Fausta's Blog

Chronic shortages of consumer goods are a trademark of socialist and communist regimes, so this comes as no surprise:
Venezuela to import 50M rolls of toilet paper after government claims it’s wiped out

Economists say Venezuela’s shortages stem from price controls meant to make basic goods available to the poorest parts of society and the government’s controls on foreign currency.

“State-controlled prices — prices that are set below market-clearing price — always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union,” said Steve Hanke, professor of economics at Johns Hopkins University.

Then the government raised prices by 20%, which will eat up the 20% raise in minimum salary that went in effect on May 1st.

Carlos Eire posts on the Cubanization of Venezuela,

According to the Spanish newspaper ABC, the Maduro dictatorship is blaming its opponents for Caracastan’s toilet paper shortage.
…
“The Revolution will import around 50 million rolls of hygienic tissue… so our people can calm down and realize that they should not allow themselves to be manipulated by media campaigns that speak of shortages,” said Minister of Commerce Alejandro Fleming, through the state-run Venezuelan News Agency.
…
Minister Fleming cited facts and figures to prove that the production and importation of toilet paper was more than adequate in Caracastan, and then claimed that a “sobredemanda” — a sudden spike in demand — fiendishly orchestrated by the government’s opponents had caused the product to disappear from store shelves throughout the country.

Considering the disastrous state of what’s left of the Venezuelan economy, it’s no wonder people may have the runs,

Finance Minister Nelson Merentes said the government was also addressing the lack of foreign currency, which has resulted in the suspension of foreign supplies of raw materials, equipment and spare parts to Venezuelan companies, disrupting their production.
“We are making progress … we have to work very hard,” Merentes told reporters Wednesday.

Many factories operate at half capacity because the currency controls make it hard for them to pay for imported parts and materials. Business leaders say some companies verge on bankruptcy because they cannot extend lines of credit with foreign suppliers.

Speaking of runs, consumers who had spent hours waiting in line were stampeding in Caracas when they heard chicken parts and flour were finally available,

Nicolás Maduro tried to intimidate Empresas Polar president Lorenzo Mendoza,

accusing him of hoarding products as part of an “economic war” on the state by private business.

Mendoza, whose company is Venezuela’s biggest beer- and flour-maker, denied that and pointedly challenged the government to sell production plants nationalized under Chavez back to the private sector to boost efficiency.

Mendoza would not be intimidated, and at least for now, Maduro backed off.

Toilet paper buyers continue to wait in line,

Fleming, the commerce minister, said monthly consumption of toilet paper was normally 125 million rolls, but that current demand “leads us to think that 40 million more are required.”

“We will bring in 50 million to show those groups that they won’t make us bow down,” he said.

Hmmm… 125 + 40 – 50 still leaves you 115 million rolls short, Minister Flemimg.

UPDATE:
Linked by Night Sky Radio. Thank you!

With Argentina facing an implied annual inflation rate of 98.3% (and the peso tanking at 10 pesos to the US dollar), Steve Hanke, Professor of Applied Economics at Johns Hopkins University, makes the case for dollarization.

The trick would be to use the black market (i.e., free market) conversion rate, or close to it:
Dollarize Argentina Now

For example, if Argentina decided to dollarize at an ARD/USD exchange rate of 9.33 pesos to the dollar (5.5% lower than the black-market ARD/USD exchange rate as of Tuesday) only $31.23 billion would be required to cover its monetary base and dollarize the economy. This is the exact amount of net foreign assets held by the BCRA (see the accompanying table).

Read the rest of the article for more details.

It’s a proposal that makes sense, so I expect Cristina to pay no heed to his advice.

Another default coming up, since the creditors don’t want to settle for 14 cents on the dollar,

Holdout creditors on Friday rejected Argentina’s proposal to pay them about 20 cents on every U.S. dollar of bonds they own, leaving a U.S. appeals court to decide how to enforce a ruling that may push Argentina into a new default.

“Not only are the details of Argentina’s proposal unacceptable and unresponsive; Argentina fails even to provide this court with meaningful ‘assurances’ that it will actually comply with its own proposal,” said Theodore Olson, a lawyer for the holdouts, in a brief filed Friday.

Argentina’s own math values the offer at $210 million, less than 15% of the $1.47 billion that holdouts were owed on their defaulted bonds as of March 1, according to the brief.

You may be thinking, “what the hey do I care?” The judges’ decision could be seen as a precedent for sovereign restructurings around the world. Additionally,

Many analysts, including Mr. Werning, think the court will come down in favor of the holdouts. Under that scenario, Argentina would likely miss payments on its performing bonds until it is able to find a payment mechanism beyond the reach of U.S. courts.

You can count on that.

In other Argentina news, Argentina Freezes Gas Prices for 6 Months
Argentina has locked gasoline prices at April 9 levels in another bid to tame rampant inflation.

Over in Venezuela, Cristina visited Hugo’s grave,

[Post re-edited to correct html.]

Last Tuesday in Rick Moran’s podcast I mentioned that the flight of capital from the EU might make emerging markets very attractive.

Well, look at Peru:
Peru intensifies currency fight (emphasis added)

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For the eighth time in 10 months, Peru’s central bank has raised deposit requirements on dollar-denominated accounts to stem the flow of hot money into its fast-growing economy and dampen currency appreciation.
With the sol approaching a 16-year high, Peru’s central bank said that as of April 1, the reserve ratio will rise 0.25 percentage points. The bank, which has ruled out Brazilian-style capital controls, has also been aggressively buying dollars in the spot market to slow the trajectory of the sol.

So far, its strategy has worked, with the sol weakening 1.33 per cent against the dollar this year, after appreciating 5.7 per cent in 2012.

The Peruvian bank’s struggle to rein in its currency is shared by fast-growing neighbour Colombia, which last week said it was willing to double its spending on dollars, to $10bn, this year to take some of the steam out of the peso.

Both countries are enjoying the fruits of years of prudent economic management – but rapid economic growth and low inflation have come hand-in-hand with the kind of current appreciation that makes exporters squeal.

Hmmm. . . Prudent economic management.

Are you listening, Paul Krugman?

They’re taking what’s yours

This should take no one by surprise at this point; in fact, Kudlow was talking about it on his show last week,
Cyprus bail-out: savers will be raided to save euro in future crises, says eurozone chief
Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failing banks, a senior eurozone official has announced.

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’,” he said.

“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.”

Because,

“If we want to have a healthy, sound financial sector, the only way is to say, ‘Look, there where you take on the risks, you must deal with them, and if you can’t deal with them, then you shouldn’t have taken them on,’” he said.

It would have been nice of him to have warned savers that their accounts could be raided. But I digress.

The president of Cyprus says it’s all temporary,

Which brings up this question,
Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus? Yes, they have, never to return.

How’s that for “temporary”?

Related:
Hayek v. Krugman – Cyprus’ Capital Controls

UPDATE:
Repeat after me: $19.2 trillion dollars is currently held by US citizens in 401k and other retirement accounts.

Do you really think the government doesn’t want to “help” you manage that money?

Read his post, and check out the graph:

(click on graph for large version)

No wonder Putin’s unhappy.

This is not going to make you happy: The Government Generously Offers To Help You “Manage” Your Retirement Account. But I digress.

Also unhappy, a London cabby, [LANGUAGE WARNING: DEFINITELY NOT SUITABLE FOR WORK]

(more…)

ol·i·garch

 [ol-i-gahrk]  

Old meaning:

one of the rulers in an oligarchy.

New meaning:

Russian mobster.

Use:
Russian oligarchs stung by Cypriot bank tax

But it’s not just Russia that is affected by the proposed bank account tax in Cyprus. Oligarchs in Ukraine also like to transfer money to Cyprus and then re-invest it back home. Just like in Russia, Cyprus has been the largest foreign investor in Ukraine. In 2011, the country invested more than $10 billion, according to Ukraine’s statistics agency Derzhkomstat. That represents one-fifth of the total foreign investments in the former Soviet republic.

More than 90 percent of all Ukrainian foreign investments in 2012 went to Cyprus. If ownership changes in the Ukraine, a company with a postal address in Cyprus simply gets replaced by another one in Cyprus.

Which brings to mind another term: money laundering.

Here’s the latest on Cyprus,

Yesterday the plan was to scalp all bank accounts over €100,000 by 10%, and everybody else by 6.75%.

But now, the Cyprus’s government, just like in a Sham-Wow ad, right when you think has sucked up all the sanity, doubles the offer, and proposes a new plan to ease the burden of that tax on small savers:

According to two European officials familiar with the talks, the new proposal being floated by the government would see smaller depositors, those with up to €100,000, taxed at 3% rate—down from 6.75% as initially envisaged. Savers with €100,000 to €500,000 would be taxed at a 10% rate; and those with over €500,000 taxed at 15%, one official said.

Because the “small savers” are the ones who take to the streets, storm the banks’ doors, and riot.

Maybe the EU ought to be worrying about Putin, who’s not happy,

The deposit levy would be felt sharply by Russian financial institutions and companies which have large footholds on the island. According to Moody’s Investors Service estimates, Russian residents and institutions could lose around $2 billion if Cyprus goes ahead with this latest unconfirmed proposal to raise taxes on deposits.

Russian President Vladimir Putin has strongly criticized a proposed deposit tax in Cyprus that could cost Russian financial institutions an estimated $2 billion as “unfair” and “dangerous,” his spokesman told news agencies Monday.

“Mr. Putin said that such a decision, if adopted, would be unfair, unprofessional and dangerous,” said his spokesman Dmitry Peskov.

We all know what happens when Vladdy is not happy.

Putin is nothing if not professional; he might even say “This is the business we have chosen”:

Tomorrow all bank deposits over €100,000 will have 10% expropriated in Cyprus, while

Goat herders, taxi drivers, et al. (what the New York Times calls“pensioners, workers and regulator depositors”) with less than €100,000 get whacked 6.75 percent.

What do they get for that? A €10 billion bailout from the International Monetary Fund and European lenders.

Roger Kimball has the story.

In Ireland, Hungary, Poland, Bulgaria and France, the governments take over citizens’ pension money to make up government budget shortfalls.

In 2008, Ambrose Evans-Pritchard asked, Argentina seizes pension funds to pay debts. Who’s next?

My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so. The forced-feeding of banks with fresh capital – whether they want it or not – and the seizure of the Fannie/Freddie mortgage giants before they were in fact in trouble (in order to prevent a Chinese buying strike of US bonds and prevent a spike in US mortgage rates), shows that private property can be co-opted – or eliminated – with little due process if that is required to serve the collective welfare. This is a slippery slope.

This is only the beginning, folks.

John Paul Rathbone looks at the pink tide and concludes that

As Chávez’s death focuses attention on the economic failings of radicals, pragmatists are proving more successful

Comparing the Latin American countries,

Today, about half of the region’s 20 republics are centrist or centre-right. Not that this has diminished the importance of social progress everywhere. Caracas rightly boasts that it has halved poverty levels in Venezuela. Yet this performance has been repeated elsewhere, in Chile and Peru for example, without ransacking the economy as Chávez did.

The Chavista model is a busted flush but no leader in the region will publicly admit it. Nonetheless, tributes have flowed in all week. Dignitaries and world leaders, from Iran’s President Mahmoud Ahmadi-Nejad to the Prince of Asturias, have flown to Caracas to pay their respects. In Havana, the Castro government declared three days of mourning.

Much of the radical left’s grief is real, but so too is the self-interest. Because Chávez’s demise confronts it with a bind. The populist left is dominated by outsize personalities. With its most extravagant character gone, others are jostling for supremacy. That is as true inside Venezuela, where chavismo is riddled with factions, as outside.

“The space and rhetoric won’t change,” says Franklin Ramírez, a sociologist at the Latin American Faculty of Social Sciences in Quito. But the “map has been changing”. The main contenders for influence are two economic blocs: Brazil and its partners in the southern Mercosur trade pact, and its regional counterweight, the free-trading Pacific economies of Mexico, Colombia, Peru and Chile.

The second and bigger problem is that the radical economic model is unsustainable. Even with the largest oil reserves in the world, Venezuela has turned to China for $40bn of loans to keep itself going.

Read the whole article here (registration required). H/t M.