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

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OOOBuck
Jun 4, 2016 - 3:54pm

Royal

Nice! How's your Bitgold stash?

OOOBuck
Jun 4, 2016 - 3:01pm

Surprise! I'm a Capitalist

For the record, I think there is not a member here that isn't a 'capitalist' in one or another form. It is our hope and objective that our stacks be sufficient to see us through the difficult times ahead but just how will we use those shinies? To be sure, we won't part with them lightly. I think we plan to "capitalize" on their unique value so as to acquire the essentials that the less fortunate are no longer able to afford or retain. I doubt there is one of us that intends to walk through the streets distributing silver and gold coins willy-nilly among the impoverished masses!!! So if any of you think I'm some kind of raving communist, think again.

Having said that, my issue is with the capitalists that could cause such a social travesty to occur. I don't believe that boom/bust cycles are necessary in maintaining a robust economy. This is avoidable with 'freely elected' government that truly represents the people and in my opinion, that's one that leans towards socialist ideals. People have basic needs and the current system seems reluctant or unwilling to provide it. I'm not talking free stuff but rather basic stuff that assures some dignity in the human existence. The only major giveaways I see these days are in the bloated budgets for military spending and tax loopholes for the ultra-wealthy.

It is the greed and irresponsible nature of capitalism that can be so destructive to the well-being of society as a whole. YOU WANT PROOF? We see it everyday in the price fixing of commodities and securities. We see it in 'our' reckless attitude toward the environment, potable water, non-genetically modified foods, and yard long lists of chemical additives in our food. Ninety percent of the country is on prescribed drugs! Have we been deliberately made sick? Are we sick at all?

The Fed is the money machine for a corrupt system that uses the principals of capitalism to manipulate and "fix" the system so that it pays off like a slot machine for a select few and media is nothing more than a paid representative for the elite, calming the masses with mindless garbage, lies and omissions. I am addicted to my computer and the internet and I mean addicted. Withdrawl is simply unthinkable. Roman citizens were placated by blood letting in public games. Our distractions are a little less messy but serve the same purpose.

Is it a free system? Are we a free people? It doesn't feel like tyranny unless some cop is spraying you with pepper spray for 'illegal' assembly or pumping a dozen bullets into you after being stopped for a tail-light infraction. But we're free to buy a drink, drive a car, watch a movie. Christ, I hope that makes YOU feel free. It just makes me feel nervous.

Royal Flush
Jun 4, 2016 - 2:48pm

@ Crighton

I bought 4k bitcoin @ $17.oo. It's been very good to me :P

lakedweller2
Jun 4, 2016 - 2:42pm

000Buck

I believe some confuse socialism with the neocon fascists. Cheney was never a liberal but his worst traits are projected to the liberals when in essence it is right wing fascist war rhetoric. 000 Buck, please keep trying to educate. I'll keep stacking and watch.

OOOBuck
Jun 4, 2016 - 2:33pm

AE - only because I was away so keep your shirt on!!!

Instead of providing one of the countries that you are so eager to dispute, I'll name one that you'll be familiar with. The United States of America! You may have heard of corporate socialism. That's what the bailouts were, plain and simple. Then there's the tax loopholes for the wealthy, many of them paying less tax than the lady who served you breakfast this morning. And who pays for the military in this country? They're just a bunch of generals holding their hands out for more missiles, more tanks, more bombs - to the tune of hundreds of billions every year..... and growing. Maybe they are doing me some good, maybe not. I know the lady who fed you breakfast did some good today (depends on your waistline) but I only see death, destruction and threats from the military. We haven't 'won' a war (if there is such a thing), since WWII and that was only reluctantly after 23 million Russians died and slowed down the Nazi machine. Really, anything that involves government funding is 'social spending', a distribution of funds presumably for the public good. Where we agree or disagree is in the allotment.

ancient Egyptian...ex-canary
Jun 4, 2016 - 2:11pm
James Crightonancient Egyptian...ex-canary
Jun 4, 2016 - 1:58pm

Canary - 1:33

.............. watch out Jamie ............... BTC will eat your .............

........ lunch ............

ancient Egyptian...ex-canary
Jun 4, 2016 - 1:43pm
ancient Egyptian...ex-canary
Jun 4, 2016 - 1:41pm

The "number one" principle of investing...

Do not get shaken out of the gold market!!!!!!!!!!!!

LiberoAlienEyes
Jun 4, 2016 - 1:14pm

Alien uh... err...

Don't know of a capitalist system that isn't "Crony". Can you name one? What country "presently" fits your ideal of wonderkind capitalist?

Norway ain't a bad off country.

Does anyone have any info as to how Venezuelans are able to use gold/silver in the everyday common marketplace since this is what most turdites see happening here in the USA? Are hard money Venezuelans prospering and able to protect what they got from the hungry masses since this is what is coming our way?

Just being practical.

PS. too bad about Ali passing.

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