Venezuela’s currency crumbles

Venezuela’s currency crumbles at dizzying speed

© AFP/File / by Alexander MARTINEZ | In one year, Venezuela’s currency, the bolivar, has lost 94 percent of its value

MD: Currencies cannot and do not crumble under a “proper” MOE process. Let’s see what delusion this writer is under as he blindly leads the blind.

CARACAS (AFP) – Venezuela’s money, the bolivar, is sinking faster and faster under an intensifying political and economic crisis that has left citizens destitute and increasingly desperate.

MD: You can be sure it has already sunk. People in Venezuela are already getting what they need through barter and theft. Money can’t be involved at all at this point.

Its depreciation accelerated this week, after a disputed vote electing an all-powerful “Constituent Assembly” filled with allies of President Nicolas Maduro, which the opposition and dozens of countries have called illegitimate.

MD: Democracy with more than 50 people involved doesn’t work. The people are not involved. And Maduro is working in a democracy containing less than 50 people, you can be sure. But those 50 people are really endangered now by the masses. Soon, Maduro will be standing alone … as he gets out of Dodge himself. And then the people will sort this all out for themselves in small groups … of 50 people or less.

On Thursday alone, the bolivar slumped nearly 15 percent on the black market, to be worth 17,000 to one US dollar.

In a year, the currency has lost 94 percent.

The decline has been dizzying — yet largely ignored by the government, which uses an official rate fixed weekly that is currently 2,870 to the dollar.

MD: Remember when our USA government used an official rate for the dollar at $35 per ounce of gold. The real world knew for some time it was really above $70. They only delude themselves. France wasn’t deluded.

Ordinary Venezuelans, however, refer only to the black market rate they have access to, which they call the “dolar negro,” or “black dollar.”

“Every time the black dollar goes up, you’re poorer,” resignedly said Juan Zabala, an executive in a reinsurance business in Caracas.

– Salaries decimated –

His salary is 800,000 bolivares per month. On Thursday, that was worth $47 at the parallel rate. A year ago, it was $200.

MD: Yet he still goes to work? I think I would be looking for someone besides my employer to trade with long before this. I’d walk out into the country side and offer my services to help defend some farmer and harvest his crop.

The inexorable dive of the money was one of the most-discussed signs of the “uncertainty” created by the appointment of the Constituent Assembly, which starts work Friday.

As a result, those Venezuelans who are able to are hoarding dollars.

MD: What are they going to think when the USA, suffering from the same delusions as Venezuela, has their dollars go up in smoke.

“People are protecting the little they have left,” an economics expert, Asdrubal Oliveros of the Ecoanalitica firm, told AFP.

MD: How are they protecting it? How can they protect it? They should apply everything they have to becoming more skillful traders … traders who don’t use money. It’s too much to hope for them to institute a “proper” MOE process at this point. Maybe after the reset, one or more of the small groups will see the light and implement a proper MOE process for their own use … and that “will” spread.

But Zabala — who is considered comparatively well-off — and other Venezuelans struggling with their evaporating money said they now spent all they earned on food. A kilo (two pounds) of rice, for instance, cost 17,000 bolivares.

MD: Better go make a relation with a farmer. Help him with his crop … and in protecting his property … in exchange for food.

The crisis biting into Venezuela since 2014 came from a slide in the global prices for oil — exports of which account for 96 percent of its revenues.

MD: It came from an attack by USA money changers. They bought debt for pennies on the dollar. Now they’re using the power of the USA to turn those pennies back into dollars.

The government has sought to monopolize dollars in the country through strict currency controls that have been in place for the past 14 years. Access to them have become restricted for the private sector, with the consequence that food, medicines and basic items — all imported — have become scarce.

MD: Institute a proper MOE process to compete with the others and you are the guaranteed winner.

According to the International Monetary Fund, inflation in Venezuela is expected to soar above 700 percent this year.

MD: That’s meaningless. At 700% or 1500 % or anything close makes money a fiction. They are paying people with nothing. The people are trading their HULs (Hours of Unskilled Labor) to the employers for nothing. They would be better off taking that time and setting up barter trading agreements in their own neighborhoods.

In June, Maduro tried to clamp down on the black market trade in dollars through auctions of greenbacks at the weekly fixed rate, known as Dicom. There is also another official rate, of 10 bolivars per dollar, reserved for food and medicine imports.

MD: Some clueless economist recommended this. There is only one thing that can fix Venezuela. Institute a proper MOE process to compete with international bankers, and release “all” government employees. The resulting chaos with be less devastating that taking these nonsensical steps. The people will work it all out themselves. They will slowly re-institute governments democratically (i.e. with less than 50 people involved).

“Things are going up in price faster than salaries,” noted Zabala, who spends 10 percent of his income on diabetes treatment, when he can.

MD: When you have inflation this is always the case. When inflation is guaranteed to be zero, salaries and prices are in perpetual lock step. They don’t change. Salaries are paid in units of HULs. The skill factor (the number of equivalent HULs a person trades for … on average about 3.5x in the USA … thus making about $50,000 per year) is also constant … unless their skill changes.

– ‘No limit’ –

Maduro has vowed that a new constitution the Constituent Assembly is tasked with writing will wean Venezuela off its oil dependency and restart industry, which is operating at only 30 percent of capacity.

MD: It needs to wean itself off the money changers. If oil is what you have to trade, trade it?

But the president, who links the “black dollar” with an “economic war” allegedly waged by the opposition in collaboration with the US, has not given details on what would be implemented.

On Thursday, Maduro promised “speculators” setting their prices in line with “the terrorist criminal dollar in Miami” would go to jail.

MD: That will change nothing. Institute a proper MOE process and those same speculators die on the vine. Unfortunately for Maduro, so does government. But it “is” the fix to the problem for the people.

For the past four months, Maduro has been the target of protests which have been forcefully confronted by security units, resulting in a toll of more than 125 deaths.

 MD: Ultimately, they weren’t able to control the French revolution. This is at the same stage as that was. The security units will fear for their own lives. They won’t have time to secure Maduro.

The opposition says the new Constituent Assembly is an effort to create a “dictatorship” along the lines of Communist Cuba.

MD: So stop it. Don’t pay taxes to it. Find a way to do without government entirely. It will just blow itself up again and again and again.

Against that backdrop of tensions, “there is no limit on how far the black dollar can go,” according to Ecoanalitica.

But a director of the firm, Henkel Garcia said he believed the current black market rate “didn’t make sense” and he noted that in the past currency declines weren’t linear.

Oliveros said increased printing of bolivares by the government was partly the reason for the black dollar’s rise.

MD: Partly? It’s the only thing!

“When you inject bolivares into the market, that means that companies, individuals go looking for dollars, which are scarce,” he said, estimating that the shortfall of dollars this year was some $11 billion.

MD: It’s not about scarcity. It’s about being static. If your exchange media changes, you must make it stop doing that. That media should “never” be scarce. It must always be in free supply. But defaults must be immediately mitigated by interest collections of like amount.

The horizon is darkened further with big debt repayments Venezuela has to make, for instance $3.4 billion the state oil company PDVSA has to reimburse in October. That debt is denominated in dollars.

MD: Reimburse to whom? Declare bankruptcy. Fold your tent. Then shoot the bill collectors when they come after you. It’s called a reset.

by Alexander MARTINEZ

© 2017 AFP

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