Saturday, November 26, 2011

Venezuela Repeals the Laws of Supply and Demand

The twisted logic of Venezuela's price controls:

1. Under President Hugo Chavez, Venezuela's central bank has doubled the money supply over the last four years.

2.  Because of the doubling of the money supply, Venezuela is experiencing the highest annual rate of inflation in the Western hemisphere at 27%.

3. In response to the high inflation, the Venezuelan government just announced it is expanding price controls to cover many basic consumer items like toothpaste, coffee, toilet paper and deodorant to prevent "monopolies from ransacking the people." 

4. The move to expand price controls sparked panic buying by consumers, which is causing shortages of many products. 

5. The Venezuelan government is accusing people of panic buying with the intent to hoard consumer items and capitalize on the shortages by selling products in the future at higher prices on the black market.  

Conclusion: According to the Chavez government, the shortages of key consumer goods in Venezuela are being caused by consumers, who are guilty of engaging in panic buying, hoarding and "capitalist" behavior.  The inflationary monetary expansion, rising consumer prices and government price controls have nothing to do with the shortages.  After all, “The law of supply and demand is a lie,” said Karlin Granadillo, the head of Venezuela's price control agency.

12 Comments:

At 11/27/2011 2:56 AM, Blogger Methinks said...

How hard will we be laughing when that kind of "logic" comes here. After all, the American left is just positively orgasmic over Chavez.

 
At 11/27/2011 7:42 AM, Blogger Len said...

Please send this post to the Obama administration. Not that they are likely to read it or understand it.

 
At 11/27/2011 8:13 AM, Blogger cluemeister said...

Let's see. The Obama administration has already increased money supply, and they've instituted price controls on things like health insurance. The move to cap insurance has caused premiums to skyrocket. Sebellius is now investigating profiteering insurance companies for skyrocketing premiums. They are also blaming business owners for acting irrationally by keeping profits, and Americans for being lazy.

We got four out of five. If inflation was at 27%, we'd be five out of five!

 
At 11/27/2011 11:53 AM, Blogger truth or consequences said...

The stuff coming out of Venezuela is just hilarious...it it was a movie it would be a "Fellini movie" or "Catch 22".

China Development Bank has loaned the state oil company 4 billion AND made another 1.5B line of credit available. The loans carry an interest rate of 5% OVER the London interbank overnight rate.

A guy named Ramirez, head of the state oil company said: "We said in 2005 that we would not use our cash flow for investments, so it's good that they keep lending us more money."!!! LOL

Vez. is repaying the loans with 400,000 barrels a day.

 
At 11/27/2011 2:12 PM, Blogger Mike Sproul said...

A doubling of the money supply is only inflationary if the money-issuer's assets do not keep pace with its liabilities. Apparently, Venezuela's assets are not keeping up with Chavez' printing presses.

 
At 11/27/2011 3:08 PM, Blogger rjs said...

@Methinks: can you tell me who on the American left is "just positively orgasmic over Chavez"?

@cluemeister: can you tell me how the Obama administration has already increased money supply?

http://www.federalreserve.gov/releases/h6/current/

if you're talking about quantitative easing, you might recall bernanke was appointed by george w...

 
At 11/27/2011 3:23 PM, Blogger truth or consequences said...

rjs....your wasting your breath;)

to some people the Dems and Obama = North Korea...LOL

a bit of regulation (keeping 'em honest) = "oppression at gunpoint"

it's all about "drama"....LOL

 
At 11/27/2011 3:23 PM, Blogger Emil said...

"@Methinks: can you tell me who on the American left is "just positively orgasmic over Chavez"?"

I'm not methinks but I still seem to remember this recent "documentary" about Chavez

 
At 11/27/2011 3:26 PM, Blogger juandos said...

"if you're talking about quantitative easing, you might recall bernanke was appointed by george w..."...

You might also recall that Obama is keeping Benanke in place so the damage Bernake may or may not be doing will be on Obama's tab...

 
At 11/27/2011 3:28 PM, Blogger truth or consequences said...

Hey, speaking of Chavvy....

I just read that Cuba is instituting lending to individuals to start small businesses....

That embargo thing sure worked good, eh?....;););)

 
At 11/27/2011 7:53 PM, Blogger Craig said...

A doubling of the money supply is only inflationary if the money-issuer's assets do not keep pace with its liabilities.

Utter rubbish. The government's assets have absolutely nothing to do with the purchasing power of the currency. It's stylish these days to claim that a unit of fiat currency is somehow linked to the asset value of the issuing authority, but there is no connection.

The Venezuelan government, in recent years, has taken ownership of the vast oil industry, the supermarket industry, thousands of square miles of productive farm land and foreign holdings such as Cargill. Its paper worth must be well over double that of the pre-Chavez government. Yet prices go up. Go figure.

A doubling of the money supply must be followed by an increase in prices (i.e., a decrease in the currency's purchasing power) no matter the state of the government's balance sheet. Attempts to claim otherwise are to put gold lipstick on paper pigs.

 
At 11/28/2011 1:26 AM, Blogger Mike Sproul said...

"It's stylish these days to claim that a unit of fiat currency is somehow linked to the asset value of the issuing authority, but there is no connection."

You should read up on the real bills doctrine/backing theory of money. For starters, there is no such thing as fiat money. People see a government currency that is inconvertible and conclude that it is unbacked. The first lesson of the backing theory view is that 'inconvertible' is not the same as 'unbacked'.

 

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