gnat drawn to crap tends to lose interest.

Thu, 01/29/2015 - 22:43 | 5723327 Bangalore Torpedo
Bangalore Torpedo's picture

Mmmmmmmmmmm, ya fucked up, now I have the GPS coordinates to your gold stash on Pluto:

Inverse: 6.28772 7.12485 0.00261 9.48051 0.42564 4.98053 0.72838 0.01002 2.41138

 

Thu, 01/29/2015 - 22:49 | 5723345 Yen Cross
Yen Cross's picture

 The thread was pertaining to the Bolivar/ usd trade.

 Now you're just a mosquito.

 Had you not been in such a hurry, I would have had time to share the proper information. Once aposter responds to another poster the comment can't be altered.

 It's nice to know you follow my comments. Keep up the good work.

Thu, 01/29/2015 - 22:54 | 5723382 Bangalore Torpedo
Bangalore Torpedo's picture

Look amigo, if we want exchange rates we google them.  Let me recommend you be a bit old fashioned like me and add some prose in with the link.  Like this:

 

POINT

 

LINK TO BACK UP POINT

 

Not necessarily in that format.  Not 25 hyperlinks that show Bolivar to Cuban Franc conversions

Thu, 01/29/2015 - 23:04 | 5723394 Yen Cross
Yen Cross's picture

 Have a nice day.

 Bangalore Torpedo

Thu, 01/29/2015 - 22:48 | 5723353 GoldSilverBitcoinBug
GoldSilverBitcoinBug's picture

Check rather the "blue rates" vs government rates on Google it's amazing !

Thu, 01/29/2015 - 22:45 | 5723339 GoldSilverBitcoinBug
GoldSilverBitcoinBug's picture

Socialism: always bullish !

(Not so different with the FED, BOJ, SNB and ECB.)

Price fixing work great until fundamentals kick-in...

Thu, 01/29/2015 - 22:53 | 5723374 Jack D. Ripper
Jack D. Ripper's picture

Venezuelan socialism is not hanging by a thread. It is supported by massive pillars of stupidity.

Socialists always react to the failures of socialism by insisting that more socialism is needed.

As long as Maduro can convince the little people that he is on their side (which isn't that difficult to do when you control the press and police) he will be president for life.

Any Venezuelans who aren't completely dim and who have any drive and initiative will leave the country.

Thu, 01/29/2015 - 22:56 | 5723388 Bangalore Torpedo
Bangalore Torpedo's picture

The dimwitted Latino masses will go along with it until they are bony corpses.  Look to Cuba for reference.  THis is why our illegal tribe in Washington DC loves SA Latinos sooooooo much...Republican and Democrat alike.

Thu, 01/29/2015 - 23:48 | 5723612 El Vaquero
El Vaquero's picture

In Cuba when the food suddenly got scarce, Castro implemented some capitalism when it came to food production.  

Fri, 01/30/2015 - 09:01 | 5724327 Raoul_Luke
Raoul_Luke's picture

Socialists always react to the failures of socialism by insisting that more socialism is needed.

 

Sounds exactly like the Keynesians.  I'm beginning to think there's not a lot of difference between the two.

Fri, 01/30/2015 - 10:17 | 5724701 rex-lacrymarum
rex-lacrymarum's picture

You are quite correct with this suspicion imo. In fact, the two are ideologically related, although Marx would have scoffed at government intervention in the economy ostensibly in favor of labor, as he believed that capitalism was just a necessary historical step toward the "inevitable" arrival of communism. 

Thu, 01/29/2015 - 23:02 | 5723406 bluskyes
bluskyes's picture

No food, but the shelves are full of diet coke. Maybe they aren't as stupid as I thought.

Thu, 01/29/2015 - 23:02 | 5723409 PirateOfBaltimore
PirateOfBaltimore's picture

 While the main government-controlled exchange sets a rate of 6.3 bolivars per U.S. dollar, the black market rate is as much as 187 per Dollar

 

So coincidentally, When you compare the differential between the Bolivar rate to the black market rate, you get about the same ratio as US gold book value vs paper market value (42.22 vs approx 1250)

 

 

Thu, 01/29/2015 - 23:09 | 5723435 Yen Cross
Yen Cross's picture

 Thanks. Last year Tyler had access to a few local websites in Venezuela. There were official and un-official rates.

 The spreads were huge! I have the links stored, but need to sift through files to find them. (if they're still working)

Thu, 01/29/2015 - 23:08 | 5723436 falconflight
falconflight's picture

Me thinks the narco cartel might make the trains run on time...give em a chance.

Thu, 01/29/2015 - 23:09 | 5723447 Prober
Prober's picture

Venezuela was a nice place to visit before the socialist regime.

I would conquer ALL the latin shitholes soth to the Darien Gap, recycle all the unworthy latin vermin, and thereby expand the USA, ie Manifest Destiny v2.

Thu, 01/29/2015 - 23:20 | 5723505 Tachyon5321
Tachyon5321's picture

 

 

 

They should print more money, increase benefits and make sure everyone gets a free Obamaphone...That will create millions of new jobs.  At least that is what Obama is doing.

Thu, 01/29/2015 - 23:57 | 5723634 Spectre
Spectre's picture

ZERO, is exactly how many Fux I give about Venezuela and it's economy.

Fri, 01/30/2015 - 00:23 | 5723693 samjam7
samjam7's picture

The article is good and highlights the lunatic problems this country is faced with. It also shows how important good government is and how a 'bad' government can ruin any country, no matter how wealthy it may be. Now, when it comes to Maduro and his stupidity, there is not doubt about it. But keep in mind that Maduro has a lot less power than the author seems to aknowledge. He is a puppet of Cabello who in turn controls the army. Cabello is the head of parliament sort of the equivalent of John Boehner just with vastly bigger powers. He was best buddy in the army with Chavéz back in the days when Chavéz tried and failed in a coup attempt. And he has amassed enormous wealth during the years of Chavéz in power. It's thanks to him that the army is even supporting the regime at this stage, since he has all the contacts and assures that the crony officers get their share from the ever scarcer amount of Dollars available. Some military officers have gone into commodity trading, producing meat in Brazil and selling it at overpriced rates in their own country. An ever increasing number of ministers in Maduro's government, such as the beauty Ms. Melendez are actually army officers. This mixing of posts has already begun during Chavez and intensified with Maduro, they govern and dictate any economic policy change that may affect their personal wealth negatively. As long as these cronies are in power and Venezuelans are either too divided, or simply don't have the time to demonstrate because they need to queue to get some food, nothing will change. 

Unfortunately for this beautiful country, I don't see a peaceful solution to the situation and even an economic default may not unseat the regime, it may, however, very well unseat Maduro! 

Fri, 01/30/2015 - 00:33 | 5723716 Miketheterrible
Miketheterrible's picture

Sounds awefully like Iran with the IRGC being also major controllers of the economy owning majority of the businesses, I believe this is the same issue with Egypt as well.  So these two other countries are good at doing this, why cant Venezuela?

 

Anyway, sucks by the sounds of it.  Maybe the people, instead of overthrowing someone, should attempt to try to elect him out or at least build more farms of their own, and try to push the concept of farmers markets or discount stores in the country.  I am just throwing my views, but it sure sounds like that these guys you metnion, are really not very good businessmen then because they should know that eventually the people will turn their attention to them if they are hungry.

So you are also saying that even if Maduro is thrown out, and whoever comes into place, it will be more or less the same?

Fri, 01/30/2015 - 10:15 | 5724685 rex-lacrymarum
rex-lacrymarum's picture

That's why I mentioned that his party comrades may not be happy about the introduction of reforms - but thank you for adding some color and details. I was vaguely aware of Cabello, but didn't know about the extent of his power. Of course, always in such regimes, the elite benefits from the status quo. This is also why no-one has been able to break Mugabe's grip on Zimbabwe - too many of his cronies (all from the same tribe) are benefiting from the way things are. They don't care if millions starve, as long as they are in clover and able to suppress the opposition with the help of the army and police. 

Fri, 01/30/2015 - 00:28 | 5723704 Miketheterrible
Miketheterrible's picture

I don't get it.  I really don't.  I understand they are not self sufficient in agriculture, so why are they not investing in farming and fishing more?  If the government wants control of the economy, wouldn't it have been smarter to create a state run organization to overlook farming and food production by working with local producers (this is done in various countries, socialist and not), while improving end products?  As well, increase tarrifs so that it forces people to start producing locally on certain goods that could be made like soda production or canned foods?  As well, since Venezuela and Argentina are not in very good position, wouldn't it be beneficial to increase trade amongst the two since well, Venezuela will need the food products?

I just do not see how this can be difficult to understand?  If they know that this is a major problem, shouldn't they change it?  I mean, like somone else said here, as soon as there was a glut in agricultural products in Cuba, the government liberalized the production base for agriculture.  Why not do the same in Venezuela?

As well, if Toilet Paper supply is a major problem in these countries where they are a demand, why has no one ever set up a major pulp plant that makes them?  There are enough trees and add in the amount of possibly paper waste, they can make a lot of toilet paper for cheap.

This is beyond my understanding I suppose.

Fri, 01/30/2015 - 01:14 | 5723804 samjam7
samjam7's picture

To try to answer a bit from both of your post. Your ideas are very rational of course. If supply cannot keep up with demand, then usually prices rise which triggers the creation of new companies producing said good. In the case of Venezuela at this stage even to set up your own company can be literally impossible because you simply don't get the currency to buy products from abroad. You only have your Bolivars, which are worth ever less and you can't exchange them because the government is withholding hard cash. This is still a developing country after all, where many machines need to be imported from China, the US or Europe to even start up your Toilet paper business.

Secondly, the government seems to be intent to produce from government controlled factories that's why it has nationalized a lot of companies and Maduro has also proposed this several times, he always states that domestic production has to be improved. But state-run enterprises work poorly in developed western countries, they worked really badly in the Soviet Union, now imagine how they work in a country like Venezuela run by military officers who have little to no idea of economics or management and are mainly good at self-enrichment. Some of these companies are literally at a standstill. So that should answer some of the reasons why domestic production has not kicked off. 

In regard to Argentina you are right, Venezuela imports beef from Argentina so there is trade there...

Fri, 01/30/2015 - 09:00 | 5724317 Benjamin123
Benjamin123's picture

Price controls. Local producers cannot sell above production costs. Exporters must sell their dollars to the state at absurd rates. Importers need to import at black market rates (200 Bs/dollar) and sell at legal rates (6 Bs/dollar).

No one imports. No one exports. No one can trade internally.

Fri, 01/30/2015 - 13:15 | 5725892 Daddio7
Daddio7's picture

Speaking of toilet paper, my father in law ran a tissue converting line at a Georgia-Pacific pulp plant for 48 years. According to him the South American plants are one forth as efficient as a US plant. It is cheaper to make paper here and ship it south.

Venezuelans are coming here. My wife is going to nursing school. One of the other students is a young woman who was a dietitian for the Venezuelan Olympic team. Apparently her husband's business is failing and she needs to help out with the family finances.

Fri, 01/30/2015 - 01:25 | 5723827 thebigunit
thebigunit's picture

I suspect that the problem is that they haven't been doing socialism exactly right.

They need to step back, appoint a  blue ribbon commission and figure out what mistakes they have made in implementing socialism.

"Just hang on a little while longer, folks, and we'll get this right.

It's going to be GREAT!"

Fri, 01/30/2015 - 08:56 | 5724309 Benjamin123
Benjamin123's picture

Exactly right=Not at all.

I would be glad to pay a 90% capital gain or income flat taxes as long as i had the freedom to buy and sell in peace.

In Venezuela no one ever worried about taxes.

Fri, 01/30/2015 - 02:35 | 5723934 PGR88
PGR88's picture

All socialists need to die.

Fri, 01/30/2015 - 08:59 | 5724318 Benjamin123
Benjamin123's picture

They are not socialist.

Fri, 01/30/2015 - 07:52 | 5724201 Puncher75
Puncher75's picture

You pretty much get the government you deserve.

Fri, 01/30/2015 - 08:50 | 5724296 Benjamin123
Benjamin123's picture

Chavez nor his followers were ever socialist. They wanted revenge above all.

Fri, 01/30/2015 - 09:49 | 5724546 Niall Of The Ni...
Niall Of The Nine Hostages's picture

You're right that what Venezuela suffers from isn't socialism as such, thank God. Nobody smart enough to gain real power ever was dumb enough to impose actual socialism, though the Khmer Rouge came close.

All socialism is about is revenge, though---an excuse for people incapable of contributing positively to a free society to murder people and take their stuff. The killing fields weren't just a horrifying side effect of socialism. The killing fields were the whole point of socialism. 

Same with banksterism, actually. Foreclosing on the heritage of the Western world and making the people who built it so miserable they stop reproducing (hello, Greece) isn't a bug of the system. It's a feature.

Fri, 01/30/2015 - 10:01 | 5724607 Benjamin123
Benjamin123's picture

Whatever you say.

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