CNN reports that Chavez has devalued the Venezuelan bolivar.
In the wake of his decision to devalue Venezuela’s currency, President Hugo Chavez on Sunday said he would put the military on the streets to ensure that business owners don’t raise prices.
Speaking on his weekly television program, “Alo Presidente,” Chavez railed against merchants who re-price their items in reaction to Friday’s announcement that the Venezuelan bolivar currency, which had been fixed at 2.15 to the U.S. dollar since 2005, was devalued to 4.3 to the dollar. For food and medicine, Chavez announced a second fixed exchange rate for these “necessity” goods at 2.6 bolivares to the dollar.
“I want the national guard in the streets, with the people, to fight speculation,” Chavez said, calling re-pricing a form of robbery.
[…]He encouraged people to publicly denounce businesses where prices increase and threatened to expropriate businesses that do.
The government would transfer ownership of such businesses to the workers, Chavez said.
Yes, attacking and nationalizing businesses with the Venezuelan army will do a lot to create jobs and increase competition among product and service providers. Surely lower prices and increased quality will result from this consumer-friendly policy. And foreign investors will be rushing to Venezuela to invest so they can take 700 million Euro losses in a split second.
Investors Business Daily explains the result of devaluing a currency.
For starters, it’s a tax. “The government has decided to recognize the massive accumulated inflation in the country and is trying to increase the purchasing power of the (dwindling) dollars it has . .. (by selling) dollars to the private sector at a higher price,” explained Hausmann. “In the short run, this is like a tax on the sale of dollars.”
[…]”The poor have no way to protect themselves from devaluation,” said Johns Hopkins University’s Steve Hanke, who has advised previous Venezuelan leaders about currency. “Their only means are awkward and inefficient.”
Meanwhile, the “tax” on dollars “means a transfer of resources out of the private economy to the government’s coffers,” said Hausmann. “As a consequence, the rest of society will have less income.”
Teachers and doctors, already in short supply among the poor, will likely be hard hit, along with small businesses.
Worse, inflation’s likely to surge, another burden for the poor.
Inflation was already on its way to 30% before Friday’s devaluation. Food, which makes up 80% of what the poor buy, has been hit with a 20% immediate increase in price. This effectively lifts inflation for the poor to a devastating 50%.
Costs for other goods, such as car tires, will rise by 100%. A banker in Caracas tells IBD this will push average inflation to 60% — adding to accumulated inflation of 600% over the past decade, a brutal tax on poor Venezuelans.
The very complexity of the new currency scheme will be a nightmare for the poor, says Hanke.
“More regulations will lead to repression,” he said, citing the weakening freedom to spend money. More controls mean shortages.
I think that people who elect communists like Chavez need to be more careful about listening to honeyed words about the benefits of wealth redistribution. When you attack the rich, they stop hiring workers. And if you attack them enough, they leave your country. Communism causes poverty and famine. It always has, and always will. If you want to know where it ends, look at Cuba and North Korea. That’s where Venezuela is headed.
Is Obama any different from Chavez on economic policy?
Here they are shaking hands:
Is there such a thing as a secret handshake for communist dictators? Just asking. Not saying that Chavez or Obama are communist dictators. Just wondering if communist dictators have a secret handshake. A communist dictator handshake conducted by communist dictators to congratulate themselves on how well their ignorance of economics “helps” the poor to starve to death.
Here is the currency graph of the US dollar versus the Canadian dollar. A decline of about 20% in 12 months. (The current exchange rate is 1.03301)
How many Canadian dollars is 1 US dollar worth?
January 1.22664 CAD (21 days average)
February 1.24684 CAD (20 days average)
March 1.26275 CAD (22 days average)
April 1.22697 CAD (21 days average)
May 1.15311 CAD (21 days average)
June 1.12458 CAD (22 days average)
July 1.12350 CAD (23 days average)
August 1.08796 CAD (21 days average)
September 1.08182 CAD (22 days average)
October 1.05427 CAD (22 days average)
November 1.05978 CAD (21 days average)
December 1.05366 CAD (22 days average)
I wonder which one knows the least about economics. Chavez? Obama? Or my keyboard? Hmmmmn.
Here is my previous story about energy rationing in Venezuela.