Bolivars for Bread
Research for Online Investors

by John Dalt

1/11/10

Hugo Chavez, President of Venezuela devalued the Bolivar Friday night during a popular baseball game.  Citizens rushed to stores Saturday to spend their money before it became worth less.

The Bolivar, pegged at 46 cents per dollar since 2005, now is worth 38 cents per dollar for basic items and 23 cents per dollar for non-essential items.  This dual devaluation means food, medicine, and other basic items immediately cost 21% more and other items doubled in cost, if you could find them.

Venezuela has had water and electricity shortages in the last year.  The government was running out of money, and unable to pay suppliers, as crude oil prices were too low and did not bring in enough hard currency to pay for Chavez’s socialist dreams.  Inflation has been estimated at 25% in the last year.  Elections are scheduled for September, and the devaluation of the currency may make it hard for Chavez to hold onto power. Reuters has the story, “Devaluation ups stakes in Venezuela election year.”

Not to go away without fiery rhetoric, Chavez demanded that businesses not raise prices threatening, “I’m capable of taking over that business.”  He sent the National Guard to investigate any complaints of price gouging declaring he would “intervene in any business of any size.”

Sadly, some poor people still support Chavez.  He capitalizes on class warfare, and always declares he is working to help the poor.  Does this remind you of anyone?  U.S. unemployment is moving higher, inflation is around the corner due to deficit spending and more government programs, all to help the poor.  Our administration is constantly denigrating bankers and “Wall Street” for greed and needing a “bailout”.  How many times have we heard some other special interest group demanding it is “their turn” to get a bailout or some special concession from the treasury?

Chavez is following in the steps of real masters.  You may remember Gideon Gono; he is Zimbabwe’s Central Bank Governor.  When his countries interest rates hit 800% in 2007, he was just as defiant as Chavez.  He said, “I never would have dreamt that we would get to these levels of inflation” but vowed to “not be deterred.”

Maybe Mr. Gono can replace Bernanke

Occasionally, even true believers realize the folly of their actions.  Mr. Gono admitted last November that all their efforts at an economic turnaround were in disarray and a failure.  After six years of central bank planning and fighting inflation, he is ready to give up.  Pumping more money into the economy did not revive the dead patient.

Never spend your money before you have it.—Thomas Jefferson

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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