The Political Economy of Venezuela and PDVSA Author: Steve H. Hanke

March 10, 2020

Venezuela is in the throes of an unprecedented economic collapse. Oil, Venezuela’s lifeblood, is being mismanaged by Petróleos de Venezuela (PDVSA), the country’s state-owned oil company. Faced with dwindling revenue from PDVSA, the government has relied heavily on credit from its central bank to finance government expenditures. Meanwhile, the Banco Central de Venezuela has turned on the printing presses, creating a crisis of hyperinflation. In total, there have only ever been fifty-eight hyperinflations worldwide, and Venezuela is the only country in the world currently experiencing hyperinflation. On January 1, 2020, the annual inflation rate was 6,869 percent per year. By virtue of a wider comparison, Venezuela’s hyperinflation can be described as relatively modest in magnitude, but unusually prolonged. As of January 2020, it has lasted thirty-eight months, making it the third longest hyperinflation in history. Hyperinflation is when the rate of inflation exceeds 50 percent per month and persists for at least thirty consecutive days. Historically, hyperinflations have only occurred when the supply of money has been governed by discretionary, paper-money standards. No hyperinflation has been recorded in any economy that relies on commodity-based money or paper money that is convertible into a commodity. Closely linked to Venezuela’s hyperinflation is the mismanagement of PDVSA, a state-owned enterprise (SOE), which dominates the economy and accounts for almost 95 percent of Venezuela’s foreign exchange earnings. Even by SOE standards, PDVSA is grossly mismanaged, as evidenced by its production and reserve figures. Under the direction of Luis Giusti in the 1994-1998 period, PDVSA’s production soared. This trend changed in 1999, when Hugo Chavez became Venezuela’s president and introduced Chavismo as the guiding economic doctrine. Venezuela’s oil output began to stagnate, a situation which worsened further after the coup attempt of April 2002. Chavez responded by purging PDVSA of its professionals en masse, replacing them with “reliable” hands—those loyal to Chavez’s socialist regime.

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What Are the World’s Saddest (and Happiest) Countries?

March 03, 2020

My Hanke Misery Index shows what countries are getting less miserable — and which are getting more. The human condition lies on a vast spectrum between “miserable” and “happy.” In the economic sphere, misery tends to flow from high inflation, steep borrowing costs, and unemployment. The most surefire way to mitigate that misery is through economic growth. All else being equal, happiness tends to blossom when growth is strong, inflation and interest rates are low, and jobs are plentiful.China Forces Uighurs to Work in Factories Supplying Nike and Apple: Report Biden Still Has a Long Road Ahead An Often Overlooked Component of the High Cost of College Supreme Court Agrees to Hear Case on Whether Obamacare Is Unconstitutional Events, Dear Boys Trump Taps Representative John Ratcliffe as Director of National Intelligence Alabama Senator Doug Jones Dodges Questions on Late-Term Abortion House Republicans Claim Dems Plan to Tie FISA Reauthorization to Coronavirus Funding to Avoid Real Reform Mulvaney Claims Trump Wants Further Cuts to Corporate Tax Rate ‘Majoritarian Domination’ Just How Concerning Is the Coronavirus? Students Demand Their School Treat Coronavirus-Themed Party as a ‘Hate Crime’ Sanders Would Radically Shift U.S. Middle East Policy for the Worse Bacon Isn’t Even That Good House Approves Ban on Flavored Tobacco Products CPAC and the Swamp More articles Previous articles ECONOMY & BUSINESS What Are the World’s Saddest (and Happiest) Countries? By STEVE HANKE February 26, 2020 4:48 PM (Jose Luis Stephens/EyeEm) My Hanke Misery Index shows what countries are getting less miserable — and which are getting more. The human condition lies on a vast spectrum between “miserable” and “happy.” In the economic sphere, misery tends to flow from high inflation, steep borrowing costs, and unemployment. The most surefire way to mitigate that misery is through economic growth. All else being equal, happiness tends to blossom when growth is strong, inflation and interest rates are low, and jobs are plentiful.

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Trump: Transform The U.S. Strategic Petroleum Reserve Into An Oil Bank

October 11, 2019

Following the attacks on key crude oil production facilities in Saudi Arabia, President Donald Trump announced the authorization of the release of oil from the U.S. Strategic Petroleum Reserve (SPR) to keep the market well supplied. This move changes nothing in the way the SPR is governed. The market, not the President, should determine the release of the massive SPR. Government stockpiles are nothing new. The U.S. has had a long and fatal attraction to hoarding commodities for national emergencies. Indeed, the government has squirreled away everything from aluminum to zinc. But, the mother of all these commodity hoards is the SPR. Established in December 1975, it consists of five underground storage facilities hollowed out from salt domes in Texas and Louisiana. At present, they hold 645 million barrels of crude oil, over 1.5 times greater than the amount in private U.S. inventories. The massive SPR inventory would fully supply U.S. crude consumption for almost an entire month.

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The Saudi Oil Shock: Who Wins, Who Loses

October 07, 2019

On September 14th, drones targeted Saudi Arabia's Abqaiq oil refinery and Khurais oil field. The strikes reportedly knocked out more than half of Saudi Arabia's total output. That amounts to a whopping 6-7% of the global daily oil supply. Not surprisingly, before the dust had settled, the press sounded an alarm and spread fear. Then, President Trump jumped in, claiming the attack “won't affect us and ultimately I don't think it will affect the world either.” Well, let’s take a look at the data.

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Worried About A Recession? Relax

September 10, 2019

Everyone seems to be wringing their hands about what they fear is an oncoming recession. Indeed, as a sign of the level of the public’s angst, The Economist magazine reports that Google searches related to the word “recession” have surged. If that wasn’t enough evidence of the hand wringing, the Chairman of President Trump’s Council of Economic Advisers, the respected Tomas Philipson, recently indicated that he was worried about the steady negative drumbeat in the press: that a recession might be just around the corner. Philipson put his finger on the problem when he said, “The way the media reports the weather won’t impact whether the sun shines tomorrow. But the way the media reports on our economy weighs on consumer sentiment, which feeds into consumer purchases and investments.”

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