Sunday 25 January 2015

NEWS: The Impending Collapse of Venezuela

          People line up to buy food at a supermarket in San Cristobal, about 660 km southwest of Caracas, Feb. 27, 2014              via Business Insider.

"Back in the late 1980s, the economists Rudiger Dornbusch & Sebastian Edwards described how countries such as Venezuela which pursue highly expansionary populist policies to the detriment of public finances typically go through four distinct phases in what might be called a “boom-bust” cycle. This is their description of Phase 3:
Phase III: Pervasive shortages, extreme acceleration of inflation, and an obvious foreign exchange gap lead to capital flight and demonetization of the economy. The budget deficit deteriorates violently because of a steep decline in tax collection and increasing subsidy costs. The government attempts to stabilize by cutting subsidies and by a real depreciation. Real wages fall massively, and politics become unstable. It becomes clear that the government has lost.
This is why Moody’s has been too generous to Venezuela. The balance of payments problem is merely the trigger for a massive fiscal, economic and ultimately political crisis that can only end in one way – the disorderly collapse of the regime. Whether this will take the form of a revolution, a military coup or simple chaos remains to be seen. But what we are witnessing is the destruction of Venezuela’s economy. And that destruction is not, fundamentally, because of external factors. It is a direct consequence of the economic policies pursued by the Chavez and Maduro regimes." Read full article in Forbes. E.T.P. 8'

Linette Lopez writes in the Business Insider about Venezuela's "let them eat cake" moment, when the Food Minister (yes, there is a Food Minister), who refused to refused to answer questions to a journalist that does not agree with the administration's prevailing idea that all this economic suffering — rampant inflation, dwindling central-bank coffers, and more — is the result of an economic war on the Venezuela. Which is of course, a massive lie. Refer to the previous article if in doubt and read Lopez full article in the Business Insider. E.T.P. 3'

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