The Hygienically
Challenged Crack-Up Boom
Readers may recall
that we have reported on the toilet paper shortage in Venezuela before. At the
time our suggestion to the Venezuelan authorities was to simply replace toilet paper with the country's currency, the Bolivar, as
evidently there is more than enough of that to
go around.
The great leader
Hugo Chavez is no longer among the quick. He therefore doesn't have to grapple
with the problem anymore – we are assuming that there are no toilet paper
shortages in the Hereafter. So one way of getting a decent wipe nowadays if
you're a citizen of Venezuela is to follow the great leader of the revolution
into the Great Beyond.
Back in May of
this year, Venezuela's rulers made the following promise:
"The revolution will
bring the country the equivalent of 50 million rolls of toilet paper. We are
going to saturate the market so that our people calm down."
But wouldn't you
know, in spite of their near complete control over the country's economy, the
darn capitalists have somehow thwarted them again!
Obviously, the
revolution has a lot of work left to do in order to create the socialist Utopia
Venezuelans have been assured will be theirs. The Land of Cockaigne, where the
roasted chickens will fly into the comrade's mouths unbidden and toilet paper
will be abundant – its creation continues to be obstructed by the machinations
of evil capitalist hoarders. So the revolutionaries have decided to strike at
the root of the problem.
“Venezuela's government is known for its
state-must-do-it-all mindset, inherited from late President Hugo Chavez and his
radical followers, known as Chavistas. But late last week, the notoriously
inefficient government went above and beyond to shine its populist credentials:
It stepped right into Venezuelan bathrooms.
On Sept. 20, President Nicolas
Maduro and a new economic panel ordered national price regulator Sundecop to
“temporarily” seize plants owned by Manufacturas de Papel CA, orManpa, the company
that supplies 40 percent of the country’s demand for toilet paper and
personal-care paper goods. Their reasoning? To oversee production, because
consumers can't seem to find enough rolls of toilet paper.
(emphasis added)
We hereby predict
that the toilet paper shortage is going to get worse. It is not the only thing
in short supply in Caracas these days:
“It's not just bathroom tissue
that's lacking: In recent months, food items such as cooking oil and powdered
milk have nearly disappeared from store shelves.
But even after a decade of
price controls, foreign-exchange restrictions, runaway inflation, currency
devaluations, blackouts and takeovers of more than 1,000 companies or their
assets, the government still claims the private sector is at fault for the
deficiency in consumer staples.
The Manpa asset grab came a week after Maduro
introduced the new regulatory committee, which will address product hoarding
and other abuses that he blames for missing goods.
Vice President Jorge Arreaza
spoke the party line in a recent appearance, when he blamed consumer-goods
shortages on “an ongoing economic war” orchestrated by Maduro’s enemies.Food Minister
Felix Osorio chimed in: “There are some incidental production failures.” But he
added that “an economic coup” was also in motion.
(emphasis added)
Apparently the
ability of the comrades to convince Venezuela's citizens of their ability to
increase the supply of toilet paper by seizing yet another factory is waning
though:
“Alert Venezuelans aren't buying this. When Commerce
Minister Alejandro Fleming tweeted on Sept. 20 that Maduro had "ordered
the Superior Body for the Defense of the Popular Economy to temporarily seize
Manpa,” Ricardo Sevillano, of Maracay, responded with a key question directed
at Fleming and Maduro: “Will you run it into the ground as you’ve
done with all the other companies you have seized?”
(emphasis added)
We can answer this
question for comrade citizen Sevillano: yes, they will! In fact, it was the
seizure of a paper company by the late Hugo Chavez that started the toilet
paper shortage.
“Those curious about where the
latest takeover will lead should examine Hugo Chavez’s nationalization of paper
company Venepal eight years ago (renamed Invepal by Chavez). One of the first
companies seized by Chavez, Invepal still suffers from production problems, its
output numbers remain secret, and it relies on the state to cover its recurring
losses. As Venezuelan economist Jose Toro Hardy aptly
put it in a Sept. 25 tweet referring to the state’s damaging role: “Nothing is
more dangerous than mixing incompetence with ideology.”
(emphasis added)
True Marxists
Are Unperturbed
As Bloomberg's
report also informs us, the hard-core Marxists in Venezuela's government know
quite well that socialism and scarcity go hand in hand. In fact, they seem
almost proud at their achievements in this regard. Remember, one of the basic tenets
of 'progressive' and socialist theories is that the economy is static. Their
entire economic theorizing stands and falls with this assumption.
There exists
actually no progress in the 'progressive' ideologies. In
their world view there is a fixed economic pie that only needs to be
distributed differently to make everybody happy. Of course, the static
economy is an illusion even if one stops all further progress
as socialists are wont to do. Some things will still change – resources will
run out, soil may become exhausted, population numbers will change, and so
forth. This is why a centrally planned economy cannot work even if after the
seizure of the means of production it 'just continues where the capitalist
system left off'. The anthill of the evenly rotating economy in which nothing
ever changes is only a mental tool, an artificial construct. It does not exist
in reality. The cynicism of the hard-core Marxists in Venezuela is in stark
display below – but hey, you can always 'wipe with the fatherland':
“Things have gotten so bad that Venezuelan Jose
Augusto Montiel developed a crowd-sourced, Google Maps-based Android app and a
website, Abasteceme (“Supply Me”), that consumers can use to track down stores
carrying toilet paper and other scarce products. Meanwhile, late last week the
government announced a supervised sale of 21,140 toilet paper rolls seized from
manufacturers or distributors, which the government has often accused of
hoarding.
Not everyone thinks these
shortages spell bad news. Planning Minister Jorge Giordani, an avowed Marxist,
famously quipped in 2009 that “socialism has been built based on scarcity.”
Elias Eljuri, head of the National Statistics Institute, said in late May that
toilet paper scarcity showed “Venezuelans are eating more.” He quickly became
the — pardon the pun – butt of jokes on Twitter. Comedian Andres Schmucke
tweeted a tongue-in-cheek view on May 23: “According to Elias Eljuri the toilet
paper shortage happens because people are eating more. Man, us comedians will be
out of a job.”
A frustrated Foreign Minister
Elias Jaua only made things worse when he admitted the government “had work to
do” to overcome shortages and asked: “Do you want to have the fatherland or do
you want toilet paper?”
Critics tweeted their disapproval using a fitting
hashtag, #LosChavistasSeLimpianElCuloConLaPatria
(#ChavistasWipeTheirBehindsWithTheFatherland), which was already being
used by anti-Chavistas.”
(emphasis added)
We should perhaps
remind readers that the crime of 'hoarding' is also a major bugaboo of the
Keynesian faith. Mr. 'avowed Marxist' Jorge Giordani is quite correct. Marxism
and shortages of consumer goods always go hand in hand. It is simply not
possible for a command economy to supply consumers with the goods they want. As
to the 'frustrated' foreign ministers rhetorical question: we actually believe
most Venezuelans would prefer the toilet paper. Just a hunch, mind.
But There Is a
Boom On!
We want to take
this opportunity to show an update of the hyper-inflationary crack-up boom that
is accompanying these widespread shortages of consumer goods. Readers will
recall that we mentioned in our missive on 'forced saving' that
hyper-inflationary crack-up booms give us an excellent opportunity to see the
economic effects of inflationary policy in a temporally compressed manner. One
major effect is that investment moves into the higher stages of production
(capital goods) to the detriment of the lower (consumer goods) stages.
In other words,
the production of consumer goods begins to suffer as more and more production
factors are deployed in the production stages furthest away from the consumer.
As a consequence, titles to capital – i.e., stocks, tend to rise strongly in
value, not least because they are seen as an effective means to protect
one's savings against the ravages of inflation. What is currently playing out
in the US economy on account of 'QE' is merely a milder version of the
very same principles.
The Caracas stock
Exchange Index. Since we last reported on it in May, its value has more than
tripled! - click to enlarge.
The shortage of
consumer goods in Venezuela is in fact what the 'forced saving' consists of.
The pool of real funding, i.e., the pool of final goods that sustains workers,
has shrunk and many of the items required to sustain them are not even
available anymore at all. We suspect that by now, the damage is so great that
the boom can not be kept going for much longer.
Below is a chart
of the Bolivar currency, showing the true black market rate compared to the
official exchange rate. Unfortunately we have no more recent update, but the
black market rate has since then fallen considerably further. In fact, as Reuters reports, there is a brisk
arbitrage trade going on. Venezuelans pretend to travel overseas in order to
buy dollars at the official exchange rate, and then sell them on the black
market, where the dollar currently trades at a new record high of 7
times the official rate.
“After a decade of currency controls set up by late
socialist leader Hugo Chavez in 2003, the disparity between the official and
black-market rates for the local bolivar currency is higher than ever.
Greenbacks now sell on the illegal market at about seven times the government
price of 6.3 to the dollar.
There are strict limits on the
availability of dollars at the 6.3 rate, but Venezuelans are cashing in on a
special currency provision for travelers. With a valid airline ticket,
Venezuelans may exchange up to $3,000 at the government rate. Some are not even
flying, leaving many planes half empty.
"It is possible to travel
abroad for free due to this exchange rate magic," said local economist
Angel Garcia Banchs.
The profit is realized from an arbitrage process known
locally as "el raspao," or "the scrape."
(emphasis added)
The bolivar's
official and black market exchange rates up until May 2013 – click to enlarge.
In order to
visualize the current status, just consider that the rate is now approximately
at 45 bolivar to the dollar instead of the 33 recorded in May. Venezuela is yet
another excellent case study for the end game of an inflationary policy.
It is quite
amazing that we still get to see so many of these crack-up booms in modern
times. Only recently there was the Zimbabwe case and currently we can observe
the still ongoing Venezuelan and Iranian hyperinflation regimes. The boom in
Caracas is well advanced, so the final collapse cannot be too far away. Stay tuned.
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