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  • Socialism is running out of other people’s money

    Posted by Michael Kennedy on August 1st, 2015 (All posts by )

    Socialism is on its last legs except for college faculty lounges. Venezuela is now seizing private companies’ facilities.

    “There is an economic war here and this company, Polar, is at the heart of it. They hide products from the population, and inflate their prices!”
    The government had first notified the landlord of plans to expropriate the industrial park in 2013, Nestle spokesman Andres Alegrett said by telephone from Caracas on Thursday. Nestle used the facility to dispatch about 10 percent of its products in the country, supplying sweets and drinks to the western side of Greater Caracas, he said.

    Nestle is no stranger to Socialism. Jonah Golberg noted Nestle’s connection years ago.

    About ten years ago I went on a junket to Switzerland and attended a talk with the CEO of Nestlé. Listening to him, it became very clear to me that he had little to no interest in free markets or capitalism properly understood. He saw his corporation as a “partner” with governments, NGOs, the U.N., and other massive multinationals. The profit motive was good for efficiency and rewarding talent, but beyond that, he wanted order and predictability and as much planning as he could get. I think that mindset informs the entire class of transnational progressives, the shock troops of what H. G. Wells hoped would lead to his liberal-fascist “world brain.”

    Yes, Nestle has a history of cooperation with various do-gooder initiatives although it has kept its eye on profits.

    If you look at how most liberals think about economics, they want big corporations and big government working in tandem with labor, universities (think industrial policy), and progressive organizations to come up with “inclusive” policies set at the national or international level. That’s not necessarily socialism — it’s corporatism. When you listen to how Obama is making economic policy with “everyone at the table,” he’s describing corporatism, the economic philosophy of fascism.

    Oh yes. Profits and fascism are not contradictory as one might think so listening to Hillary or Bernie. However, the Socialists of the militant variety, as in Venezuela, want profits only for the ruling class. Even leftist professors say Venezuela is heading toward default.

    Harvard University Professor Ricardo Hausmann last year questioned why Venezuela kept paying bondholders as the country’s economic crisis imposed hardship on its people. He suggested it stop honoring the debt altogether.
    Now, Hausmann is saying Venezuela will have no choice but to default next year.
    The nation’s turmoil has only intensified since he raised the specter in September by saying he found “no moral grounds” for the nation to pay debt amid shortages of things like basic medicine and toilet paper.

    Yes, “moral grounds” are selective.

    “The markets have been right in saying this is a completely unsustainable situation,” Hausmann, director of Harvard’s Center for International Development, said by phone from Madrid. “It’s not that the government will plan to default. I think they will just stumble into one. They may get over the October payments but nobody’s thinking they’ll get over the 2016 payments.”

    When Chavez destroyed the oil industry, the path was set.

    Venezuela is among the world’s top five producers, and OPEC has said it has the largest proven oil and gas reserves. But to call PDVSA beleaguered is an understatement.

    The company is the chief piece of collateral damage in Venezuela’s political drama. Its revenues were directed by the late President Hugo Chavez to fund a series of social “missions,” populist health and education programs that saw the oil company take on production of everything from subsidized chicken meat to elementary schools.

    At the same time, PDVSA sends oil to Cuba and has a preferential payment agreement with 16 other countries in the region under agreements made by Mr. Chavez, which accounts for a total of 500,000 of each day’s production. Another 200,000 are used to pay down the firm’s $80 billion in debt (including hefty loans from China).

    Socialism and sanity are mutually exclusive. More Jonah Goldberg on his book (which I have).

    I’d say what disappointed me the most was the Left’s reaction to it. With very, very, few exceptions, the Left decided that it was vital to destroy the book, unread and unexamined. It’s almost a constant theme of the liberal and left-wing reviews of Liberal Fascism: Do Not Read This Book. I wish a few serious people on the Left showed some interest in actually coming to grips with the book’s arguments rather than going in like lawyers and spin-doctors representing their client — “liberalism” — and using any weapon near to hand. Michael Tomasky’s review was particularly disappointing, because I would have hoped The New Republic would have tried to engage the book in a serious way. Instead, it was a hackish and intellectually childish hissy-fit.

    Now, as we near the end, it is even more import to hide the truth.

    #10 A major red flag that a recession in the United States is fast approaching is the fact that Exxon Mobile just announced their worst earnings for a single quarter since 2009. Compared to the same time period one year ago, Exxon Mobile’s earnings were down 51 percent.

    #11 Chevron is another oil giant that has seen earnings plunge. In the second quarter of this year, Chevron’s earnings were down an eye-popping 90 percent from a year ago.

    And in this list I didn’t even mention the economic chaos that is happening down in South America. For full coverage of that, please see my previous article entitled “The South American Financial Crisis Of 2015“.

    Oh well, if I wasn’t a pessimist I’d have nothing to worry about. Exxon-Mobil is an oil producer and oil is down but how about coal ?


    On Thursday, Bloomberg reported that the biggest American producer of coking coal, Alpha Natural Resources, could file for bankruptcy as soon as Monday.

    Competitor Walter Energy filed for bankruptcy earlier this month, and several others have done the same this year.

    Oh that’s just defending against global warming/climate change. Nothing to see here.

    To a certain extent, I can understand why most Americans are not alarmed about the months ahead. The relative stability of the past several years has lulled most of us into a false sense of security, and the mainstream media is assuring everyone that everything is going to be just fine and that brighter days are ahead. At this point, many believe that it is patently absurd to suggest that we could see an economic collapse in 2015. But of course even though the signs were glaringly apparent, very few of us anticipated the financial crisis of 2008 either.

    Now what ?

     

    5 Responses to “Socialism is running out of other people’s money”

    1. Gringo Says:

      Update from Venezuela: Caracas Chronicles: Caracazo en Gotas: San Felix Edition reports on some looting and rioting in a city in the eastern part of Venezuela.

      Rumors of widespread looting in San Felix, in Bolivar State, spread through Social Media today, suggesting a complete breakdown in order in the city.

      Correo del Caroni’s report makes it all sound quite serious: one person died, four food shops were looted – three of which were totally cleared out – and sixty people were arrested, following two outbreaks of looting between 8:00 a.m. and 10:00 a.m. this morning.

      So bad, yes, but not quite the MadMax hellscape some of the more sensational oppo blogs were painting.

      The information chasm left by the State’s takeover of almost all the independent media is really notable on days like this. Many, many Venezuelans outside Guayana probably heard nothing about this, because state media reported on the riot sparingly, and then only to play it down, claiming not much had happened beyond a single chinese store being robbed.

      Right then, my confidence is restored.

      There are links at the link.

      In Firepiggete’s comment, there is a video.

      Chavismo thought there was no limit to the oil money, and that it didn’t matter how much got stolen, as there was plenty more where that came from.

      The drop in oil income merely exacerbates many of the absurd econmic policies of Chavismo. The three most egregious are low gasoline prices, subsidized food prices, and nultiple exchange rates. Gasoline is sold at pennies per gallon. The irony here is that while Chavismo paints itself as a supporter of the poor, it isn’t the poor who own motor vehicles in Venezuela. Much gasoline gets smuggled to Colombia. The Venezuelan Army and National Guard rake in a lot of the profits. Subsidized food prices for the poor mean that 1) a lot of food gets smuggled to Colombia and 2) “bachaqueros” get in line at markets with subsidized prices, then sell the food at multiples of what they paid for it- rather like gasoline. [gasoline smugglers are also called “bachqueros.”] The multiple exchange rates mean that those with connections to the government can import at 6.3 Bolivars/$USD, whereas the black market rate is now over 500. The opportunities for arbitrage in Venezuela are enormous. Get some dollars for which you paid @ 6.3, and sell the dollars for 500 Bolivars. Ditto gasoline: purchase at 2 cents per gallon, and sell in Colombia for $3-4US per gallon. Food, ditto, but most of the arbitrage takes place in Venezuela.

      The Devil’s Excrement: Santero Economics Will Not End In Venezuela With The Upcoming Elections

      The current narrative in most analysis abut Venezuela is very similar: Maduro is afraid that adjusting the exchange rate, increasing prices and the like would create a backlash and he is simply waiting for the upcoming Parliamentary elections before making any changes in his Government’s policies.

      Well, I now believe that this is simply wrong, as Santero Economics is here to stay, as long as Nicolas Maduro is President of Venezuela, as he has been convinced by by both local and foreign advisers that the problems of the Venezuelan economy are caused by the oligarchy and the opposition and economic indicators such as inflation have little to do with the Government’s policies.

      The ideas of these pseudo-gurus, who are close to Maduro, have now taken over, overcoming the opinions of those in charge of the economy, whose proposals get rejected time and time again.

      At the core of Santero Economics beliefs is that deficit spending, salary increases and increases in the monetary supply have little to do with inflation, which is a political phenomenon. Thus, at the core of the problem is the economic war being waged by the oligarchs. The solution is simply to import more stuff, control more of the economy and try to bypass the current private sector. It makes no sense to change the Bs. 6.3 per US$ exchange rate, because all of those imported products would have increased prices.

      According to the Santero Economics Mythology, it makes no sense to continue giving foreign currency to a private sector that has half a trillion (??) dollars abroad . If they want to produce, let them bring the dollars back and invest them in Venezuela.

      Similarly, the Santero lore states that the bachaqueo of Venezuelan products into neighboring countries is an essential part of the Economic War, set up by the oligarchy, which uses the proceeds from this activity (As if the Venezuelan military did not exist) to bring back the money and continue its attack against the Venezuelan currency. Thus, the only rationale for increasing the price of gasoline, for example, is to remove a weapon from the arsenal of the enemy in the economic war. substituting that subsidy by a direct subsidy to the people.

      The final part of the plan is to use the communal power to supervise, oversee and denounce unfair prices as a way of controlling inflation.

      Everything else is apparently perfect in the world of Santero Economics. There is no answer to the question as to why if deficit spending does not matter why not n-tuple spending without limit. And if the monetary supply is irrelevant, why not increase the money supply without limit and make everyone really wealthy.

      More at the link. Miguel Octavio is a Physics professor turned bond trader.

    2. Mike K Says:

      If you believe zero hedge, it will not be limited to Venezuela.

    3. Mrs. Davis Says:

      If you believe zero hedge, you’ll believe anything. Venezuela is in the crapper. That’s what banana republics do.Nothing new under the sun.

    4. dearieme Says:

      Coking coal is not a good business to be in because much steel nowadays is recycled. If you don’t need to smelt as much iron as you once would have, you don’t need as much coking coal. In particular, you don’t need much coking coal that’s expensive to transport to wherever in the world there are still operating blast furnaces. Which is mainly China, I’d imagine.

    5. Val Dorta Says:

      Hi everybody, I lurk over almost daily but have not posted in a long time. I’m honored to be a friend of Jonathan and to also be an American who happens to have been born in Venezuela many years ago. In the mid-seventies I knew something bad was coming and began working to emigrate, until I finally did it in 1979 with a wife and three kids. By the way, it took me six years to get a green card. Big decision, many problems in the way, but today my children are enjoying the American dream.

      What’s happening now is nothing new to Venezuela and nothing more than the end of a journey that began in the 1930s. Venezuelan socialism didn’t appear yesterday. Just like in the newborn nations of Africa, socialism had been hammered into the minds of Venezuelans for several decades. Chávez and Maduro, therefore, are just the end results of that long journey. I have written about this and those interested in reading about it can contact Jonathan to have my email address so that I can send you my writings about this. But be sure there is nothing new under the sun.

      Thanks,

      Vladimir Dorta