Governments are economic manipulators:
Inverted pyramid of debt:
Venezuela’s political dominance and high inflation, is a good example to understand our upcoming future. Once the fourth largest economy in the world, it is now in dire straits due to irreversible degeneration. With an economy divided in two, the have-nots and the haves, people who have given up, and those who chart their own path, independent of a government.
The world’s inverted pyramid of debt is going to tumble. The eventual collapse could take some time to unfold completely. It seldom occurs that an economy, as strong as America and the EU, implode overnight. But it is undeniable that trouble is brewing where it would only take only take one headline in the paper to spark an inferno. If that happens, globally diversified individuals will be the survivors.
There are examples of this phenomenon everywhere. When Venezuela and its economy collapsed, only the people with money outside the nation’s borders were able to quickly regroup, and continue creating wealth. As a result of this, many citizens have lost respect and hope that they will ever be able to trust the “system” again.
Inflation plays a huge role in the Venezuelan economy. Because of massive government spending, prices rise by the week. This creates a volatile and skittish economy. How Venezuela got to where it is now, is similar to what is happening in America and in Europe. The Venezuelan government is an economic manipulator. The government controls the oil companies. Bureaucrats determine, who gets what, and how much.
Such actions have consequences. In public policy, it is impossible to say what the consequences are. There are too many delusions and a constant smokescreen. Often, policies with clear and obvious proposed purposes, end up producing outcomes completely at odds with the stated objectives. Alcohol Prohibition, for example, increased the number of drunks. The War on Drugs fattened drug dealers’ wallets. The War on Poverty has made poverty virtually respectable, even attractive, to poor people. The War on Terror has probably made a million otherwise sane and sensible Muslims, yearn to blow up something in Western countries. Although the exact consequences of public policies are obscure, the patterns are familiar and evident.
The more government there is, the more active, ambitious, and overbearing it is, the more is subtracted from the sum of human happiness. Recently, as many as a million of these disappointed people, demonstrated against the government of Nicolas Maduro in Venezuela. It was purportedly the “Mother of All Protests,” What was their grievance?
Inflation is running at about 700% a year in Venezuela. Last year, GDP plunged 19%. Food staples – beans, rice, bread are all disappearing. Families are forced to cross the border into Colombia to buy toilet paper. Hospitals have no medicine, no equipment, not even rubber gloves, and disinfectants. Sometimes they have no electricity. Deaths of premature babies have increased 10,000% in the last five years. How did a country make such a mess of itself?
In a sense, Venezuela was a victim of its own good fortune, and then a victim of its own bad judgment.
The good fortune came to them in 1914 when the first oilfield was drilled. The abundance of money followed.
By the 1950s, with a basically market-oriented government, Venezuela rose to become the world’s fourth-richest country in terms of GDP per capita. Today, the country has the largest confirmed oil reserves in the world – 297 billion barrels of oil, compared to 267 billion barrels in Saudi Arabia.
But good fortune facilitates the making of bad judgments. With the oil wealth flowing in abundance, Hugo Chávez – could impose win-lose deals on the whole economy. Key industries were nationalised. Price controls were put in place. Wealth was redistributed.
Win-lose deals redistribute wealth, but only to the extent that win-win deals create it. Take away the win-win deals, and the wealth soon runs dry, as it did in Cuba, and the Soviet Union. Now the treasury is virtually empty in Venezuela too.
It doesn’t matter how you prefer to label it – government is always a means for the few, to exploit the many. The few use every resource available to them, to keep the hustle going, with special attention given to manipulating the naive crowd. The typical national citizen rarely has any idea of what is going on, and doesn’t have much curiosity about it either. As long as he has credit for a new car, and a national sports champion who promises to beat his opponent, the common man will go along with almost anything.
The Venezuelan auto industry has been utterly ruined. And there’s no credit available. So there are few new cars on the streets, and much of the public has turned against the government. Not surprisingly, the policies that destroyed Venezuela, delighted U.S. economists and politicians – who were eager to impose win-lose deals of their own.
In 2007, Nobel Prize-winning economist Joseph Stieglitz praised the “positive policies” in health and education of the Chávez government. And in 2011, Bernie Sanders wrote:
These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today, than they are in the land of Horatio Alger.
Where is the banana republic now? Sanders seemingly had no idea what was really going on in Venezuela. But he was right about what was going on in the U.S. and the EU. They are on their way to becoming a banana republic, only without the bananas.
How Venezuela got to where it is now is similar to what is happening in America and in Europe where governments are economic manipulators. People have lost faith in government-backed money and they concurrently understand through experience, that the monetary policy that the Fed and ECB apply is the danger of all fiat currencies. This may not directly denote the importance of becoming a gold or silver bug, but these assets are the only simple way to protect your wealth.
As has been demonstrated in Venezuela, people should be aware of where they stand. Politicians are crooked and the bureaucrats are incompetent, if not completely mad. It is vital to find a way around them, a way to dodge their rules, a way to protect yourself. People should know that the government’s figures are lies, and its promises are empty. Take heed and be aware of what to do with the currency in your possession. Try to get rid of it at the earliest opportunity.