What if you woke up one morning and you found out that the government had just devalued your currency by a whopping 50% — how would you feel?
One person described such a devaluation as a “baseball bat to the stomach.”
Oh sure, our currency here in the United States has been devalued a lot over time, but we’ve not felt it all at once like that.
Venezuelan President Hugo Chavez just devalued their currency, the bolivar, by 50 percent (to 4.3 to the dollar from 2.15 to the dollar).
Why in the world would he do this?
Well, firstly, why any other president would do it — for political reasons.
He’s dropping in the polls and he’s got an election coming in September.
So he’s looking out for himself first.
Secondly, he claims that he’s doing it for their economy.
The economy slid into a recession in 2009 as their oil exports dove.
By devaluing their currency, it makes their exports appear cheaper to foreigners that are holding a stronger currency.
After all, if you were shopping, you tend to buy from the place that gives you the cheapest price for the same product.
Countries do the same thing when they go shopping for things like oil and other commodities that they need for their economies.
Since oil accounts for 93 percent of their exports, they’ve got to appear inexpensive by cheapening their currency.
Chavez doesn’t get hurt by this new devaluation.
Only its citizens get hurt. How convenient!
Now, I said that the currency got devalued 50%.
However, there’s a dual exchange rate in Venezuela.
Here’s how this works. The part that helps Chavez out doesn’t get hurt by the devaluation because it’s in the second exchange rate used.
However, the part of the exchange rate that Venezuelan citizens would use to import goods is the one that took it on the chin.
Isn’t a socialist system just wonderful? Not!
But wait, it gets better.
Any company that would try to counter the effects of this by raising prices will get taken over, according to Chavez.
He’s putting together a committee just to monitor these corporations.
If they increase their prices without the government telling them that they can, then the government will kick the officials out of their own companies and take them over.
Chavez has done this plenty of times before.
So there’s no reason to think that he wouldn’t do so again.
It will be interesting to see how Chavez does in the September elections.
You see, everyone didn’t mind him being in power when it seemed that times were good.
But now that most of their South American neighbors have pulled out of the recession and they have not, it’s not looking so good for him.
On one hand, everyone just got a bit poorer by this devaluation. But if the economy comes out of the recession and things pick back up and the future becomes brighter, then they may not retaliate at the polls.
Last year, their GDP shrank 2.9 percent. That’s a big deal for them because they haven’t experienced a recession since 2003.
This latest move by Chavez should definitely curb imports and it should increase exports.
It may very well pull them out of the recession but not before it greatly increases their “already high” inflation rate of 20 percent 22 percent.
This staggering inflation is really robbing the people of Venezuela even more.
So as horrible as we feel things are in America (and they aren’t great), it’s still better than being in socialist Venezuela.
Although I’m pretty sure that Obama is attempting to take us in the same direction.
However, be fully aware of how a socialist country acts.
If you want to lose all of your rights and all control…then just go toward socialism.
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