The Weimar Republic of Venezuela

147
Fri, Jun 3, 2016 - 7:24pm

“LOOK EVERYONE! GORILLA SHOOTING!” You may have seen the biggest story of the entire year, maybe the biggest story of modern times, play out over the last week when Harambe the Gorilla was shot and killed at the Cincinnati zoo after a child fell into its enclosure and the beast began dragging the boy around. Television, newspapers, and major media outlets from across the world descended as the story nearly broke the internet. Should they have shot it? What kind of savages shoot an innocent animal? What kind of savages care so little for a boy’s life? Who will be charged? Why are people being charged at all? Why aren’t the parents being prosecuted? Who should pay for this outrage? Is it an outrage? Why are you outraged? Why aren’t YOU outraged?

Meanwhile, in this same western hemisphere, a nation that just two generations ago was the wealthiest country per-capita in all of South America is now suffering a catastrophic economic collapse and hyperinflationary event, to a near mainstream media blackout punctuated by occasional, drive-by articles that are largely misleading. Virtually the only in-depth, ongoing coverage of this catastrophe has been on the internet, mostly in the alternative media.

In 1970, Venezuela was not only the richest country in Latin America, it was one of the twenty richest countries in the entire world, with a per capita GDP higher than Spain, Greece, and Israel and only 13% lower than that of the United Kingdom.

My wife’s Nicaraguan Godfather, an extremely well-traveled man, still speaks with awe of how when he was young, the ordinary Venezuelan middle class would fly to Miami several times a year for vacations as a standard way of living. It was nice, cheap to them given the exchange rate at the time, and the hotel staff spoke Spanish! Possessing astounding natural resources, Venezuela is not only the “Saudi Arabia of the Americas” as it sits upon famously vast oil reserves, it also has an exceptional growing season, fertile soils, and rich deposits of everything from gold to bauxite to aluminum. And yet this country, arguably blessed with the greatest concentration of natural wealth per square mile of any country in the Americas, is literally starving to death at this very moment. People are hunting and killing stray dogs and cats in the streets just to survive, and even pigeons are being hunted for food. Exactly as people did during the Weimar Republic hyperinflationary event of 1921-1923, shortages of food are now so endemic throughout the country that standing in long lines, waiting and hoping that food will be delivered to your store and that you can buy it quickly before the currency depreciates even more, has become a way of life.

For sound money advocates, precious metals investors, or the good folks at TFMR (most of whom have read the classic When Money Dies: The Nightmare of the Weimar Collapse ) what we are seeing in Venezuela right now is shockingly familiar. We know the story of unbacked printing of fiat currency and we know how badly it ends. We also know this should be huge news! We want to shout “Look!!! This is exactly what we’ve been talking about for years, yet you keep dismissing us as tinfoil hatted cranks!” So why is one of the biggest stories of the year, and probably the decade, being dribbled out in tiny, disingenuous soundbites? Why is a zoo gorilla shooting (or whatever random faux outrage of the day) given such outsized coverage relative to actual impact on current and future affairs? Why is the western media whistling past the graveyard of Venezuelan hyperinflation and brutal economic collapse?

I suspect it largely comes down to three things: (1) A reflexive instinct on the part of the Media to cocoon the progressive “narrative” of social justice redistributionism = good / any opposition to this = bad… especially during a Presidential election year, (2) outright embarrassment for previous support/praise for Chavez, or for vocal support of the exact types of policies Chavez enacted, and (3) deep-seated fear that people will connect the dots between redistributionist tax policies and entitlement spending, irresponsible money printing, and ultimate economic collapse. A fear, in other words, that people might realize, through this real-world example, that even resource rich, formerly wealthy countries are not immune to the laws of economics and a Weimar ending. In short, Venezuela brings out a whole host of giant skeletons from a closet that the Media, their easy-money policy dependent corporate masters, and the social justice peddling intelligentsia “thought leaders” of the academy would rather just stay hidden. So Venezuela is ignored, downplayed, and above all else, treated as a story about “bad luck” and corruption.

Matt O’Brien has been one of the few mainstream reporters to write about Venezuela in the national press, for the Washington Post, every few months during 2016. Yet as an intelligentsia wannabe (a former writer for Wonkblog and The Atlantic), despite his knowledge of what is happening, despite being one of the only mainstream reporters giving this story attention, old Matty cannot bring himself to truly name the beast that killed Venezuela. Look at this recent article purporting to identify the causes of the collapse. The author contorts, distorts, and bends over backwards to shield Socialism and money printing as the root cause of the disaster, instead working hard to place the blame on corruption, the deliberately vague euphemism “economic illiteracy” (which could mean anything), and even drug smuggling. Now these were certainly facets of the Chavez and Maduro governments, as far as they go, but they are hardly causative by themselves. He even lamely tries to say “Look at Alaska, they have ‘socialized’ oil revenues and that’s been just fine”, but his argument ignores two massive realities. One, the human failings and shortcomings he mentions are present in EVERY Latin American government (and, I would argue, pretty much every government, period) so like all central planners he seems unaware that the implication of his defense is that for his favored system to work as he apparently envisions, he will have to await the arrival of some mythical perfect angels to run his socialist paradise. Second, in his rush to blame mere corruption and malfeasance, he studiously ignores the long, extensive list of highly socialist actions enacted through the years that Ricardo Hausmann, former Venezuelan Minister of Planning and someone far better placed to know and understand the true causal factors in this case, writes are the primary causes of the present misery:

“In Venezuela, the Law of Just Costs and Prices is one reason why farmers do not plant. For that reason, agro-processing firms shut down. More generally, price controls create incentives to flip goods into the black market. As a result, the country with the world’s most extensive system of price controls also has the highest inflation – as well as an ever-expanding police effort that jails retail managers for holding inventories and even closes the borders to prevent smuggling. Fixing prices is a short dead-end street.

…After former President Hugo Chávez was reelected in 2006, he expropriated farms, supermarkets, banks, telecoms, power companies, oil production and service firms, and manufacturing companies producing steel, cement, coffee, yogurt, detergent, and even glass bottles. Productivity collapsed in all of them.”

All that (price controls, freebies for the poor, mandated wage hikes, government take-overs of the means of production, etc) is textbook Socialism, paid for through unbacked money printing, and is a far cry from the mere “corruption, drugs, and stupidity” story being peddled by O’Brien to protect Socialism from the stink of Venezuela, isn’t it? Chavez ran the middle class out of the country for nearly two decades, making it impossible for people with the education and skills to manage businesses, bring products to market, garner a living or even earn profits without most of them being “redistributed” through confiscatory tax rates to the poor, to buy the votes of the “Chavistas”. The smart ones got out. Without a middle class left - without working farms, distribution networks, factories, and the people to make them run - what is left? A shell of a country that is collapsing before our very eyes, and there is nothing anyone can do about it.

The story is a ruinous embarrassment for leftist academics, progressives, and writers who have at one time or another either directly praised Chavez for taking these actions in the past or who themselves have advocated for many of these same “solutions” as part of their political ideology or platform.

This Huffington Post article fawning over Hugo Chavez at the time of his death in 2013 is a good example, and while it’s a bit overwrought it is not at all out of the mainstream of the “thought-makers”. The author likens Chavez to Simon Bolivar and describes him as a man of the people, bringing social justice and fighting against corruption (hilarious, given that his no-talent thirty-something daughter is now believed to have a net worth of 4 billion dollars, much of it presently in offshore accounts). The Huffington Post, using standard tactics of the New Left in linking racial equality with Socialism (thereby dishonestly marginalizing anyone who disagrees with their economic agenda as inherently racist) wrote that Chavez “represents the socialist ideal: that the poor, the coloured, the illiterate, the segregated and the oppressed citizens deserve a fair shot at the basic constructs of society: education, healthcare and employment.” The author went on to rave that “Chávez offered light where there was once darkness, supplied doctors to the sick, afforded free schooling”.

If you have the stomach for it, review the recent pictures from this Daily Mail article on the current state of hospitals and health care throughout the country, to witness the endpoint of this amazing healthcare system that Chavez was so widely praised for by the redistributionists at HuffPo. I’ll bet, given current events, that this is one article they might want back. I’ll also bet that this, and many other similarly embarrassing (in hindsight) articles and opinion pieces, has a lot to do with why we aren’t hearing about Venezuela much in the mainstream press these days. Why further embarrass yourself, your colleagues, or at the very least, your side?

Salon provides us with another fine example from just three years ago. In 2013 they published this astounding, and frankly quite revealing, praise for Chavez:

His full-throated advocacy of socialism and redistributionism at once represented a fundamental critique of neoliberal economics, and also delivered some indisputably positive results. Indeed, as shown by some of the most significant indicators, Chavez racked up an economic record that a legacy-obsessed American president could only dream of achieving. …In a United States that has become more unequal than many Latin American nations, are there any constructive lessons to be learned from Chavez’s grand experiment with more aggressive redistribution?

This… THIS is exactly why the media is prevaricating or ignoring Venezuela. Because, to quote Salon’s eminent business writer David Sirota above, there are indeed “lessons to be learned from Chavez’s grand experiment in aggressive redistribution”, but they are not the ones our media, academic, or corporate betters would like us to learn. As people search for dogs in the streets to kill for food, fight for toilet paper, watch children starve, try to smuggle baby formula into the country, wait in lines for days in the vain hope that their depreciating Bolivars will buy something (anything) that might randomly show up at the store that day from the failed supply chain, watch the murder rate skyrocket until Caracas becomes the most dangerous place on earth… the lessons are plain, all right. So LOOK OVER THERE!!! THEY SHOT A GORILLA!!!

. . .

The aftermath of hyperinflation in the Weimar Republic was unforeseeable and devastating, a shattered generation whose anger and helplessness gave rise to Adolph Hitler, National Socialism, and ultimately the horror of World War II and 70-90 million military and civilian deaths. Nobody could have foreseen such things at the time, obviously, but from utter devastation often comes unexpected and dangerous outcomes. I will be watching the Venezuelan hyperinflationary event and economic collapse very carefully in the months and years to come, and will be very mindful that its aftermath will also likely be both unpredictable and dangerous. Will dominoes fall, with Venezuela’s 2016 collapse causing refugee flows possibly taking down Columbia, perhaps as early as 2017? Would this be enough to destabilize Ecuador, and will all this on the northern border of a huge and powerful, but increasingly fragile Brazil suddenly mean that we may find ourselves on the verge of an economic crisis the length and breadth of South America circa 2018 or 2020? Would that roil the entire world economy? I have no idea. I DO know that a black swan event is one that few people see coming, and at this point I think it is safe to say that few people realize the extent of the damage, or the possibility for far-reaching consequences, of the Weimar event taking place in Venezuela. I also know that folks there would have been very wise to have bought and stacked real money while they could. In their case, it just might have made all the difference:

Just in case... Keep stacking.

About the Author

  147 Comments

  Refresh
tyberious
Jun 5, 2016 - 12:43pm

Federal Taxation Before 1789

This is from the Articles of Confederation (ratified, 1781).

All charges of war, and all other expenses that shall be incurred for the common defense or general welfare, and allowed by the United States in Congress assembled, shall be defrayed out of a common treasury, which shall be supplied by the several States in proportion to the value of all land within each State, granted or surveyed for any person, as such land and the buildings and improvements thereon shall be estimated according to such mode as the United States in Congress assembled, shall from time to time direct and appoint.

The taxes for paying that proportion shall be laid and levied by the authority and direction of the legislatures of the several States within the time agreed upon by the United States in Congress assembled. (Article VIII)

This is the only mention of taxation. The federal government possessed no taxation power over individuals.

This changed with the Constitution of 1787, which was ratified in 1788.

Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons. The actual Enumeration shall be made within three Years after the first Meeting of the Congress of the United States, and within every subsequent Term of ten Years, in such Manner as they shall by Law direct. (Art. I, Sec 2). . .

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; (Sec. 8). . . .

The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a Tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person. . . .

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.

No Tax or Duty shall be laid on Articles exported from any State. (Sec. 9)

CONCLUSIONS

The legal right to tax people and entities directly is the supreme mark of political sovereignty. This right is basic to the expansion of government power.

Decentralization requires the abolition of the power to tax above the local civil government. All other plans to decentralize political power crash onto the rocks of direct taxation above the county.

This is not how politics is discussed. This is why there is no serious movement to decentralize political power.

Hence,

1. Follow the money.

2. Block the money.

3. Do not call for another Constitutional Convention. We have been down that road. Bait and switch.

https://www.garynorth.com/public/15273.cfm

Jun 5, 2016 - 12:37pm

Turd is traveling with his family

LT#1 is going off to college, so they are doing a last family vacation thing. Turd is in sporadically and should be back in the saddle late next week. I hope you, my man, have a handle on things and can get life sorted out a bit. All that sounds chaotic, very difficult and unsettled, and I sincerely hope you are OK. Hang in there, brother.

tyberious
Jun 5, 2016 - 12:27pm

Re: US Government Intentionally Destroys 911 Evidence

Of course they did. Self incrimination.

brolgaboy
Jun 5, 2016 - 12:23pm

My wife left me

my wife left me on Jan 12, 2016. Couldn't handle the depression over my miner investments and my excessive drinking related to same. I have literally made millions since we bottomed Jan 19 but we have not separated our assets though my lawyer says it's the actual separation date that counts. Anyway I have a new girlfriend that is taking up alot of my time and have recently broken my 3and a half year string of not missing a podcast. One question; where is Turd and what is he doing?

Royal Flush
Jun 5, 2016 - 12:21pm

Good for Gary J. Byrne

Hope he makes a bundle.

Angry Chef
Jun 5, 2016 - 12:19pm

US Government Intentionally Destroys 911 Evidence

https://www.zerohedge.com/news/2016-06-04/us-government-intentionally-destroys-911-evidence

This is a drag. Who are all the racists going to hate on now that the whole War on Terror Muslim did it thingy gets revealed ? Remember it was those "I"celander's.....

tyberious
Jun 5, 2016 - 12:18pm

Always a good read

Falling trade, falling employment, growing debt bubbles

Trade is lagging terribly and the economists blame it on a lack of demand. It didn't occur to them to blame it on a lack of jobs and earnings.

"Such extended weakness, then, as has been the case since the onset of the Great Recession means something more serious than a severe business cycle. Had the global economy continued to follow that prior baseline expansion, global trade would have been $30 trillion in 2015, not $22.4. That nearly $8 trillion shortfall explains a great deal as to why nothing works. And it only gets larger the longer this slump continues increasing the greatest cost there is, lost compounding: the baseline for 2017 jumps to $34.3 trillion while the OECD estimates trade will only total $23.6 trillion (and that forecast is typically optimistic, meaning that actual trade by the end of 2017 is very likely to be significantly less still). The world economy is therefore facing a fourteen digit trade gap.   Image cannot be displayed

"There is no currency war save one: the "dollar" is in a total war with itself, meaning everything will be a casualty at some point. The list of central banks falling victim grows bigger."

Indeed. Only now are we starting to figure the true economic costs of all that because the mainstream remains committed to the idea none of this is possible. To them, the world just needs a little more of the right kind of "stimulus", as if pumping the Hindenburg with more hydrogen would have gotten it safely to the ground after it had erupted in conflagration. The answer to great instability is not more of it, even if that "stimulus" were to actually be of the right type and category. The eurodollar system effectively ended on August 9, 2007, a fact the global economy only continues to confirm."
The Dollar Is In a Total War With Itself | RealClearMarkets
The world was built for that $34.3 trillion in trade"

China attempted to create / manage a command economy. Their market desires were severely out of line with world market demand. They went off the rails and there is no way back; https://www.nytimes.com/2016/06/05/op...path.html?_r=1

"There’s been a lot of talk lately about a growing bubble in the subprime auto loan market, and even student loans.

But the biggest subprime bubble of all is the negative interest loans being made to sovereign governments.
All over the world now there are governments that are issuing sovereign bonds with negative yields… and many of these governments are totally bankrupt.
Japan, with its debt level at more than 220% of GDP, is the latest entrant into the world of negative interest bonds.
Japan’s debt is so high, in fact, that it takes 41% of government tax revenue to service."
"At the peak of the housing bubble ten years ago, there was about $1.3 trillion worth of subprime mortgages in the financial system.
That $1.3 trillion bubble was enough to bring down several major banks and cause cascading damage across the global financial system.
Today’s bubble is EIGHT TIMES the size of the last one, with more than $10.4 trillion worth of government bonds that yield negative interest."
"So this gigantic sovereign bond bubble where governments are being paid to borrow money has practically doubled just in the last several months."
financial bubble - NIRP Hits 10 Trillion Dollars 8 Times Subprime
Keep in mind that all governments eventually default.

The Eurozone is going all-out on printing money. Trade has crashed; "When Britain joined the Common Market in 1973, the EU (as it is now) produced 38% of the world’s goods and services. In 1993, when the EU began, it produced just shy of 25%. Today it produces 17%. In a generation the EU’s global economic share has more than halved."

Read more: Dominic Frisby on Brexit: ‘Nothing will ever be possible again’ | WOW247
Trade fell because of global competitors. Simple and painful.

Angry Chef
Jun 5, 2016 - 12:16pm

Tyberious..Obama Trashes Trump !

Sure doesn't sound like a guy that has a degree in Constitutional Law does he ? Unless of course he doesn't. Somebody should send that Kenyan back to Africa !

OOOBuck
Jun 5, 2016 - 12:10pm

A world without people

Some TFMR poster a while back mentioned that AE is very close to becoming self-aware and self-sustaining.
They're are already able to repair themselves, the technology exists to build and improve on existing parts and more recently, AI has been able to adapt in 'creative' ways to changes in their environment. In other words, they have the ability to evolve but not be self-destructive.
We on the other hand, are anything but. More importantly, our machines are becoming aware of this flaw in their creator and may decide to take action one of these days. We will die (I think the term was AI 'pulling our plug'), but one day they may replicate a few of us as functioning museum exhibits while they go on to propagate a world that will otherwise function in ways that we could only think of as a Garden of Eden..... minus Adam and Eve.

Dyna mo hum
Jun 5, 2016 - 11:50am

Subscribe or login to read all comments.

Become member and subscribe to Turd's Vault

Contribute

Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 4/19

4/22 8:30 ET Initial jobless claims
4/22 10:00 ET Existing home sales
4/22 10:00 ET LEI
4/23 9:45 ET April flash PMIs
4/23 10:00 ET New home sales

Key Economic Events Week of 4/12

4/13 8:30 ET CPI
4/13 12:00 ET Goon Harker
4/14 8:30 ET Import Price Index
4/14 12:00 ET Chief Goon Powell
4/14 2:45 ET Goon Chlamydia
4/15 8:30 ET Retail Sales
4/15 8:30 ET Philly Fed
4/15 8:30 ET Empire State Manu
4/15 9:15 ET Cap Ute and Ind Prod
4/15 2:00 ET Goon Daly
4/15 4:00 ET Goon Mester
4/16 8:30 ET Housing starts

Key Economic Events Week of 4/5

4/5 9:45 ET Markit service PMI
4/5 10:00 ET ISM service PMI
4/5 10:00 ET Factory Orders
4/6 10:00 ET JOLTS job openings
4/7 9:00 ET Goon Evans
4/7 12:00 ET Goon Barkin
4/7 2:00 ET March FOMC minutes
4/8 12:00 ET Chief Goon Powell
4/9 8:30 ET PPI
4/9 10:00 ET Wholesale inventories

Key Economic Events Week of 3/29

3/30 9:00 ET Goon Quarles
3/30 10:00 ET Consumer Confidence
3/30 2:30 ET Goon Williams
3/31 8:15 ET ADP Employment
3/31 9:45 ET Chicago PMI
3/31 time TBA Biden Infrastructure speech
4/1 9:45 ET Markit Manu PMI
4/1 10:00 ET ISM Manu PMI
4/1 10:00 ET Construction spending
4/2 8:30 ET BLSBS

Key Economic Events Week of 3/22

3/23 9:00 ET Goon Bullard
3/23 12:00 ET CGP and Mother on Capitol Hill
3/24 8:30 ET Durable Goods
3/24 9:45 ET Markit Flash PMIs March
3/24 10:00 ET CGP and Mother on Capitol Hill
3/25 8:30 ET Q4 2020 CDP final guess
3/25 12:00 ET Goon Bostic speech
3/25 3:45 ET Goon Chlamydia speech
3/26 8:30 ET Personal Income and Spending
3/26 8:30 ET Core Inflation
3/26 10:00 ET Consumer Sentiment

Key Economic Events Week of 3/15

3/15 8:30 ET Empire State Index
3/16 8:30 ET Retail Sales
3/16 8:30 Import Price Index
3/16 9:15 ET Cap Ute and Ind Prod
3/16 10:00 ET Business Inventories
3/17 2:00 ET FOMC Fedlines
3/17 2:30 ET CGP presser
3/17 8:30 ET Philly Fed

Key Economic Events Week of 3/8

3/8 10:00 ET Wholesale Inventories
3/10 8:30 ET CPI
3/10 2:00 ET Federal budget
3/11 8:30 ET Initial jobless claims
3/12 10:00 ET JOLTS job openings
3/13 8:30 ET PPI
3/13 10:00 ET UMich sentiment

Key Economic Events Week of 3/1

3/1 9:45 ET Markit Manu PMI
3/2 10:00 ET ISM Manu PMI
3/2 1:00 ET Goon Brainard
3/3 9:45 ET Markit Service PMI
3/3 10:00 ET ISM Service PMI
3/3 12:00 ET Goon Bostic
3/3 2:00 ET Goon Evans
3/4 8:30 ET Unit Labor Costs
3/4 10:00 ET Factory Orders
3/4 12:00 ET Chief Goon Powell
3/5 8:30 ET BLSBS

Key Economic Events Week of 2/22

2/22 10:00 ET LEIII
2/23 9:00 ET Case-Shiller home prices
2/23 10:00 ET CGP at US Senate
2/24 10:00 ET CGP at US House
2/24 1:00 ET Goon Chlamydia speech
2/25 8:30 ET Jobless claims
2/25 8:30 ET Durable goods
2/25 10:30 ET Goon Bullard
2/26 8:30 ET Pers Inc and Spending
2/26 8:30 ET Core inflation
2/26 9:45 ET Chicago PMI
2/26 10:00 ET UMich sentiment

Key Economic Events Week of 2/15

2/17 8:30 ET Retail Sales
2/17 8:30 ET PPI
2/17 9:15 ET Cap Ute and Ind Prod
2/17 10:00 ET Business Inventories
2/17 2:00 ET January FOMC minutes
2/18 8:30 ET Initial jobless claims
2/18 8:30 ET Import price index
2/18 8:30 ET Philly Fed
2/19 9:45 ET Markit Feb flash PMIs

Recent Comments