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.

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AlienEyes
Jun 4, 2016 - 10:23pm

There are two scenarios now in Venezuela

There are two scenarios now taking place in Venezuela....urban and rural.

In urban areas, the local currency is already almost worthless. There is little food, water and power and people have a well earned look of despair on their faces. The already high crime rate is going up because people are desperate. There are many videos on You Tube showing the situation there. The black market is thriving but very pricey. Meds are in very short supply if available at all. Supply chains that cities depend on are breaking down or have already collapsed.

In rural areas, things are bad but not nearly as bad as in cities. Most families have a small garden and regularly hunt game. The little money they have is as worthless as it is in cities. All of the Venezuelan gold mines have been taken over (nationalized) by the government. Countrywide, inflation is out of control and rapidly accelerating.

In the US, many people are supporting a naked socialist. There is still no known cure for overt stupidity other than a bullet in the head. Venezuela is mostly a homogenous society where the US is not. Should the same thing take place in the USA, I believe the results will be very different with a far greater loss of life during anti-government attacks and open class warfare. Many of us will see a time when, "taking the trash out" will have a totally new meaning. I believe the worthless social parasites' days are already numbered.

When banks, fiat and food supply chains fail, preppers will take their place and when those that wish to loot, rape and pillage come to make a withdrawal, their punishment will be both swift and eternal. So be it.

Dyna mo hum
Jun 4, 2016 - 9:49pm
AIJ
Jun 4, 2016 - 9:37pm

Bitcoin on the move, portends AU AG move?

While you were away...

2h2 hours ago

Ack! If IM data is correct, BTC will gain another > by june 9th. hmmm....oh, and Ag and Au will also go way up in FRN$!

Comments:

2h2 hours ago

You said July/August time frame for $600+ bitcoin. So, it's moved up to June and Ag & Au to follow?

0 retweets 1 like

Dyna mo hum
Jun 4, 2016 - 9:22pm
cashonly
Jun 4, 2016 - 9:03pm

@Libero

"Venezuela is a prepper's model on survival"

That is an excellent statement and sadly comes at other people's expense and suffering. But this is the real world and lessons must learned. A few prayers should go out to them.

ancient Egyptian...ex-canary
Jun 4, 2016 - 9:00pm

@Libero.....I like your plan

The question is destination.....Farming is not for me...Don't have a gun (live in a small city....Solid 2 by 4 in my basement, that's all I have).... As for vodka ( you're familiar with my origin), ....I know how to make a strong one....from,,. let say...dandelion.

LiberoPining 4 the fjords
Jun 4, 2016 - 8:23pm

Thanks Pining

that would be great. Maybe a turdite from Venezuela? Lessons to be learned as how to survive, maybe a variety of paper monies, physical, cash, and credit cards too.

Are the fjords in sweden or norway?

streber
Jun 4, 2016 - 8:16pm

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Libero
Jun 4, 2016 - 8:14pm

canary

Agreed, but I assume you already have your year's supply of spam and vodka. I have been given many years of thought to the shtf scenario and have concluded that quietly riding out the crime and violence (yes a gun(s) is required to protect home and family), but would want to blend in as deprived as the rest.

I would not want to live in rural areas, would not want to have a farm and vegetable garden or livestock. These are too easy and obvious targets no matter how many guns and bullets you have, -the masses will have guns and bullets too.

Just a stealth survival until I and family could make it to an airport, enough physical on my person to purchase airfare to that designated country where I have planted more physical. But quiet.... shhhhh.... no bluster.

Jun 4, 2016 - 8:10pm

Libero

I meant to address your question earlier but had to make pizza for the kids, then clean it all up- no justice in this world! Your question is outstanding, I've been wondering the same- how that is playing out on the ground in the real world. I have family (aunts uncles) in Costa Rica and Ecuador right now and know others who travel extensively in the region. I'm going to find out and I'll let you and Turdville know how this plays out on the ground. I have already heard that in the black market, the USD is king, but have no idea about gold and silver- and that raises the question, what will play the role of USD for us if the dollar goes the way of the Bolivar. This is a real test case.

PS- Bet your portfolio of miners ROCKED on Friday, congrats!!!

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