Chavez Threatens to Seize Businesses, Devalues Currency by 50%; Chavez vs. Obama

Turn out the lights. The collapse of Venezuela is well underway. It will not be long before the country completely stops functioning, assuming you think Venezuela is functioning now.

Please consider Chavez Devalued Bolivar 50 Percent.

Venezuela devalued its currency by half yesterday, the first such action since March 2005, as President Hugo Chavez seeks to pull the economy from recession amid falling oil revenue.

Chavez said the bolivar will be devalued to 4.3 per dollar from 2.15 per dollar for most imports. A second, subsidized peg of 2.60 bolivars per dollar will be used for importing food, medicine and machinery intended to boost the economy’s competitiveness.

The government, which restricted foreign currency trading in January 2003 following a two-month general strike intended to oust Chavez from power, last devalued the currency by about 11 percent in March 2005. The bolivar was also devalued in 2004.

Chavez Threatens to Seize Businesses

Inquiring minds are reading Chavez Says He’ll Seize Businesses That Raise Prices.

Venezuelan President Hugo Chavez said that businesses have no reason to raise prices following the devaluation of the bolivar and that the government will seize any entity that boosts its prices.

Chavez said he’ll create an anti-speculation committee to monitor prices after private businesses said that prices would double and consumers rushed to buy household appliances and televisions. The government is the only authority able to dictate price increases, he said.

The government also will “attack” the so-called parallel exchange rate, which Chavez called “illegal.”

The bolivar traded at 6.25 per dollar on Jan. 8, traders said.

“They put the value of the dollar at more than 6 in an arbitrary and illegal manner,” Chavez said. “We have to organize to reduce and attack that speculative, illegal dollar that hurts the Venezuelan economy so much.”

Official Rate vs. Black Market Rate

Official Rate: 4.3 bolivar per dollar
Previous Official Rate: 2.15 bolivar per dollar
Black Market Rate: 6.25 bolivar per dollar

Virtually no one in private business will exchange at the rate of 4.3 bolivar per dollar. Banks will not do it either, otherwise there would be no need for a black market.

Massive Shortages Coming

Chavez just effectively announce a government takeover of all private enterprise. The government has already taken over the oil and telecommunications industry. Other businesses are sure to follow. When government mandates prices that are too low, shelves empty.

Massive shortages are coming soon to Venezuela.

Venezuela Risks Devastating Power Collapse

If the above problems were not bad enough, Venezuela faces risk of devastating power collapse from a massive drought affecting the country's biggest hydroelectric dam.

Venezuela is at risk of a devastating power collapse as drought pushes water levels precariously low in the country's biggest hydroelectric dam, posing a serious political threat for President Hugo Chavez.

Chavez on Friday said his government is determined to keep Guri Dam from falling to a critical level where the turbines start to fail in the next several months. He has also imposed rationing measures that include penalty fees for energy overuse, shorter workdays for many public employees and reduced hours for shopping malls.

The entire South American country of 28 million people depends to a large degree on the massive Guri Dam, which holds back the Caroni River in southeastern Bolivar state. It supplies 73 percent of the country's electricity by feeding the massive Guri hydroelectric plant — the world's third-largest in power output — along with two other smaller plants.

Chavez said that the dam's water level is now about 33 feet (10 meters) below where it was last year, and if it falls 82 feet (25 meters) more before the dry season ends, "we would be at a standstill."

Experts say the amount of water reaching the turbines could eventually decrease to such an extent that they would no longer feed the power grid.

"We'd be in a situation where we'd have to halt the country, the entire economy," said Victor Poleo, an oil economics professor at Venezuela's Central University and a former official in Chavez's Energy Ministry. Without power from Guri, he said, the country's existing gas- and oil-fired power plants would be able to cover only about 20 percent of the demand — producing widespread and sustained outages.

Chavez wants to reduce imports but is rationing electricity and shut partially down state-run steel and aluminum plants. Good luck with that. Price controls compound the problem by orders of magnitude.

The Venezuelan economy will soon be toast, burnt toast if the price of oil sinks again.

Collapsing Venezuela

Flashback January 21, 2007: The Washington Times nails it with Collapsing Venezuela.

If Venezuelan President Hugo Chavez President Obama deliberately intended to sabotage his nation's economy, he would be hard-pressed to do anything different from what he is now doing to his country.

It has been widely reported that Mr. Chavez President Obama has been increasingly taking control of the oil, telecommunications and energy housing, banking, auto, and insurance sectors, as well as the media. What has not been reported is the full extent of the corruption in Venezuela the United States and how this ultimately will destroy the economy.

The financial scandal taking place is far bigger than Enron, and may ultimately even exceed the U.N. "oil-for-food" scandal, the biggest financial disgrace of all time.

Since 2004, the Venezuelan Central Bank Fed has transferred about $22.5 billion untold $billions to accounts abroad by the Chavez government held by foreign governments, and about $12 billion all of that remains unaccounted for. It has also been reported that the gold reserves have been removed from the Central Bank.

While the rest of the world has been moving away from socialism for the last quarter-century for good reason, Venezuela the United States is becoming socialist. We know governmental use of central banks to basically print money to cover expenditures results in rising inflation and eventually monetary meltdown.

And, finally, we know that when a state becomes totally corrupt an economic collapse always follows. Mr. Chavez President Obama and his cronies had already been spending far more than they were taking in and you can bet the blood from the innocent Venezuelan people United States citizens will be drained long before those on the take from Mr. Chavez President Obama agree to have their looting stopped.

The original Washington Times article was extremely good, but a few minor changes would have made it the most prophetically accurate post the world had ever seen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com