Oh Mark, never change…

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Only Mark Weisbrot could look at this chart…

Inflation…and conclude “already inflation has started to fall from its peak of 6% monthly.”

Worse than the headline, though, is the rationale:

“Creo que ya el Gobierno ha comenzado a tomar acciones, una tiene que ver con la reforma del sistema del tipo de cambio”, dijo y mencionó enseguida la segunda subasta especial del Sistema Complementario de Administración de Divisas (Sicad), cuyos resultados anunció la semana pasada el Banco Central de Venezuela (BCV).

El Ejecutivo Nacional puso a andar este año el Sicad, un mecanismo alterno para proveer de divisas al país, donde desde hace diez años rige un control de cambio. “Pienso que el Gobierno está enfocado en arreglar ese problema porque de allí proviene la inflación, todo viene del mercado de divisas. Casi toda la inflación aquí es resultado de eso”, indicó.

So it’s LSicaD that Weisbrot thinks is going to fix the inflation problem. Because, obviously, an effective devaluation from Bs.6.40 to Bs.10.90 per dollar will slow price increases. Duh!

Anyway, whatever happened to Weisbrot’s September 2012 fatwa to the effect that:

Over time, it would be good if Venezuela could develop a foreign exchange regime that sharply reduced or eliminated the speculation against the currency, as well as the black market. This should not be too difficult to accomplish in a country where almost all of the foreign exchange earnings accrue to the public sector, and where the economy is almost always running current account surpluses. It is primarily a question of administrative capacity and choosing the best exchange rate regime. But even under the current exchange rate regime, there is no need to devalue…

Just so we’re clear: back when the bolivar was at Bs.4.30:$, there was no need to devalue and inflation was going to be fine. Now that the bolivar is down to Bs.10.90:$, the needed policy correctives have been taken, and inflation is going to be fine.

Oh Mark…

1 COMMENT

      • Weißbrot will nur sein Weißbrot
        Weißbrot kauft man mit Erdöl.
        Erdöl ist immer schwarz.
        Weißbrots Brot aber weiß.

          • Have you seen that Chomsky’s daughter is also a signatory of that petition on it not being silly that Snowden goes to Venezuela? What a crap!
            I just think: this is the guy who gave such contributions to both linguistics and computer science, but politically he has been for so long on a scientifically dishonest, utterly shameful path…and his daughter’s just done this last thing.

          • I don’t know what to think of Chomsky.

            Perhaps he’s still living in cold war, incapable of seeing that the world is not as simple as it used to be. He grew into the roll of critic of US foreign policy, and doesn’t know anything else. He at least had the fortitude to criticize Chavez for judge Afuini, although he even backed out off of that when pressed. That’s the charitable estimate.

    • I disagree about the “poorly executed” part. This is propaganda for the “pueblo” that has voted for them for 14 years, not for us. And they will believe it.

  1. And. of course, the wage increases already scheduled for Sept. 1 & Nov. 1 will have absolutely no impact on inflation.

    Oh Mark…

  2. The worst part is that on the Sept 2012 report, he mentions several times how he would prefer a different -‘more competitive’- exchange regime, and simultaneously ruling out the need for devaluation. Later, in the Guardian he was even more blunt: ‘The current exchange rate regime is difficult to manage, it is prone to inefficiencies and corruption, and my own view is that Venezuela would be better off under a different exchange rate regime’… ¿Quién lo entiende?

  3. Why oh why must you be so negative, Quico?? I bet in February you were also arguing that the ongoing drop in inflation was “unsustainable”…

  4. I was told that guy studied “economics”. Is that true? Is that really true?
    I am sure a child would have a deeper understanding of economics than this bloke after reading this

      • I want him to live how well the country has done, so he could see his b&w numbers with a little more color…not earning in $$$$ and going to the supermarket and finding whatever he wants. I am sorry going to “whole-paycheck” and getting everything organic!!!!

  5. Where the Fracj this guy get his degree? en una caja de ACE? yes of course if my company did 1$ in profit last year and this year I make 2$ my company increased in 100% its profit ( moron! what are you doing a financial statement basic class?) Of course why do you need a black market? yes what about loss aversion of the wealth each individual had? We don’t need a black market if you don’t CONTROL the foreign exchange market YOU MORON!!!
    My apologies, but this is the first thing reading of this morning and i just want to throw my laptop throuug the window. The worst is how they want to pass ignorance as knowledge. Please god make idiocy and ignorance mortal conditions, Am I asking for too much?

      • Its bad when the sort of things he spouts are rooted in ideology rather than rational and provable thought and simply undermine his credibility. What’s worse is when the stuff he says reflects poorly on the institution that awarded him his PhD, thereby lowering the value for all other receipients.

        I was unaware that UofM awarded degrees in normative economics.

  6. Let go through my favorite Einstein quote once again:
    “Two things are infinite: the universe and human stupidity; and I’m not sure about the universe!”

  7. I once heard that this type of strategy is ineffect “Control-Command-Expect”. First you “control” all the government institutions, Then you make laws that “Command” the elimination of inflation. Lastly you report that you “Expect” that inflation will be eliminated.

    Then, if inflation continues…. it just means the laws aren’t working and all that’s needed is a better set of laws that will get the job done!

  8. Not being an economist Im always bothered by the way devaluation is understood . To me the value of a currency is determined by dividing the total amount which people pay for purchasing such currency (regardless of the source of such purchase and what different prices are paid at each different source,, official or unoficcial ) by the total quantity of currency purchased . thus for instance if in Venezuela 30% of USD are purchased at a 7 Bs per USD and 70% at 30 Bs per USD then the value of the currency is 42 ( 30X7) + 210 (70×30) totalling 242 and the total amount of USD purchased in the country is 10 then the effective (average) value of each USD is 24.2 Bs.(242 divided by 10) . If in one year this average value is 24.2 and in the following year month the same calculation results in an average value of 48.4 per USD then the devaluation for that year is 100 %. Using only the official USD / Bs devaluation as the only marker doesnt tell the true story , you must also consider the devaluation ocurring for USD purchased at an unofficial source.

  9. Of course inflation will continue to fall, that graph you posted shows two things, elections and uncertainty, once that passes it will return to its monthly 1% inflation.

    You keep predicting hyperinflation yet you have always been wrong.

    • 6% inflation a month? Pretty awful inflation that has a REAL impact on people trying to make ends meet and put food on the table.

    • Shame, what you don’t understand is that the underlying inflationary pressures are likely higher than reflected in the central-bank data, since the prices of many basic items are regulated by the government.

      The high inflation environment and fiscal cash-flow crunch are adding pressure for another large devaluation within 12 months. Just what the struggling people of Venezuela need, another devaluation.

    • Oh yeah, it’s the elections that have caused inflation, not the fact that SITME was shut down or that CADIVI is approving less dollars than before, if you lived in Venezuela and actually read the chart, you could see that the spike in inflation started in November 2012, when there was no planned election for march, and the second spike was caused by the devaluation and the increase of price caps. And it will continue as simply the government is approving less dollars than before putting pressure on the black dollar and additionally is lifting the price controls or increases the controlled priced by more the 50/

        • I like you, you’re nothing if not consistent.

          50% yearly inflation: “Nothing to worry about, this spike was just caused by the election”
          30% product shortage: “Temporary problem caused by speculators”
          300% increase in murders: “Long term trend not caused by Chavez”

          Watch the movie Downfall, there is a scene where someone who knows better than everyone else (much like you) is pointing out why everyone else is wrong. In the end they don’t listen to him, so the war is lost, but at the least you will feel some empathy with the main character. Sometimes the whole world is against you!

        • The chart show no direct relationship between upcoming elections and inflation. In October when the first elections were held inflation went from 1 % to 1.5, nothing so dramatic, In December, when no elections were programmed, because you guys told the world that Chavez was rosy and peachy inflation was 3.5 %. In May, one month after the second presidential elections inflation was 6 %, in June almost 5. But, yeap you are right is only the evil media that pushes inflation , not the fact that you don’t have enough dollars to sustain the disastrous import dependent model of a port economy you created with Cadivi, price controls and expropiations.

        • You are right in one thing. Elections causes inflation, but are mistaken about the root cause. The spike in government spending during elections (and not uncertainty) is the root cause of inflation.

          • Good point, the link between elections and inflation seems weird because in most countries central banks are semi-private and not under political control… Venezuela, not so much.

          • The spike was caused by uncertainty (election, Chavez health, Maduro election, post election crisis), but it will return to 1% monthly when it will be as a result of government policies, 1% monthly is pretty high regionally.

            The thing that Mark is saying is that it will return to a similar number, meaning the spike will be a thing of the past, until the next crisis of course.

            You people need to take the blinders off.

          • I certainly hope you are right as I hate to see this. But there doesn’t seem to be (at least publicly) a laid out plan on how to reduce inflation and to bring economical stability (i.e. more certainty) by those orchestrating economic and monetary policy in Venezuela.

            One key aspect for uncertainty is control exchange. One cannot hope for certainty when a rate is decided in some office somewhere in downtown Caracas by some dude.

            Until I see that plan, and a plan being something different that what has been tried in the last ten years I get the feeling that things will remain the same.

          • Right. Which is why international evidence shows a predictable spike in inflation in the months before and after an election, as demonstrated by…exactly no study ever, because it’s a made up theory directly pulled out of your bum.

            Listen, there are economic phenomena that are hard to explain, and there are those that economists pretty much have a handle on. Inflation is among the latter. We know what causes inflation – a growth in the money supply unmatched by growth in output, usually as a result of unchecked public spending growth. That’s why Central Bankers all over the world, Central Bankers from the left, right and center, with very few exceptions, have managed to beat it. This isn’t an “economic problem”, in the sense of being a live debate in economics. This is a debate that’s been put to rest by buckets of studies done on tons of cross-national evidence going back hundreds of years.

            Elections? Exchange rate mechanisms? Retail speculation? It takes a particular kind of pigheaded perversity, in this day and age, to continue to float heterodox explanations, particularly in the context of Venezuela’s decade-old inability to come to grips with a problem that’s been solved pretty much everywhere else.

          • “Venezuela’s decade-old inability to come to grips with a problem that’s been solved pretty much everywhere else.”

            While I agree that solving inflation is as easy as returning to the gold standard, you behave like it is all that matters, Venezuela has an economic system that while completely different to the rest of the world it is very popular with its people and Latin America, just look at the regional pink wave, why is Pinera so hated by chileans? why is Juan so scared of Bachelet part 2? Because Latin Americans like the social safety net, not the brutal law of the jungle.

            Lets give you another example, you can predict the average deposit and withdrawal at a local bank branch, but you cannot predict a bank run which can happen everywhere even the US in 2008-9. What happened in Venezuela is the equivalent of a bank run, people stock up in case of a coup, increased demand cannot be satiated nor can prices (price controls) be hiked sky high to deter demand, people see fewer goods and panic when they were not panicking before, creating a vicious cycle, what happened in Venezuela for the shortage index to jump from 10% to 22% is exactly the same psychology of a bank run. Of course a bank run is disastrous but it is easily solved with government insured deposits, the Venezuelan government can’t really do this for everything* more on this later.

            In the end we will know who was right and who was wrong you or Weisbrot, in a few months we will see a clear trend.

            Could the government solve this by allowing free and easy imports? sure but you destroy local industry, and as much as you may snort at it, pork production has doubled for starters fully supplying local demand.

            *The real answer is that the government needs a strategic reserve for non-perishable goods like toilet paper. But that is not a neo-liberal solution so it is poo pooed here.

          • “In the end we will know who was right and who was wrong you or Weisbrot, in a few months we will see a clear trend.”

            If in a few months, inflation has gone to 3.5% monthly, will you call that a “positive trend” and proclaim that Weisbrot was right?

            What if it just goes down to 4.4%?

            What about if it actually increases to 5%, but the second derivative indicates a sudden decrease in the rate of increase?

            What would it take for you to admit Weisbrot was wrong? You should state clearly what your criteria is, so that when they are met you can tell us all how dumb we are.

            PORK PRODUCTION IN VENEZUELA:
            I’ll grant you that one, Venezuela has increased pork production, because the government has set the highest price for pork in the southern hemisphere and pork is the least consumed meat in Venezuela. Goes to show you what happens when the government respects market pricing. I’m sure that’s an accident and they will shortly stop increasing pork prices and destroy domestic production.
            http://www.pigprogress.net/Pork-Processing/Markets/2013/5/Venezuelas-pig-industry-after-14-years-of-socialism-1269653W/

  10. Inflation in Venezuela reached a new milestone Tuesday: Prices measured on a yearly basis are now rising at the fastest rate since the late President Hugo Chávez took power in 1999/

    The annual inflation rate in June registered at 39.6%, the highest 12-month figure since the central bank introduced a new methodology for its Consumer Price Index in 2008.

  11. Weisbrot also signed the recent Open Letter poo-pooing the idea that it is ironic that Snowden could receive refugee status in Venezuela. In the letter, they fail entirely to deal with the ramifications of La Hojilla for the beliefs of someone like Snowden. Instead, they are okay with the investigation of Nelson Bocaranda, because, you know, eight people died. Wilful blindness.
    http://www.commondreams.org/view/2013/07/18-3

    • I would like to have someone from the moderate left debate with one of these characters.
      I am sure they won’t accept. It would be hell for them.
      Could Weissbrot or Chomsky’s daughter explain who the murderers of those 8 were? The actual physical actors? Why hasn’t the government been able to catch them?
      And what has happened with the two PSUV guys who murdered – this we know – the
      PJ people in Barinas last October?

      • Because something something, sovereignty, US imperialism, right-wing media conspiracy, 4th republic. That’s the beauty of being a tinpot academic (as opposed to a serious one): You can say anything you want without having to explain it.

        • “Also, much of the media in Venezuela is still privately owned and against the government. I can link you to some websites that prove this.”

    • “Interesting”… especially because it is a straw man fallacy.

      The straw man: “But in fact the “irony” that U.S. journalists mention is fantastically exaggerated. It is based on the notion that the governments of Venezuela under Chávez (and now Maduro) and Ecuador under Correa have clamped down on freedom of the press.”

      Then they set about attacking the straw man. But that is not the basis of it all (as we all now!).

  12. I saw him in Amherst saying exactly that, and wondered what vampiric streak could make him do such baroque thought contortions…

  13. “Pienso que el Gobierno está enfocado en arreglar ese problema porque de allí proviene la inflación, todo viene del mercado de divisas. Casi toda la inflación aquí es resultado de eso”, indicó.

    Blaming the FOREX markets? Really? That’s like blaming being tired on a headache which is actually caused by a brain tumor. But hey, treat the symptom and not the disease, right Mr. Weisbrot?

    I’m sure that Bretton Woods completely collapsed entirely due to Nixon too, right?

  14. Nothing really matters…. anyone can see… nothing really matters… to the pueblo

    the situation will continue downhill as it has these past 14 years, no one will do anything, and Venezuela will end up worse than Zimbabwe the day oil prices go down and our country is owned and indebted for 100 generations to Russia, China, Cuba, USA, etc, etc.Venezuela is a large-scale Macondo

  15. billl bass July 24, 2013 at 12:52 pm: If in one year this average value is 24.2 and in the following year month the same calculation results in an average value of 48.4 per USD then the devaluation for that year is 100 %.

    No, the devaluation of the bolivar is 50%. The value of the bolivar was US$0.04132, and is now US$0.02066, a 50% decline in value. 100% devaluation would be loss of all value.

    Now look at it from the other side. The value of the dollar was Bs 24.2, and is now Bs 48.4, a 100% increase in value, which is called a revaluation.

    The revaluation

    • Rich : Thanks for the correction , the example results in a 50% devaluation of the Bs and a 100% revaluation of the US$. My main point of course is that when speaking of devaluation people should look not only at changes in the govt controlled rates but also at changes in the free market rate and at the total amount of US$ being sold or traded in the country, propportionate to each source of US$ .

      • I am going to answer here since I don’t see a reply button

        “Venezuela as the country with the highest price per kg of pork, which is currently trading at a price between US$3.23 and US$3.50 per kg of live pig. Not surprisingly, consumption of the Venezuelan population is mostly tilted towards chicken (36 kg per capita), then beef (15-18 kg) and finally pork (8-9 kg).”

        This is pretty meaningless, like claiming the cost of pork is 3.23 francs. Very little if any pork crosses the border, and internal demand has gone up from 3Kg (99) per capita to 12Kg per capita anually but it is all internal production and demand in 2013, making currency exchange meaningless, and as we all know the currency is amongst the most overvalued in the world.

        Continued price increases has happened for a while on nearly all productive goods, like say milk which has also almost doubled in production, but you still have to import. to meet demand.

        http://www.thecattlesite.com/news/40707/national-milk-output-only-half-of-national-demand

        This site has been an echo chamber for years, where anecdotal evidence of one collapsing house now discredits the entire GMVV.

        • So producers ignore price signals when selling for the domestic market? That’s a new economic theory!

          Ignoring your red herring, the point is not the exchange rate but the higher price for pork when compared with other prices for other goods, as a result, more pork is produced. Venezuela could be an Autaurky and the same thing would happen.

          “This site has been an echo chamber for years, where anecdotal evidence of one collapsing house now discredits the entire GMVV.”
          Irrelevant aside ignored.

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