Archive for November 22nd, 2006

Just because Milton Friedman died, it does not mean that you can print money at will

November 22, 2006

Today former Chavez Minister of Finance Tobias Nobrega was trying to justify that monetary liquidity is not too high, by saying that it was only 25% of GDP. Well, that may be true in a country with positive returns on savings, but when banks pay 6% and inflation is running at 15%, money is looking to get out, which is why the current large liquidity is pushing the swap or parallel market up. The size of GDP is irrelevant, in fact, the devaluation will simply shrink GDP and bring it down to the right size.

Below, I have a different version of the chart I showed earlier, that tells the same story: Just because Milton Friedman died, it does not mean that you can print money and nothing will happen.

The chart shows the “implicit” exchange rate, what you get if you divide all of the liquidity by international reserves (blue line) and compares it to the red triangles which is the parallel swap rate given by that market. As you can see, after the implicit rate being below the parallel rate all of 2006, in June they began crossing and the swap rate jumped sharply up and right now they are still very close to each other. Exchange rates are also a function of confidence and lower oil prices and excessive spending do not help confidence either.Given all the money spent in November (not all of it included in the chart), then by now the implicit exchange rate is even higher, which simply means the parallel “swap rate” should also move in that direction: UP!

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The pig as a form of payment by Elides Rojas

November 22, 2006

Elides Rojas looks at the future consequences on the justice system of the proposed new barter economy with his customary ironic humor

The pig as a form of payment by
Elides Rojas en El Universal

Barter, the last bright idea of the revolutionary process, introduces
some serious changes to legal jurisprudence.

The Courts of the Bolivarian and Socialist Republic of Venezuela simply can’t
cope. The defeat of savage capitalism and the implementation of barter as the main
system for commerce have erased the thousand-year wisdom of the regulations of
Mercantile Law, to give way to a new legal discipline: the give and take.

Resolving a conflict in front of the correct judicial instances under
ironclad principles of equity and justice, but using terms which are not
contaminated by anything that would imply income, earnings or profit, old bourgeois
concepts that have been dismissed, is not as easy as the theorist of the
castrovenezuelan revolution believed.

A number of cases have already reached the Supreme Court and, given the depth
of the controversy and the complexity of the material extremes that need to be elucidated, the sentencing has generated novel jurisprudence and new general
principles of law.

As an example, there is the case of Turumo Martinez, who lives in
Bobare, and who pretended to recuperate a pig he had given in payment to
Ezequiel Conuco for 60 green plantains, the case is identified under file
V-3342, and has turned itself as emblematic for study in the most qualified
academic symposia.

The Court, in order to decide had to take into consideration some
aspects that constitute the essence itself of the agreement reached. First,
according to the judge in the case, the operation perfected itself with the exchange
of the piglet for the plantains. The fact that the plantains did not fulfill
the requirements of color, shape and stains, is not a sufficient reason to
pretend voiding the operation, as long as, the original inspection was approved
by the interested party.

On the other hand, and with the goal of establishing a supposed return
of the goods subject to barter, the pig, by now, has now been converted to pork
grind and distributed in parts in the highway to Higuerote. This situation,
according to the strictest doctrine, implies the total denaturalization of one
of the elements of the deal.

That is, the pig is no longer a pig. The Full Hall has resolved that in
order to void a barter operation, without agreeing on monetary indemnifications
that would remind anyone of capitalism, it is necessary that the goods, be it
piglets, or bananas, armadillo or pouches, must be kept in their original state
and not be subject to transformations, whether industrial or by craftsmen, that
may destroy their essence. Only in such manner could the pig identified in the
file be then returned to its original owner.

A similar situation, although solved in a different manner, occurred in Yumare,
where a citizen pretended to recover a bull that he had exchanged for 2,000
pewter cups that ended up being made of cardboard. He received, after
subscribing a compensatory agreement, sixty shredded meat arepas and a Mision
Negra Hipolita scholarship. This option is only valid when the parts reach an