Chavez's Economy Spiraling Out of Control

[Toro]

The President of Venezuela, Hugo Chavez, is a proponent of Bolivaran socialism, a doctrine with roots that lie in the teachings of Karl Marx. Marx, despite his incorrect readings of history, probably would have made a good trader as he seems to understand the repetitiveness of human nature when he said that "history repeats itself, first as tragedy, second as farce."

His erstwhile student and modern-day standard-bearer, Sr. Chavez, appears to have missed that class. It appears that Venezuela is heading down the path taken by Latin America in the 1970s and 1980s, when economic incompetence and quadruple-digit inflation ran rampant across the continent.

Hugo Chavez's economy is starting to unravel in the currency market.

While Venezuela earns record proceeds from oil exports, consumers face shortages of meat, flour and cooking oil. Annual inflation has risen to 16 percent, the highest in Latin America, as President Chavez tripled government spending in four years. Exxon Mobil Corp. and ConocoPhillips are pulling out after Chavez demanded they cede control of joint venture projects.

The currency, the bolivar, has tumbled 28 percent this year to 4,750 per dollar on the black market, the only place it trades freely because of government controls on foreign exchange. That's less than half the official rate of 2,150 set in 2005. Chavez may have to devalue the bolivar to reduce the gap and increase oil proceeds that make up half the state's revenue.

``This has been the worst managed oil boom in Venezuela's history,'' said Ricardo Hausmann, a former government planning minister who now teaches economics at Harvard University in Cambridge, Massachusetts. ``A devaluation is a foregone conclusion. The only question is when.'' ...

Chavez, an ally of Cuban President Fidel Castro who calls capitalism ``evil,'' weakened the currency 11 percent in 2005. He imposed restrictions on foreign exchange in 2003 to halt capital flight that has driven down the bolivar more than 70 percent since he took office in 1999.

A devaluation would give the government more bolivars from its oil export tax receipts, helping fund Chavez's policies to provide free healthcare, housing and discounted food to millions of Venezuelans. The government says social programs helped cut the poverty rate to 34 percent in the first half of 2006 from 49 percent eight years earlier. ...

Chavez, who is seeking to end presidential term limits, has taken $17 billion of foreign reserves from the central bank and expropriated dozens of farms that he deemed underutilized.

He nationalized Venezuela's biggest private electric and telephone utilities and took majority stakes in oil projects owned by Exxon, the world's largest producer, and ConocoPhillips, the third-biggest in the U.S. Foreign direct investment was a negative $881 million in the first half as foreign companies pulled out money.

Chavez terminated the broadcast license of the country's most-watched television network in May, sparking weeks of student protests. He has threatened to take over cement makers, hospitals, banks, supermarkets and butcher shops, saying they weren't obeying price controls. ...

Contreras called the government-set prices on many products ``fantasy prices'' that are below production costs. Items including milk, chicken, coffee and flour have disappeared from store shelves in Caracas at times this year because companies refused to sell at a loss. ...

Harvard's Hausmann said the growth in public spending has been so rapid that the government needs oil prices to keep rising to hold its deficit in check. He estimates the public sector deficit will equal about 5 percent of gross domestic product this year. The Finance Ministry forecasts the public sector will post a balanced budget this year, Public Credit Director Luis Davila said last month.

``For the macroeconomic house of cards not to come crashing down, the price of oil has to go up at double digit growth rates,'' Hausmann said. ``If oil stays at $70, they're going to hit the wall.''

http://www.bloomberg.com/apps/news?pid=20601109&sid=aTUqRT3KYeY0&refer=home

 

[Psychoblues]

Seems to me that the opposite is happening in Venezuela.

The President of Venezuela, Hugo Chavez, is a proponent of Bolivaran socialism, a doctrine with roots that lie in the teachings of Karl Marx. Marx, despite his incorrect readings of history, probably would have made a good trader as he seems to understand the repetitiveness of human nature when he said that "history repeats itself, first as tragedy, second as farce."

His erstwhile student and modern-day standard-bearer, Sr. Chavez, appears to have missed that class. It appears that Venezuela is heading down the path taken by Latin America in the 1970s and 1980s, when economic incompetence and quadruple-digit inflation ran rampant across the continent.



http://www.bloomberg.com/apps/news?pid=20601109&sid=aTUqRT3KYeY0&refer=home

As the price of oil increases the standard of living for common folk in that country becomes better. The more fair distribution of wealth whether it be from national natural resourse or from collective and individual labor participation is generally good for the society, no?

The concept of fair distribution of wealth was long ago abandoned by the American barons of political power.

 

[Bern80]

Seems to me that the opposite is happening in Venezuela.

As the price of oil increases the standard of living for common folk in that country becomes better. The more fair distribution of wealth whether it be from national natural resourse or from collective and individual labor participation is generally good for the society, no?

The concept of fair distribution of wealth was long ago abandoned by the American barons of political power.

How do you define 'fair' distrubtion? If you are going by equal distrubtion of wealth then it is inherently unfair.

 

[Toro]

Seems to me that the opposite is happening in Venezuela.






As the price of oil increases the standard of living for common folk in that country becomes better. The more fair distribution of wealth whether it be from national natural resourse or from collective and individual labor participation is generally good for the society, no?

The concept of fair distribution of wealth was long ago abandoned by the American barons of political power.

The more participation the general population has in the wealth of a nation, the better. That's why I have no problem with increasing the distribution of oil profits around the country.

The problem is that his government spending is too high. It is creating inflation, which has lead to price controls, which has lead to shortages. This week, overnight interest rates hit 90% in Venezuela because inflation is running out of control. Inflation hurts the poor more than anyone in society.

He is also unilaterally changing contracts by nationalizing the oil fields, which is scaring capital out of the country.

We have seen this all before in Latin America. Chavez understands neither economics nor his continent's own history.

 

[Ruby]

The more participation the general population has in the wealth of a nation, the better. That's why I have no problem with increasing the distribution of oil profits around the country.

The problem is that his government spending is too high. It is creating inflation, which has lead to price controls, which has lead to shortages. This week, overnight interest rates hit 90% in Venezuela because inflation is running out of control. Inflation hurts the poor more than anyone in society.

He is also unilaterally changing contracts by nationalizing the oil fields, which is scaring capital out of the country.

We have seen this all before in Latin America. Chavez understands neither economics nor his continent's own history.

I cant say I quite buy that scenario.

I do think that Venezuela will hit some serious rough patches, that is the nature of things when trying to fix somthing so large and so damaged over such a long period of time. It wont be a quick fix by a long shot, then you add in the forces that are trying their best to IMPEDE the recovery and you are bound to hit numerous rough spots.

Spending is going to be high, so much of the infrastructure and economics of the average citizens have been neglected far too long and the imbalance that will occur naturally in trying to seek a fair balance is inevitable.

 

[Toro]

Its "too high" because the budget deficit is 5% of the economy. And that's with oil prices near all-time highs.

5% is far higher than anything Bush has run.

 

[trobinett]

The more participation the general population has in the wealth of a nation, the better. That's why I have no problem with increasing the distribution of oil profits around the country.

The problem is that his government spending is too high. It is creating inflation, which has lead to price controls, which has lead to shortages. This week, overnight interest rates hit 90% in Venezuela because inflation is running out of control. Inflation hurts the poor more than anyone in society.

He is also unilaterally changing contracts by nationalizing the oil fields, which is scaring capital out of the country.

We have seen this all before in Latin America. Chavez understands neither economics nor his continent's own history.

You know, it really wasn't a matter IF Chavez would be just another in a long line of despots ruining Venezuela's economy, it was only WHEN it would start to become public knowledge, well.............................

From the beginning, I could see the guy was a complete wing-nut, and was doomed to repeat what those that preceded him had done.

The people of that country should hang the SOB.