A total economic collapse in Venezuela is now underway. In a futile battle against high prices, President Nicolás Maduro ordered the military to enforce an order that the Daka electronics chain reduce its prices to October levels. The store did not comply and the result was chaos.
Bloomberg reports Army Storms Caracas Electronics Stores, Shoppers Follow
The government-ordered military occupation of a Venezuelan electronics chain has brought out a reserve force in its wake: a line of shoppers that stretched for three blocks from a store in eastern Caracas today.
“You have to take advantage of the government regulations because it was too expensive to buy before,” said Maryorie Cacique, 33, as she stood in the line with her three children in hopes of getting a 90 percent discount on an air conditioner in the army-occupied Daka store.
“There are no economic reasons for the shortages and price increases we are seeing,” Maduro said late yesterday in a national address in which he read the Koran, Bible and Torah. “This is not because of a lack of dollars. It’s political.”
Chief price regulator Eduardo Saman said Nov. 9 on state television that it’s illegal for stores to raise prices on existing inventory. The government has set prices for everything from medical services to flour.
Venezuela Sinks Deeper Into Hyperinflation
The Financial Times reports Venezuela Sinks Deeper Into Hyperinflation
Prices rose 5.1 per cent in October, the second highest monthly increase in over three years, according to the the Central Bank of Venezuela (BCV).
The price jump brings accumulated inflation for the first 10 months of 2013 to 54.3 per cent – well into hyperinflation territory, which analysts at Goldman Sachs define as seasonally adjusted annualised rates of more than 40 per cent.
At the root of Venezuela’s economic woes is a tangled web of price and currency controls which, together with problems in the oil industry that supplies 96 per cent of export revenues, have generated a shortage of foreign currency, on which the import-dependent economy relies.
Path to Hyperinflation
1. In May of 2009 Chávez Seized Assets of Oil Contractors after which Chavez stated “our people will never again be anyone’s slave”.
2. In June of 2010 Venezuela Nationalize U.S. Firm’s Oil Rigs. “A former soldier inspired by Cuba’s Fidel Castro, Chavez has made energy nationalization the linchpin in his ‘revolution’. He has also taken over assets in telecommunications, power, steel and banking.”
In May of 2012, USA Today reported Venezuela’s PDVSA oil company is bloated, ‘falling apart’.
Beatriz Rodriguez sits in a long line under a sweltering sun, waiting for state oil company Petróleos de Venezuela to deliver cylinders of natural gas she uses to cook her family’s meals.
“I complained, and they told me I should use firewood,” Rodriguez, a mother of three, fumes. “Firewood, they told me. And we’re supposedly an oil power.”
Venezuelan President Hugo Chávez points to the state takeover of his country’s oil industry as one of his revolution’s great successes. He boasts that his renegotiation of oil agreements made by his predecessors has improved oil production and allowed Venezuelans to guide the direction of its major export.
Reliance on oil revenue has led to the abandonment of other economic sectors. Much tillable farmland remains idle amid attempts by Chávez to increase food output, and Venezuela continues to import two-thirds of its food. Chávez uses oil revenue to subsidize the cost of the imported food, but shortages of basic goods are not unusual.
Chávez has also used the oil wealth to underwrite artificially low domestic gasoline prices of 11 cents a gallon, which is among the cheapest in the world.
PDVSA’s payroll has more than doubled to 115,000 employees since Chávez took office in 1999, and debt has risen 10-fold since 2006 to $34 billion.
Those increases have seemingly accomplished little: Venezuela’s oil production has dropped more than 25% since 1998 to its current 2.4 million barrels a day, according to OPEC.
3. As with all government takeovers, output plunges and costs soar.
4. In March 2013, Venezuela devalued the Venezuelan bolivar by 46.5% and created a new currency exchange control regime.
5. On November 5, 2013 Venezuela tightens control of foreign exchange
President Nicolas Maduro is tightening control of Venezuela’s foreign exchange system and intensifying the pursuit of currency speculators that the government accuses of waging an “economic war” against his rule.
As mounting shortages and galloping inflation undermine Maduro’s leadership, the president took to the airwaves Wednesday to announce a slew of measures he said are designed to protect Venezuelans from “parasitic bourgeoisie” speculators.
“Get your papers in order, get your shop in order,” Maduro said in a rambling three-hour speech, during which he also attacked popular eBay-like retailer MercadoLibre.com for setting prices artificially high. “If you’re looting the people it doesn’t matter what your name is, the law will find you.”
Maduro’s speech was widely anticipated after Venezuela’s currency plunged to a record low 58 bolivars per dollar on the black market this week — nine times the official rate of 6.3 per dollar. The president said Tuesday that he and his advisers worked past midnight to prepare the economic package.
6. Army seizes goods, imports dry up, merchandise unavailable at any price. Currency collapses additional 90% on black market.
Total Economic Collapse Underway
The army can raid stores precisely once, after which imported goods will not be available at any price.
Oil export revenues have plunged, while costs soared following the nationalization of the oil industry. Amusingly, Chavez billed the takeover as his greatest success.
For now, meat and produce availability will depend on whatever the government can confiscate from local growers. However, agricultural products will not last long because fertilizer and feed will vanish at government set prices.
A total economic collapse is at hand.
Hyperinflation a Political Event
Please note that hyperinflation is a political event, not a monetary one. In the case of Venezuela, a series of incredibly stupid political errors is behind the collapse of the currency.
Political error is the root cause of every hyperinflation.
For an historical country-by-country analysis of hyperinflation events please see Reader Questions On Hyperinflation; Would Printing $50 Trillion Tomorrow Do Anything?.
For further discussion of hyperinflation theory vs. practice, including an analysis of absurd calls for US hyperinflation, please see Hyperinflation Nonsense in Multiple Places.
US Hyperinflation calls have been, and remain nonsensical.
Mike “Mish” Shedlock