During the 1970s, Venezuela was the richest country in Latin America. With the region’s highest growth rates and the lowest levels of inequality, it was also one of the most stable democracies in the Americas. But starting in the early 1980s, things fell apart. The nation endured three coup attempts and one presidential impeachment. Per capita growth plunged, and mass protests became the norm. What happened?
It's got more oil than any country on the planet but its people eat garbage and gangsters rule. Defying a media ban, Eric Campbell goes undercover in the onetime socialist idyll of Venezuela.
The political and economic elements at play in the pre-Chávez Venezuelan economy are covered in individual chapters by some of the region’s most distinguished analysts. Omar Bello, an economic affairs officer at the UN Economic Commission for Latin America and the Caribbean (eclac) and Adriana Bermúdez, a credit risk specialist in the Venezuelan private sector, look at the role of market reforms; Francisco Monaldi of Harvard’s Kennedy School of Government and Michael Penfold of Venezuela’s Instituto de Estudios Superiores de Administración (IESA), discuss the rise and decline of democratic governance; and Dan Levy of Harvard’s Kennedy School and Dean Yang of the University of Michigan analyze the impact of immigration.
"This situation is vastly deteriorating," Diego Moya-Ocampos, senior Latin America analyst at IHS Country Risk, told CNBC Thursday. "We expect the economy to contract at least 11.5 percent, inflation to hit 700 percent, already the highest in the world."
Venezuela has one of the worst economies in the world with food shortages and massive inflation. NPR's Planet Money team explains how it got so bad.
And now to one of the worst economies in the world – Venezuela. The country is suffering from food shortages and massive inflation even though it sits on one of the world's richest deposits of oil. The economic crisis has led to a political one. Robert Smith from NPR's Planet Money team reports on how Venezuela ran out of everything.
And as Mr. Chávez’s Socialist-inspired revolution collapses into economic ruin, as food and medicine slip further out of reach, the new migrants include the same impoverished people that Venezuela’s policies were supposed to help.
“We have seen a great acceleration,” said Tomás Páez, a professor who studies immigration at the Central University of Venezuela. He says that as many as 200,000 Venezuelans have left in the past 18 months, driven by how much harder it is to get food, work and medicine — not to mention the crime that such scarcities have fueled.
This scene is particularly distressing because Venezuela used to have plenty of money. Even a decade ago, the oil flowed out, and dollars flowed into the country, and Venezuela could buy anything it wanted from the rest of the world. Alejandro Velasco is a history professor at NYU, and he says there was this attitude in Venezuela. Why make anything yourself?
“Parents will say, ‘I would rather say goodbye to my son in the airport than in the cemetery,’ ” he said.
Desperate Venezuelans are streaming across the Amazon Basin by the tens of thousands to reach Brazil. They are concocting elaborate scams to sneak through airports in Caribbean nations that once accepted them freely. When Venezuela opened its border with Colombia for just two days in July, 120,000 people poured across, simply to buy food, officials said. An untold number stayed.
But perhaps most startling are the Venezuelans now fleeing by sea, an image so symbolic of the perilous journeys to escape Cuba or Haiti — but not oil-rich Venezuela.
With its oil production and international reserves falling at an accelerating rate, the government is juggling as fast as it can to pay for imported food and medicines while meeting its short-term bond payments. Even as the country has slashed imports, its reserves have declined by half over the last two years, to $10.4 billion. Most of that sum is in gold and is pledged as security for many of the government’s creditors, which include international institutional investors and everyday Venezuelans.
“The probability of default is rising,” said Stuart Culverhouse, head of sovereign and credit research at Exotix Partners, a London-based investment bank that trades Venezuelan bonds on behalf of clients. “So far their willingness to pay has been pretty firm, surprisingly so given the political situation. But you have to ask how long that can continue when they are probably spending more on debt service than imports.”
The point is, the USD is not just being printed “willy-nilly” into existence by the Fed. It comes into being as both an asset and a liability. As such, there are some checks and balances at work in the dollar monetary system which prevents it from immediately spiraling out of control—as it did in the Weimar Republic.
So, why is there little evidence of inflation? Well, when they borrow these dollars into existence from the Fed, most banks often just buy US Treasuries with the funds – which they are required to hold anyway. The result is that interest rates are being pressured lower and lower, while the value of the bonds they bought rises. This is one of the main reasons why all this quantitative easing has not resulted in high inflation of day to day goods. It’s because it is mainly affecting the bond market and causing them to rise substantially in value, all the while depressing interest rates.
Nevertheless, the US dollar, despite some extra built-in protections against its abuse, is a fiat currency. Just like every other fiat currency that has ever existed, it is slowly failing and will ultimately collapse. It’s just on a different timeline compared with the Venezuelan bolivar.
This is the legacy of Socialism and socialist ideology as it was practiced there, and many other failed states around the world, and which is now being thrust upon the American public by our “progressive-socialist” leftist government and its surrogates and minions in the press and edifices of higher learning.
Is this what the United States has to look forward to? Will you or your children soon be perusing the dumpsters and garbage bins of the more affluent neighborhoods in order to just survive? Will our nation descend into chaos as food riots and other unrest takes control? Will martial law be in our future as well?
To me, all the signs that the answer to these questions is “Yes” are already forming or are entrenched out there right now.
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