The Venezuela myth keeping us from transforming our economy
Extracted from a recent blog by Ellen Brown, this article discusses the economic and political issues surrounding Venezuela’s current difficulties and its hyperinflation.
Modern Monetary Theory (MMT) is getting significant media attention these days, after Alexandria Ocasio-Cortez (AOC) said in an interview that it should “be a larger part of our conversation” when it comes to funding the Green New Deal. According to MMT, the government can spend what it needs without worrying unduly about deficits. MMT economist, and Bernie Sanders advisor, Prof Stephanie Kelton says the federal government actually creates money when it spends. The real limit on spending is not an artificially imposed debt ceiling but a lack of labour and materials to do the work, which can lead to generalized price inflation. Only when that real ceiling is hit does money spent into the economy by government need to be taxed back, and then not to fund government spending but to limit the money supply in an economy that has run out of resources to put all of that money to work.
Predictably, critics have been quick to rebut, calling the trend to endorse MMT “disturbing” and “a joke that’s not funny”. In a February 1st post on The Daily Reckoning, Brian Maher darkly envisioned Bernie Sanders being elected in 2020 and implementing “quantitative easing for the people” – based on MMT principles. To debunk the notion that governments can just “print the money” to solve their economic problems, he raised the spectre of Venezuela, where “money” is everywhere but the bare essentials are out of reach for many, storefronts are empty, and unemployment is at 33%, with inflation predicted to hit 1,000,000%.
What Is Different About Venezuela
Venezuela’s problems are not the result of the government issuing money and using it to hire people to build infrastructure, provide essential services and expand economic development. If it were, unemployment would not be at 33 percent and climbing. Venezuela has a problem that the US does not have and will never have: it owes massive debts in a currency it cannot print, namely US dollars. When oil (its principal resource) was booming, Venezuela was able to meet its repayment schedule. But when oil plummeted, the government was reduced to printing Venezuelan Bolivars and selling them for US dollars on the international currency exchanges. As speculators drove up the price of US dollars, more and more printing was required by the government, massively deflating the national currency.
It was the same problem suffered by Weimar Germany and Zimbabwe, the two classic examples of hyperinflation typically raised to silence proponents of government expansion of the money supply before Venezuela suffered the same fate. Prof. Michael Hudson, an economic rock star who supports MMT principles, has studied the hyperinflation question extensively. He confirms that those disasters were not due to governments issuing money to stimulate the economy. Rather, he writes, “Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.”
Venezuela and other countries that are.
carrying massive debts in currencies that are not their own are not sovereign. Governments that are sovereign can and have engaged in issuing their own currencies for infrastructure and devel- opment quite successfully. A number of contemporary and historical examples were discussed in my earlier articles, including in Japan, China, Canada and Australia.
Although Venezuela is not technically at war, it is suffering from foreign currency strains triggered by aggressive attacks by a foreign power. The US economic sanctions have been going on for years, causing at least $20 billion in losses to the country. Around $7 billion of its assets are now being held hostage by the US, which has waged an undeclared war against Venezuela ever since George W. Bush’s failed military coup against President Hugo Chavez in 2002. Chavez boldly announced the “Bolivarian Revolution,” a series of economic and social reforms that dramatically reduced poverty and illiteracy and improved health and living conditions for millions of Venezuelans. The reforms, which included nationalizing key components of the nation’s economy, made Chavez a hero to millions of people and the enemy of Venezuela’s oligarchs.
Nicolas Maduro was elected president following Chavez’s death in 2013 and vowed to continue the Bolivarian Revol- ution. Like Saddam Hussein and Omar Qaddafi earlier, he defiantly announced that Venezuela would not be trading oil using US dollars, following sanctions imposed by President Trump.
The notorious Elliott Abrams has now been appointed as special envoy to Venezuela. Considered a criminal by many for covering up the massacres committed by US-backed death squads
in Central America, Abrams was among the prominent neocons closely linked to Bush’s failed Venezuelan coup in 2002. National Security Advisor John Bolton is another key neocon architect advocating regime change in Venezuela. At a January 28 press conference, he held a yellow legal pad prominently displaying the words “5,000 troops to Colombia,” a country which shares a border with Venezuela. Apparently the neocon contingent feels they have unfinished business there.
Bolton does not even pretend that it’s all about restoring “democracy.” He said on Fox News, “It will make a big difference to the United States economically if we could have US oil companies invest in and produce the oil capabilities in Venezuela.” As Pres Richard Nixon said of US tactics adopted against Allende’s government in Chile, the point of sanctions and military threats is to squeeze the country economically.
Killing the public banking revolution in Venezuela
It may be about more than oil, which recently hit record lows in the market. The US hardly needs to invade a country to replenish its supplies. As with Libya and Iraq, another motive may be to suppress the banking revolution initiated by Venezuela’s upstart leaders.
The banking crisis of 2009-10 exposed the corruption and systemic weakness of Venezuelan banks. Some banks were engaged in questionable business practices. Others were seriously undercapitalized. Others were apparently lending top executives large sums of money. At least one financier could not prove where he got the money to buy the banks he owned.
Rather than bailing out the culprits, as was done in the US, in 2009 the government nationalized seven of the Venezuelan banks, accounting for 12% of the nation’s bank deposits. In 2010, more were taken over. The govern- ment arrested at least 16 bankers and issued more than 40 corruption-related arrest warrants for others who had fled the country. By the end of March 2011, only 37 banks were left, down from 59 at the end of November 2009. State- owned institutions took a larger role, holding 35% of assets as of March 2011, while foreign institutions held just 13.2% of assets
Over the howls of the media, in 2010 Chavez took the bold step of passing legislation defining the banking industry as one of “public service”. The legislation specified that 5% of the banks’ net profits must contribute towards funding community council projects, designed and implemented by communities for the benefit of communities. The Venezuelan government directed the allocation of bank credit to preferred sectors of the economy, and it increasingly became involved in the operations of private financial institutions. By law, nearly half the lending portfolios of Venezuelan banks had to be directed to particular mandated sectors of the economy, including small business and agriculture.
In a 2012 article entitled “Venezuela Increases Banks’ Obligatory Social Contributions, U.S. and Europe Do Not,” Rachael Boothroyd said that the Venezuelan government was requiring the banks to give back. Housing was declared a constitutional right, and Venezuelan banks were obliged to contribute 15% of their yearly earnings to securing it. The government’s Great Housing Mission aimed to build 2.7 million free houses for low-income families before 2019. The goal was to
create a social banking system that contributed to the development of society rather than simply siphoning off its wealth. Boothroyd wrote:
“ … Venezuelans are in the fortunate position of having a national govern- ment which prioritizes their life quality, wellbeing and development over the health of bankers’ and lobbyists’ pay checks. If the 2009 financial crisis demonstrated anything, it was that capitalism is quite simply incapable of
regulating itself, and that is precisely where progressive governments and progressive government legislation needs to step in.
Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including Web of Debt and The Public Bank Solution.