Venezuela’s death spiral is getting worse

Subject: Venezuela’s death spiral is getting worse Tue Aug 09, 2016 7:02 pm

Venezuela is stuck in a doom loop that's become a death spiral.

Its stores are empty, its people are starving, and its government is to blame. It has tried to repeal the law of supply and demand, and, in the process, eliminated any incentive for businesses to actually sell things. The result is that the country with the largest oil reserves in the world now has to resort to forced labor just to try to feed itself.

It gives new meaning to the revolution devouring its own.

Venezuela’s death spiral is getting worse AFP_DV5PL

Venezuela’s death spiral is getting worse AFP_DV5PL

How has it come to this? Well, Venezuela was always going to have a tough time when oil prices fell from $110 to $40 like they did the past two years. That's because it doesn't have an economy so much as an oil exporting business that subsidizes everything by making up 95 percent of the country's total trade revenue. Even then, though, the oil crash has hurt it much more than any other petrostate. To take one example, the International Monetary Fund estimates that Russia's economy will "only" shrink 1.8 percent this year compared to 10 percent for Venezuela. That's the difference between a run-of-the-mill recession and a complete collapse.

And it's entirely man-made. The easiest way to think about this is as a four-stage cycle of doom that begins with inflation, continues to price controls, then shortages, and finally nationalizations. Here's how it works, or rather doesn't.

1. Inflation. Even when oil prices were in the triple digits, Venezuela's government was in the red. The problem was that its state-owned oil company stopped producing as much after Chavez took money that should have gone into maintaining its fields and put it into social spending instead. This was the economic equivalent of eating your seed corn when it would have grown you more than ever before. Now, at first, the regime was just spending more than it had, but eventually, after oil's vertiginous drop, this became more than it could borrow as well. So it did what every bankrupt government does: It printed the money it needed. Which is why inflation went from 19 percent in 2012 to, the IMF estimates, 720 percent this year, and a projected 2,200 percent the next.

https://www.washingtonpost.com/news/wonk/wp/2016/08/08/venezuela-is-stuck-in-a-death-spiral-and-its-only-getting-worse/?postshare=4131470672723208&tid=ss_fb

Venezuela’s death spiral is getting worse

Venezuela’s death spiral is getting worse

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