Venezuela has devalued its currency, joining Iran, Argentina and others whose wars on math brought the same result. Some call this a "restorative." It's not. It's what happens when big government hits a wall.
Venezuela's monster 47% devaluation from 4.3 to 6.3 bolivars to the dollar, reportedly ordered by President Hugo Chavez from his hospital bed in Cuba, marks the reckoning for his regime's big-spending ways in Venezuela's low-growth economy.
It was about as predictable as a crash from a runaway train, given his mad-lunatic war on economics — his lethal combination of welfare spending, destruction of the private sector and capital controls to cover up the disaster. And as in any train wreck, it wasn't something he could control.
Venezuelan banker Miguel Octavio noted on his blog "The Devil's Excrement," that "in the end devaluation is not a policy, it is the result of bad policy."
This devaluation is characteristic of all tyrannies, which benefit by effectively expropriating the savings of the private sector through monetary means rather than the more common thuggery.
Chavez's meltdown is coming for the same reason devaluations are also shaking Argentina, which is undergoing a new fiscal disaster of its own, Egypt, which is going through a slo-mo devaluation that's pushing up the price of food and prompted its Islamofascist rulers to actually urge people to eat less food, and Iran, whose madhouse economics has triggered hyperinflation.
It's how dictators do business. This is Chavez's sixth devaluation in the last decade of his big-spending power, following devaluations in 2002, 2003, 2004, 2005, 2010 and 2011. Every one of these devaluations inflates away some of his debts — but at the expense of the country's savings and investment, which are snapped away through inflation.
What's more, this devaluation, which was done to plug his deficit spending and prop up the state oil company, will only cover 60% of the country's deficit, meaning more devaluations ahead this year, likely to take the bolivar to 8 by year end.
Venezuelan officials, predictably, claimed it was "good" as well as an "improvement" that protects the middle class against "speculators," echoing the party line of establishment economists such as
Joseph Stiglitz, former Bill Clinton adviser and chief economist of the International Monetary Fund, who in the past has called devaluations an economic " restorative."
Tell that to the panic buyers across Venezuela. There, terrified consumers who are buying goods ahead of expectations of soaring prices, while the poor have seen their life savings wiped out.