Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Ongoing deterioration in the Venezuelan economy – 4

The soon-to-be condition of working light bulb in Venezuela. Photo by James Ulvog.

The soon-to-be condition of working light bulbs in Venezuela. Photo by James Ulvog.

One old joke and two new ones:

  • What did socialists use before candles? Electricity.
  • Before tree leaves? Toilet paper.
  • Before the telegraph? Telephone and email.

Was planning to hold on to this post for a while, but the bad news is piling up too fast. Need to print this while it is still of readable length.

Bonus question for the day: What economic system is in place in Venezuela that is producing these results?

4/15 – Yahoo News – In Venezuela, no toilet paper and now lousy phone service The government distributes dollars as it wishes. It has not provided enough dollars to telephone companies and cable companies for them in turn to pay their providers. As a result several international telecoms have cut off long-distance services to the country. In addition vendors providing cable channels are cutting their services because they haven’t been paid.

As a result, telephone service is deteriorating and the number of channels available on cable TV is dropping.

4/12 – Wall Street Journal – Schlumberger Curtails Operations in Venezuela Amid Cash Crunch – The oil field services company isn’t getting paid so they are cutting back operations. That will not help crude oil production which will further slow the economy.

Article says that 10% of Schlumberger’s total worldwide receivables are from Venezuela. One would tend to cut back operations when one is giving services away.

4/20 – AFP at Yahoo News – Venezuela to ration electricity in power crisis – Now electricity will be rationed in the country’s 10 largest cities and industrial states.

The country gets most of its electricity from hydroelectric generation and most of that is from one dam at one reservoir.

The country also has one of the world’s largest proven reserves of crude oil, yet does not use crude oil to generate electricity.

Why? The government does not want to do so, claiming it would be inefficient.

Let me translate that: the socialist government has chosen who the winners and losers are in the economy. They choose hydro over crude because they feel like it. Maintaining an adequate supply of electricity to power the economy is not a factor in decision-making.

Expected result? The people suffer.

4/22 – BBC – Venezuela cuts power for four hours a day to save energy – For the next 40 days, power will be cut off four hours a day.

The country’s largest brewery will halt production because it doesn’t have dollars to buy grain, leaving 10,000 workers without a job.

Thus, you may soon not enjoy drinking a beer after dinner while the lights are not on.

4/26 – Yahoo News – Fridges go off as Venezuela power-rationing hits – Photo for the article shows a woman cooking at a bakery by candlelight.

As the power goes off, stored meat in restaurants starts to spoil. Electronic payment machines stop working, so customers can’t pay for purchases.

When power returns, there is a surge in electricity that can damage or destroy electronics. One restaurant owner has already lost a refrigerator and meat mincer.

4/27 – Bloomberg – Venezuela Doesn’t have Enough Money to Pay for Its Money – The government is in such distress that it is unable to pay the foreign companies that are printing cargo-airplane-volumes of new currency. As a result, the printers are backing away from printing. The Venezuelan economy may run out of currency because the government has no money to pay for more currency to put into circulation.

In 2015, the Venezuelan central bank ordered 10 billion new notes. In contrast, the U.S. Federal Reserve printed a mere 7.6 billion notes last year.

To illustrate the inflation, a 100 bolivar note is the largest bill in circulation. That is barely enough to pay for one loose cigarette. Typically at this point in the hyperinflation cycle, a government starts adding zeros to the notes. For example, there should be 10,000 and 100,000 bolivar notes in circulation today with plans for the 10,000,000 and 100,000,000. The Venezuelan government refuses to do so because they think larger notes would cause inflation.

To give you a visual of the impact, article says that paying for dinner out requires gym bags full of currency. Gym bags. Plural.

Consider the disruption. At the end of the evening, a small restaurant has a volume of currency equal to 100 or 200 gym bags. How do you close out at the end of the day? How do you dispose of that much currency?

Article says that people are already moving around town with wheelbarrows full of currency which they will need to pay for things.

Zerohedge has a recap on 4/27 – This Is the End: Venezuela Runs Out of Money to Print New Money – Very good summary of the last year or two.

Article suggests the sad next step:  if the government refuses to add zeros to the currency and can’t pay for a flood of 100 bolivar notes, there simply won’t been enough currency in circulation for the bolivar to be usable for exchange.

I will guess there aren’t enough U.S. dollar notes in circulation for the US$ to be used as medium of exchange, the economy may collapse to barter-only. That is the author’s guess on the end point.

Article closes with an unattributed photo of a man pushing a wheelbarrow filled with currency. I am guessing the photo is from either Zaire or Zimbabwe. That is the tragic situation expected in the near future for the innocent citizens of Venezuela.

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