Last week, Hugo Chávez announced he had bought 1 billion dollars worth of Argentinean bonds, a new lot of the so called Boden 15. In my first analysis of the transaction I wanted to focus on the open hypocrisy of Hugo Chávez, who supposedly lends Venezuelan money to his friend, the Argentinean president Cristina Fernández de Kirchner, because he has great confidence in the Argentinean economy, while at the same time he proceeds to dump the bonds as soon as possible, selling them to Venezuelan banks, that only buy them because it's a nice way to obtain US dollars at a lower exchange rate than the parallel (dollar they are forbidden to get freely due to the exchange control in place since 2003).

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The Venezuelan Government Hugo Chávez announced last Tuesday he had bought 1 billion US dollars in Argentinean bonds (Boden 15) in another big favor he's conceding his good friend and troubled Argentinean president Cristina Fernández de Krichner. Chávez, who always pretends to be an altruist and to act in the interest of everybody else but him and Venezuelans, this time decided he would be no more altruist and is charging a very high 15% interest for the 1 billion loan.

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Under Venezuela's five year old exchange control regime there is a Commission for the Administration of Foreign Currency, (known as CADIVI for its Spanish acronym), whose bureaucrats decide who can and who can't buy foreign currency at the official exchange rate.

CADIVI yesterday announced it has temporarily suspended almost 48 thousand people from its electronic system, which means this people can no longer buy foreign currencies at the official exchange rates and will be forced to go to the parallel exchange market.

What crime did these 48,000 people committed?

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Thanks to one of my loyal readers, Luis from "Diario de la Crisis", I woke up on Friday to the news of the most recent whim of Hugo Chávez: the nationalization of Banco de Venezuela, a subsidiary of the Spanish group Santander Central Hispano.

There are so many wrong things with this announcement that I spent several hours thinking where to begin.

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In another episode of the sag saga of hyperinflation in Zimbabwe, the central bank of the African nation has announced a new monetary reform, this time to slash ten (10) zeroes from the Zimbabwean dollar.

The official price inflation rate in Zimbabwe is over 2,000,000% year-over-year, but private estimates place the CPI on the vicinity of 4 or 9 million per cent (you choose the poison).

As you probably know, we in Venezuela also implemented a "monetary reform", slashing only three (3) zeroes from the devalued bolívar, but so far this year, the new "bolívar fuerte" (strong bolivar) hasn't fared so strong, with an accumulated official inflation rate over 15% (up to June).

So, what is it about these monetary reforms that seem to go wrong all the time? Why don't they work? You see, Zimbabwe, or Venezuela are not special and they're not different the every other country, when the issue are the laws of economics. There's people who vehemently deny the existence of economic laws, but austrian economists have demonstrated the indeed there are universal, immutable laws that apply to human action everywhere at any time. And what do these laws tell us about money? That when you create money out of thin air, the value of already existent money will decrease, with a consequent rise in prices.

It's as simple as that, no matter how many zeroes you make disappear from paper bills.

 Economics, International

Lies, dammed lies, and statistics! Each piece of government statistics has to be suspected a priori. Firstly for being a statistic and secondly for coming from the government (from any government), for the state, being an institution based on lie (that security cannot be provided by private non-monopolist parties), is particularly inclined to lie.

Case in point: the Venezuelan government and its unemployment statistics. Unemployment has been supposedly on decline for several months. What government statistics don't say (or at least I haven't been able to find on the INE web page) is how many of those currently "employed" are working for the government. I know that perhaps with a little more effort I can find the numbers, but for the moment I will conform myself with suspecting that a large number of currently "employed" people is working directly or indirectly for the government and its numerous "missions" (social programs), as the government is happily celebrating the drop in unemployment. But what's the problem with this? That by definition government employment is not production but welfare, and therefore represents net consumption of resources.

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Journalist Marta Colomina thinks livestock farmers are heroes to whom statues shall be erected. But what "opposition" farmers want is for Venezuelan people to pay more for milk and cheese. That'd be no problem, since we all want our services to be paid as expensive as we can, but the methods chosen by Genaro Méndez (president of the Venezuelan Cattle Farmers Federation, FEDENAGA) are plainly immoral, since he wants to use the power of the government to curb imports of milk into the country.

As it usually is the case, big business can easily be capitalism's and free markets' worst enemy, but usually they are not as candid with their intentions as Mr Méndez is being here.

So, what are they asking the government to do? (this part was not quoted in the Venezuelanalysis' piece, so you have to go Cadena Global if you want to read in full)

We are asking the government to suspend immediately milk imports, at least during two weeks.

And why? Pretty simple indeed:

These white [hard] cheese has commercialization problems, because there is imported cheese which is of even better quality and cheaper [than Venezuelan cheese], due to [the overvaluation] of the preferential dollar and because they enter the country without paying any kind of tariffs.

You see, Venezuelan cattle farmers feel they cannot compete with cheaper and higher quality milk and cheese from abroad, so they decide they will force, at the point of a gun, the people into buying more expensive and lower quality Venezuelan milk and cheese. When the issue is about spoiling Venezuela's poorest FEDENAGA and Méndez can easily agree with the neocommunists in power, despite being allegedly from the "opposition".

And these are opposition heroes? What are they opposing? Certainly not socialism, nor banditry against the poor. But, Oh, well that's the sad state of Venezuelan politics at this point.

You can read Mr. Méndez's statements in full (in Spanish) via Venezuela es Noticia.

 Venezuela, Economics

On July 17th, Hugo Chávez appeared once again on national television (the so called "cadenas" by which every open radio and TV station is obliged to broadcast his messages) and this time he directed his anger against the idea of decentralization and federalism. As usual the argument Chávez used was flawed on several counts.

Chávez said (and I'm paraphrasing here) that decentralization of health services was an evil idea, since mayors don't have the power of the budgetary resources to properly take care of such services. Therefore, Chávez continued, if hospitals were to be transferred to the municipal jurisdiction they would be all closed in less than six months. And this is the rationalization from the neocommunist leader for the massive power transfer in the centralist direction that we have witnessed during his almost 10 years in the presidency.

Such an argument is, of course, a logical fallacy, a circular argument. Mayors don't have budgetary resources to take care of local health systems, since the central government sucks like a leech every last bit of wealth produced in the provinces and then returns a meager amount to the mayors and governors (which is called situado constitucional).

Under a federalist system, the individual states would be in charge of tax collection in order to take care of health services, and only then would pay the central government its "share" of the revenue, to maintain the general and common services, such as national defense. Every municipality or state would presumably have differing systems, providing a variety of services, better tailored to the local needs and customs of the inhabitants, who are paying the taxes.

Of course, this doesn't mean a federalist public health system should be our final goal and ideal, since being still public it would suffer from the chronic problems of economic calculation when private property is not allowed to exists. This would still be a suboptimal system. The difference would be that under this federalist and decentralized system, the actual damage a bad administration or individual could cause would be strictly limited as compared to the damage the same person can cause at the helm of an oversize central government.

 Venezuela, Politics, Economics

When wealth producers have to ask permission from and wait for parasites in order to produce, it is to be expected that little wealth will be produced.

Venezuelan builders have to wait for up to one year for building permit from the environment minister, according to a report by daily Últimas Noticias.

Consider the following: the home builder already has the capital available, it has the land where the building will take place, it has the workers to do the job and it has the raw materials (although according to the same report, building materials are becoming more difficult to find and secure, due to widespread price controls), but it cannot start building because it has to satisfy the whims of numerous parasites in the environment minister.

A system like this, which cripples production and is prone to be exploited by corrupt officials has to be abolished as soon as possible. Yes, abolished, neither reformed, nor substituted, but completely and forever abolished from the face of the Earth. Or at least from Venezuela.

 Venezuela, Economics

Someday somebody should compile a Venezuelan Dictionary of Economic Idiocy. One of the first entries should go to the idiocy spouted by Agriculture and Land minister, Elías Jaua, in regards to one of the possible solutions to the inflation problem.

Jaua tells us that one way to fight inflation is haggling over prices:

Venezuelan Agriculture Minister Elias Jaua asked consumers to start bargaining over prices with retailers to try to curb inflation.

The most important help that people can give us (in fighting inflation) is that they defend their income. We can’t get used to buying everything at any price, Jaua told reporters . If we all start haggling over prices, speculators are going to start feeling pressured, Jaua said.

He also said that

If they sell me tomatoes at 6 BsF today and at 12 BsF tomorrow, the fault does not lie with the government, no, the government is not at fault, because it's doing all the effort in order to have more production (...)

But Mr. Jaua, the fault does lie with the government. Inflation is always an entirely monetary phenomenon and it doesn't matter how much people haggle over prices, so long as the streets continue being inundated with "monetary liquidity", prices will kee going up. And the only one with the legal power to create money is the government through its central bank.

Of course, I will not deny that you can get better relative prices if you haggle a little bit, but this is irrelevant when the absolute level of prices is rising. Any gains from haggling will be overshadowed by loses through monetary inflation.

 Venezuela, Economics