Often on HN's you'll get someone asking why a company has to continually grow revenues/profits. And the person is usually convinced once someone else comes along and lays out an argument that goes along the lines of....
If you consider a market with two companies.
Company A that doesn't grow revenues or profits and company B that continually grows revenues and profits, which one would you invest in?
The answer is obviously once you realize that each company doesn't exist in a vacuum but is instead competing with other companies for the same investment dollars.
Currencies markets work in a similar manner in that you are never talking about a currency but rather you are explicitly talking about what a currency is worth with respect to another currency, or often implicitly with respect to the US dollar.
It's actually pretty amazing to think about the currency markets and how they are constantly reweighing each currency with respect to every other currency such that each currency has the correct valuation with respect to all others such that there is no available arbitrage opportunity.
So its not that the markets or wall street is being "mean" to Venezuela or punishing it, but rather they are trying to find the right balance of how many Boliviars one should get for each USD.
Unfortunately, there is a giant feedback loop that often means once a countries currency gets depressed enough they almost have no choice but to print money just to buy/import the essentials required for life. And this printing of money just has an feedback that increases inflation even more until its impossible to get out from without a bankruptcy, just google "Zimbabwe trillion dollar bill".
Venezuela is a country that is simply being looted and there isn't a lot of economic theory needed to explain simple theft.
The Bolivar isn't freely convertible except on the black market so there isn't any market (from free or otherwise) to talk about.
How it works is pretty simple. A connected businessman applies to the government to import medicine at the official exchange rate. He then takes those USD and contracts with a shell company he controls in Panama to buy antibiotics and provides all the paperwork. A small amount of those funds are then used to buy antibiotics on the open market and ship it to Venezuela. The profits are distributed around to othe shell companies controlled by various government officials to keep access to the favorable exchange rates.
Once they arrive in Venezuela the local paper writes up a story about the shortages and mentions the connected businessmen and officials as heros for importing needed medicine. Pictures are taken showing them inspecting the cargo as its offloaded.
But it there is still money to be made! Prices on antibiotics are regulated so a lot of the shipment is diverted into the black market which siphons up bolivars at the black market price.
Those are then traded back at the official favorable rates and the process repeats.
It's a brilliant scheme because the masses don't understand enough to understand how they are being robbed. Pick their pockets and then blame it on the "market" or "imperialist." Doesn't really matter as long as its a convenient.
And it gets better! Eventually things get so bad that people start sending relief supplies and cash which creates new opportunities to loot.
You seem knowledgeable. Why can external currency changes (USD to bolivar) cause such strong inflation internally? I would think that at some point no one in the country can buy an iPhone, but how does that turn into no one being able to buy milk (or other essentials)? Do countries really rely so strongly on the international market for essentials?
edit: I could see a terrible scenario playing out where domestic goods are now so damned cheap for anyone not in the country that the producers are incentivised to ship their stuff overseas to rich foreigners. It could be the domenstic buyers that are the only people who get screwed. This is all terribly complicated.
The decisions leading up to this by the Venezuelan government where known to cause things like this. They where made either out of ignorance or political pandering.
I disagree with your assertion about 'depressed' countries having to inflate. The only reason that they got so depressed is because of bad government and way to much printing. You can't then turn around and say 'we already fucked it up' so destroying the monetary system now is good.
Stabilizing the monetary system, reduce government spending and deregulation is the only solution.
Its never impossible to get out of Inflation, there are only bad greedy governments that can't get there shit together. Its never a economic problem, just a political one.
This post really comes off like you're excusing Venezuela of their economic mismanagement, and I hope that's not what you meant.
There's no requirement that a failing economy print money to pay for things. Currency markets aren't stupid; they know it's being printed and price accordingly. And even if they didn't, money is just an instrument of trade anyway, and the market will find its balance.
Anyway, the change in price is at least equivalent to taking money out of the hands of money-holders and putting it in the pockets of the government. So in a sane economic theory, it's always better to tax. The advantage of money printing is that, in a system where the dictatorial elites subscribe to alternative theories of economics, money-printing allows you to blame other forces (in particular, imperialists) for what's happening.
> once a countries currency gets depressed enough they almost have no choice but to print money just to buy/import the essentials required for life
I'm sorry, but this is nonsense. Nobody outside the country is fooled by the newly printed money, and it doesn't buy any more imports.
It does help those controlling the money printing to have more money than others, thus effectively stealing from the rest of the country.
> just google "Zimbabwe trillion dollar bill".
I have some of those on my wall.
If you do google it, you'll learn that the economy and life of Zimbabwe improved considerably when they finally gave up having a currency, and trade converted to Dollars and Rands.
According to legend, the government only gave up this form of plundering because they couldn't afford the ink to print new bills anymore.
Here's the worst part: "Venezuela has maintained strict currency controls since 2003 and currently has two legal exchange rates -- known as the Dipro and Dicom rates -- of 10 and 661 bolivars per dollar used for priority imports. On the black market, where people and businesses turn when they can’t obtain government approval to purchase dollars at the legal rates, the bolivar has weakened 69 percent over the past year."
Whoever is buying dollars (or dollar-denominated goods) at the "official" exchange rate is making a killing. And will do so for about 6-9 months, before the entire thing collapses.
The ones controlling the import of goods at the official exchange rate are multi-millionaire by now, mostly military.
Before getting dollars at the official rate for importing, your company needs to get approved and jump through all kinds of burocratic stuff that could take ages and never get approved. Here in my state there was a huge cartel of military officers involved in the sale of pre-approved companies for importing. It was like buying companies off the shelf.
A bunch of people bought these companies at a very high price, but the returns were huge. You bought one company for say $50k, but then you imported at the official rate. There are 20 year old kids that are now living in Miami with $15-20 million dollars in their accounts, money they made through these companies. They had a small office with 5 or 6 assistants, one for each company doing all the paperwork for the constant fake importing of goods.
This is just one of the ways the country has lost more than $50 billion dollars to corruption in just two years, according to one of Chavez's former ministers, Giordani.
This is likely why the controls and multi-tier currency rates exist. To reward insiders. Nothing like a starving opposition to remind you of the benefits of being on the inside.
>Whoever is buying dollars (or dollar-denominated goods) at the "official" exchange rate is making a killing. And will do so for about 6-9 months, before the entire thing collapses.
It's been like that ever since the currency controls were implemented in 2003, it is fairly well known that most if not all of the high ranked government officials (who have unlimited access to preferencial exchange rates) are behind the currency "black" market. The same government officials have their fair share of cash stashed away in tax havens.
This is beyond hope, corruption is not only endemic anymore but a neccessity for survival, unfortunately this will only end with blood, I believe international interference is a must in this case.
Yes. We're literally reading a Bloomberg article reporting on the black market rates. It means the black market is so huge that prices have a centralized market with a unique, well-known rate, information chains to communicate that rate and third parties monitoring it through Bloomberg. I would be joking if I asked Bloomberg about bribe rates variations for IPOs in China or the indexed cost of obtaining the presidency of a country, if only it didn't mean a major governance issue.
Last I heard, the people are waiting all day in line to get basic things like food and medication. Can someone explain how this country hasn’t collapsed yet? Crime must be through the roof.
Crime is indeed very high - murder rate per capita is 15 times higher than in the U.S. or 70 times that of United Kingdom.
It is so high that the government has stopped publishing statistics, and also so high that "authorities would assign judicial police to Caracas area morgues to speak with families. At that time, they would advise families not to speak to report the murder of their family member to the media in exchange to have the process of recovering the victims body in an expedited manner. It was also reported that police would intercept the families of the victims and take them to the library of the University Institute of the Scientific Police (IUPOLC) where authorities offered families ways to "streamline procedures and advise them not to give information to the press in return for their aid"*
East Soviet Bloc suffered >20 years of exact same situation before collapsing.
Yes, people did stand in 6 hour queues for basic things like _bread_ in Poland under Russian occupation. This is a "bread queue" image search if you are interested:
Here's a recent, long New Yorker article on Venezuela, Maduro, Chavez, Polar industries, crime, China, oil, inflation, Cuba, America, Colombia, taxi drivers, Halliburton, and a bunch of other things I don't remember.
Venezuela's problems stem from several issues, and there's sufficient political invective about them that a clear discussion is difficult.
An earlier HN post addressed the question of Venezuela's refusal to simply default on its loans, as another South American state, Argentina, did: https://news.ycombinator.com/item?id=12057616
In another earlier thread, I suggest strongly that the problems Venezuela is facing are far more characteristic of a failing end-stage oil state than of the inevitable failure of Communism, for which China and Vietnam offer possibly interesting counterexamples.
Im not sure what it means that Venezuela is failing because of 'end stage oil' rather then socialism. Does Venezuela not have tons of oil reserves? If they fail to develop these and all the other resources then that clearly because of bad policy stemming from at least a nominal socialist agenda.
Sanders praised it. As a Venezuelan in SF, I've had my fair share of arguments where I've had to defend the perspective that Venezuela isn't a socialist paradise.
"These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who's the banana republic now?"
- http://www.sanders.senate.gov/newsroom/must-read/close-the-g...
Actually they don't defend this model. Some of their leading heads were hired as consultants by the Venezuelan government and that's about all of the relationship that has existed between them.
This is madness. I can't believe people can live in such a nightmare. Isn't there any opposition or can't just people there revolt? Or maybe army makes a coup?
This is a military dictatorship, they're not going to make a coup.
Maduro may be a civilian, but when you take a look at the people that hold all the ministries and important positions in the government, you see they are all former military that were put there by Chavez. This was his plan all along, the problem is he died.
The military has every incentive not to let the government fall. They are the ones controlling everything and every single bit of corruption must pass through the military first. They control the currency, industry and even the drug trafficking.
You think they are gonna let the government fall and possibly be tried and be brought to justice in the
future?
Unfortunately, the only way out I see for the country is an Ukraine or Egypt like situation where the military basically kills people in the streets for a month or two and then some kind of agreement is reached where they are granted immunity from justice. Or they take off their masks and just declare a formal military dictatorship.
There are two options: either you end up in prison (see Leopoldo López [1]) or you leave the country. Regarding the coup, Chavez actually tried to gain power that way in 1992 and 2002, so my guess is that the government has strong ties with the army. A foreign intervention won't probably happen either.
It is madness, and the govt was about to fall 3 weeks ago, but to this day, millions of people like me still do not understand why the opposition sat down to negotiate anything with the govt during Vatican sponsored talks, and in turn, ended up cooling the streets.
The opposition controls the legislature due to the last elections, but the executive branch and judicial branch (packed with judges the President has picked) just ignores everything they do, and a fair bit of their constitution as well.
It is sad that some year ago 1 usd would be like 2000 bolivares (I don't know the exact amount, but bolivares were almost the same value as colombian pesos). They decided to create the "bolivar fuerte" which was 1000 bolivares, so 1 usd would be 2 bolivar fuerte. With the bolivar fuerte price drop, the usd is now above 2000 bolivar fuerte, so in a matter of years, Venezuelan money is worth less than a thousandth it was worth less than 10 years ago.
There was speculation that a substantial amount of the national debt is actually held by regime insiders, who benefit enormously from the high interest rates. A default would stop that racket.
I can't remember where I read that, so take it for idle speculation.
American sanctions have little to do with Venezuela'a predicament--they specifically target its leadership. (Leaders who are doing fine arbitraging the bolivar and pillaging the state-owned oil company.)
Wall Street continues to finance and re-finance PDVSA [1] and American refiners continue to import its crude [2]. Contrast that with earlier sanctions on Iran.
Your reference doesn't fully support your claims, though I feel the strong downvoting is disproportionate to your comment's claims.
Rather, it states that:
President Barack Obama on Thursday extended for one year an executive order declaring the situation in Venezuela a threat to U.S. national security, saying conditions there had not improved and that the country's leftist-led government was continuing to erode human rights guarantees.
The declaration allows for sanctions, but doesn't, of itself, support the claim that the US is seeking to install its own puppet government. And yes, the US absolutely has interfered in Latin American politics since the 19th century: Cuba, El Salvador/Panama, Guatemala, Brazil, Chile, Venezuela, and elsewhere.
But you'll need more specific evidence.
See the HN guidelines regards discussing voting patterns.
You can't show up just to start political flamewars like this, so we've banned this account. If you'd like to read the guidelines and email [email protected], we're happy to unban the account if we feel you'll comment civilly and substantively in the future.
[+] [-] chollida1|9 years ago|reply
If you consider a market with two companies.
Company A that doesn't grow revenues or profits and company B that continually grows revenues and profits, which one would you invest in?
The answer is obviously once you realize that each company doesn't exist in a vacuum but is instead competing with other companies for the same investment dollars.
Currencies markets work in a similar manner in that you are never talking about a currency but rather you are explicitly talking about what a currency is worth with respect to another currency, or often implicitly with respect to the US dollar.
It's actually pretty amazing to think about the currency markets and how they are constantly reweighing each currency with respect to every other currency such that each currency has the correct valuation with respect to all others such that there is no available arbitrage opportunity.
So its not that the markets or wall street is being "mean" to Venezuela or punishing it, but rather they are trying to find the right balance of how many Boliviars one should get for each USD.
Unfortunately, there is a giant feedback loop that often means once a countries currency gets depressed enough they almost have no choice but to print money just to buy/import the essentials required for life. And this printing of money just has an feedback that increases inflation even more until its impossible to get out from without a bankruptcy, just google "Zimbabwe trillion dollar bill".
[+] [-] slv77|9 years ago|reply
The Bolivar isn't freely convertible except on the black market so there isn't any market (from free or otherwise) to talk about.
How it works is pretty simple. A connected businessman applies to the government to import medicine at the official exchange rate. He then takes those USD and contracts with a shell company he controls in Panama to buy antibiotics and provides all the paperwork. A small amount of those funds are then used to buy antibiotics on the open market and ship it to Venezuela. The profits are distributed around to othe shell companies controlled by various government officials to keep access to the favorable exchange rates.
Once they arrive in Venezuela the local paper writes up a story about the shortages and mentions the connected businessmen and officials as heros for importing needed medicine. Pictures are taken showing them inspecting the cargo as its offloaded.
But it there is still money to be made! Prices on antibiotics are regulated so a lot of the shipment is diverted into the black market which siphons up bolivars at the black market price.
Those are then traded back at the official favorable rates and the process repeats.
It's a brilliant scheme because the masses don't understand enough to understand how they are being robbed. Pick their pockets and then blame it on the "market" or "imperialist." Doesn't really matter as long as its a convenient.
And it gets better! Eventually things get so bad that people start sending relief supplies and cash which creates new opportunities to loot.
[+] [-] imh|9 years ago|reply
edit: I could see a terrible scenario playing out where domestic goods are now so damned cheap for anyone not in the country that the producers are incentivised to ship their stuff overseas to rich foreigners. It could be the domenstic buyers that are the only people who get screwed. This is all terribly complicated.
[+] [-] swiley|9 years ago|reply
[+] [-] nickik|9 years ago|reply
Stabilizing the monetary system, reduce government spending and deregulation is the only solution.
Its never impossible to get out of Inflation, there are only bad greedy governments that can't get there shit together. Its never a economic problem, just a political one.
[+] [-] cynicalkane|9 years ago|reply
There's no requirement that a failing economy print money to pay for things. Currency markets aren't stupid; they know it's being printed and price accordingly. And even if they didn't, money is just an instrument of trade anyway, and the market will find its balance.
Anyway, the change in price is at least equivalent to taking money out of the hands of money-holders and putting it in the pockets of the government. So in a sane economic theory, it's always better to tax. The advantage of money printing is that, in a system where the dictatorial elites subscribe to alternative theories of economics, money-printing allows you to blame other forces (in particular, imperialists) for what's happening.
[+] [-] BurningFrog|9 years ago|reply
I'm sorry, but this is nonsense. Nobody outside the country is fooled by the newly printed money, and it doesn't buy any more imports.
It does help those controlling the money printing to have more money than others, thus effectively stealing from the rest of the country.
> just google "Zimbabwe trillion dollar bill".
I have some of those on my wall.
If you do google it, you'll learn that the economy and life of Zimbabwe improved considerably when they finally gave up having a currency, and trade converted to Dollars and Rands.
According to legend, the government only gave up this form of plundering because they couldn't afford the ink to print new bills anymore.
[+] [-] WalterBright|9 years ago|reply
[+] [-] powera|9 years ago|reply
Whoever is buying dollars (or dollar-denominated goods) at the "official" exchange rate is making a killing. And will do so for about 6-9 months, before the entire thing collapses.
[+] [-] rafaelm|9 years ago|reply
Before getting dollars at the official rate for importing, your company needs to get approved and jump through all kinds of burocratic stuff that could take ages and never get approved. Here in my state there was a huge cartel of military officers involved in the sale of pre-approved companies for importing. It was like buying companies off the shelf.
A bunch of people bought these companies at a very high price, but the returns were huge. You bought one company for say $50k, but then you imported at the official rate. There are 20 year old kids that are now living in Miami with $15-20 million dollars in their accounts, money they made through these companies. They had a small office with 5 or 6 assistants, one for each company doing all the paperwork for the constant fake importing of goods.
This is just one of the ways the country has lost more than $50 billion dollars to corruption in just two years, according to one of Chavez's former ministers, Giordani.
[+] [-] JumpCrisscross|9 years ago|reply
[+] [-] fspear|9 years ago|reply
It's been like that ever since the currency controls were implemented in 2003, it is fairly well known that most if not all of the high ranked government officials (who have unlimited access to preferencial exchange rates) are behind the currency "black" market. The same government officials have their fair share of cash stashed away in tax havens.
This is beyond hope, corruption is not only endemic anymore but a neccessity for survival, unfortunately this will only end with blood, I believe international interference is a must in this case.
[+] [-] tajen|9 years ago|reply
[+] [-] SimeVidas|9 years ago|reply
[+] [-] ptaipale|9 years ago|reply
It is so high that the government has stopped publishing statistics, and also so high that "authorities would assign judicial police to Caracas area morgues to speak with families. At that time, they would advise families not to speak to report the murder of their family member to the media in exchange to have the process of recovering the victims body in an expedited manner. It was also reported that police would intercept the families of the victims and take them to the library of the University Institute of the Scientific Police (IUPOLC) where authorities offered families ways to "streamline procedures and advise them not to give information to the press in return for their aid"*
https://en.wikipedia.org/wiki/Crime_in_Venezuela
The government also banned private handgun ownership in 2012. The number of murders has grown by about a third since that.
[+] [-] rasz_pl|9 years ago|reply
Yes, people did stand in 6 hour queues for basic things like _bread_ in Poland under Russian occupation. This is a "bread queue" image search if you are interested:
https://www.google.com/search?q=kolejka+po+chleb&source=lnms...
[+] [-] guelo|9 years ago|reply
[+] [-] lb1lf|9 years ago|reply
[+] [-] venomsnake|9 years ago|reply
[+] [-] LordFrith|9 years ago|reply
https://www.newyorker.com/magazine/2016/11/14/venezuela-a-fa...
[+] [-] ctrl_freak|9 years ago|reply
[+] [-] dredmorbius|9 years ago|reply
An earlier HN post addressed the question of Venezuela's refusal to simply default on its loans, as another South American state, Argentina, did: https://news.ycombinator.com/item?id=12057616
In another earlier thread, I suggest strongly that the problems Venezuela is facing are far more characteristic of a failing end-stage oil state than of the inevitable failure of Communism, for which China and Vietnam offer possibly interesting counterexamples.
https://news.ycombinator.com/item?id=12541955#12545819
[+] [-] nickik|9 years ago|reply
[+] [-] cm2187|9 years ago|reply
[+] [-] josu|9 years ago|reply
https://news.ycombinator.com/item?id=13032920
[+] [-] logronoide|9 years ago|reply
[+] [-] wooter|9 years ago|reply
"These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who's the banana republic now?" - http://www.sanders.senate.gov/newsroom/must-read/close-the-g...
[+] [-] pablovidal85|9 years ago|reply
[+] [-] danmaz74|9 years ago|reply
[+] [-] Findeton|9 years ago|reply
[+] [-] drinchev|9 years ago|reply
[+] [-] rafaelm|9 years ago|reply
Maduro may be a civilian, but when you take a look at the people that hold all the ministries and important positions in the government, you see they are all former military that were put there by Chavez. This was his plan all along, the problem is he died.
The military has every incentive not to let the government fall. They are the ones controlling everything and every single bit of corruption must pass through the military first. They control the currency, industry and even the drug trafficking.
You think they are gonna let the government fall and possibly be tried and be brought to justice in the future?
Unfortunately, the only way out I see for the country is an Ukraine or Egypt like situation where the military basically kills people in the streets for a month or two and then some kind of agreement is reached where they are granted immunity from justice. Or they take off their masks and just declare a formal military dictatorship.
[+] [-] josu|9 years ago|reply
[1] https://en.wikipedia.org/wiki/Leopoldo_L%C3%B3pez
[+] [-] xienze|9 years ago|reply
[+] [-] aclsid|9 years ago|reply
[+] [-] TulliusCicero|9 years ago|reply
[+] [-] boterock|9 years ago|reply
[+] [-] guelo|9 years ago|reply
[+] [-] pavlov|9 years ago|reply
I can't remember where I read that, so take it for idle speculation.
[+] [-] known|9 years ago|reply
[+] [-] coldplay|9 years ago|reply
[deleted]
[+] [-] ptaipale|9 years ago|reply
The governments screwed up; then they got some loans from IMF, but there were conditions. They didn't have to take it.
[+] [-] JimFr|9 years ago|reply
[deleted]
[+] [-] JumpCrisscross|9 years ago|reply
Wall Street continues to finance and re-finance PDVSA [1] and American refiners continue to import its crude [2]. Contrast that with earlier sanctions on Iran.
[1] http://www.wsj.com/articles/venezuelas-pdvsa-bonds-rally-aft...
[2] http://www.wsj.com/articles/venezuelas-pdvsa-bonds-rally-aft...
[+] [-] fiatjaf|9 years ago|reply
I'm generally against interventionism, but I doubt the situation can get worse in Venezuela. I'm probably wrong anyway.
[+] [-] dredmorbius|9 years ago|reply
Rather, it states that:
President Barack Obama on Thursday extended for one year an executive order declaring the situation in Venezuela a threat to U.S. national security, saying conditions there had not improved and that the country's leftist-led government was continuing to erode human rights guarantees.
The declaration allows for sanctions, but doesn't, of itself, support the claim that the US is seeking to install its own puppet government. And yes, the US absolutely has interfered in Latin American politics since the 19th century: Cuba, El Salvador/Panama, Guatemala, Brazil, Chile, Venezuela, and elsewhere.
But you'll need more specific evidence.
See the HN guidelines regards discussing voting patterns.
[+] [-] sctb|9 years ago|reply
https://news.ycombinator.com/newsguidelines.html
[+] [-] JimFr|9 years ago|reply
[deleted]