As crisis worsens, Venezuela becoming more isolated

simon bolivar airport

Venezuela’s implosion continues.

Amid hyperinflation, massive unemployment, social unrest, political oppression and shortages of food and medicine, the South American nation is on the verge of general anarchy, a legacy of Hugo Chávez’s years of mismanagement, along with that of successor Nicolás Maduro.

So it’s hardly surprising that airlines such as Lufthansa and LATAM Airlines are crossing the country off their schedules.

The pair joins Air Canada, American Airlines and Alitalia which in recent years have scaled back or suspended Venezuelan operations, according to The Economist.

But it isn’t just unrest or political chaos that’s driving airlines to divert flights elsewhere.

Venezuela, seeking to avoid yet another devaluation of its currency or outright repudiation of debt, which would cut off credit to the ailing oil industry, has tightened currency controls introduced by Chávez in 2003.

The restrictions make it almost impossible for companies such as international airlines to convert the Venezuelan currency, bolívares, into dollars.

This has made it difficult for international airlines, who typically charge customers in local currencies, to repatriate their profits.

That isn’t surprising given that Chávez initially implemented currency controls after capital flight led to a devaluation of the currency.

“Lufthansa has written off the more than $100 million it says it is owed; LATAM says it is due $3 million,” according to The Economist. “The International Air Transport Association, the airlines’ trade body, estimates that Venezuela’s government is withholding $3.8 billion of airline revenues.”

A Lufthansa spokesman told Agence France-Presse that the country’s difficult economic situation and “the fact that is it is not possible to transfer foreign currency out of the country,” is behind the company’s decision.

Lufthansa is scheduled to quit service to the country this week; LATAM, Latin America’s largest airline group, has said it will stop flights to Venezuela by Aug. 1.

Contrast the current situation with that of 40 years ago, when Venezuela’s oil wealth attracted business travelers – and airlines – from all over the world.

At present, just a handful of foreign airlines continue to serve the troubled nation, including Air France and United Airlines.

But both are public companies and it seems unlikely either can or will stand for having their revenues tied up by a banana republic.

(Top: Air France plane show in foreground at Simon Bolivar Airport, near Caracas, Venezuela.)

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Venezuela: Continuing down the rabbit hole of ineptitude

venezeula inflation

Unbridled inflation tends to wreak havoc with economies, but one would think that if any industry were to benefit from rampant rising prices it would be that of paper currency manufacturers.

A country which is churning out billions of bank notes has got be good for the folks who run the printing press, right?

Leave it to Venezuela to botch that line of business, along with just about everything else.

As the country’s hard currency reserves sink to critically low levels, Venezuela’s central bank is paying foreign paper currency providers so slowly that the latter are beginning to back off on taking on additional contracts. In addition, it was disclosed recently that one company under contract to print money for the South American nation was owed more than $70 million.

Venezuela began its downward spiral with Hugo Chavez’sBolivarian Revolution,” which involved nationalizing different industries, implementing price controls and expropriating farmland.

Today Venezuela’s inflation is the highest in the world; it’s expected to rise to nearly 700 percent this year.

Adding to the nation’s fiscal difficulties is the fact that it takes a boatload of money for even the most basic transactions. Venezuela’s largest bill, the 100-bolivar note, barely pays for a loose cigarette at a street kiosk, according to Bloomberg.

Venezuela differs from other countries that have struggled with hyperinflation because it hasn’t reacted to raging prices by printing bank notes of astronomical denominations, such as the $100 trillion note produced by Zimbabwe not too long ago.

As inflation skyrockets and hard currency reserves plummet in Venezuela, paper currency manufacturers find themselves reluctant to commit sizeable resources as the nation’s ability to repay dwindles daily.

“The first signs of the currency shortage date back to 2014 when the government began increasing shipments of bank notes as wallet-busting wads of cash were already needed for simple transactions,” according to Bloomberg.

Today, Venezuelans spend hours waiting in line for consumer staples, lining up first at banks and cash machines, and often carrying money in backpacks and gym bags to pay for dinner out.

In 2015, the nation’s central bank selected companies in the United Kingdom, France and Germany to produce 2.6 billion bank notes. Before the delivery was even completed, the companies were approached by the central bank seeking even more notes.

UK-based De La Rue, which handles work for more than 150 nations, took the lion’s share of the order and enlisted Ottawa-based Canadian Bank Note Company to ensure it could meet a tight end-of-year deadline.

How big an order are we talking about?

Once printed, they arrived in Venezuela in dozens of 747 jets and chartered planes, according to Bloomberg. Under cover of security forces and snipers, it was transferred to armored caravans where it was spirited to the central bank in the dead of the night.

Even as the cash was still arriving authorities began planning for 2016. In late 2015, the central bank more than tripled its original order, offering tenders for some 10.2 billion bank notes.

But currency manufacturers began to grow concerned.

“According to company documents, De La Rue began experiencing delays in payment as early as June,” Bloomberg reported. “Similarly, the bank was slow to pay (Germany’s) Giesecke & Devrient and (France’s) Oberthur Fiduciaire. So when the tender was offered, the government only received about 3.3 billion in bids, bank documents show.”

Just last month, De La Rue sent a letter to the central bank complaining that it was owed $71 million and would inform its shareholders if the money were not forthcoming.

(Top: Even simple transactions require stacks of paper currency in Venezuela, thanks to massive inflation.)

Shining a light on anti-independence fallacies

Portrait of a boy with the flag of Wales painted on his face.

Among common canards used to thwart peaceful independence movements is the idea that the entity attempting to go its own way is too small, too poor, has too few people, etc.

These were arguments employed by those who opposed Scotland’s independence referendum in 2014, and who resist sovereignty movements in Catalonia and Corsica, among other regions of the world where a segment of the population is pondering an autonomous path.

But the blog Borthlas, focusing on the idea of Welsh independence from the UK – said by some to be impossible because Wales is “too poor” – raises interesting points:

Borthlas turns to a comparison of national per-capita GDP as a means to judge a region’s muscle, admitting that this is not an exact science because per-capita GDP tells nothing about the relative cost of living in a country.

“The population of a country with a low GDP per capita and a low cost of living might actually feel better off than the people of another country where both figures are higher,” the blog explains. “It also tells us nothing about the way wealth is shared out in a country – so the population of a country with a low GDP per capita but where the wealth is evenly shared might feel better off than the people of a country with a high GDP per head and huge inequality.”

But despite those caveats, per-capita GDP is still a good starting point to assess where would Wales fit were it an independent state, Borthlas writes.

  • According to International Monetary Fund figures, Wales would place 24th in the world in per-capita GDP were it independent of the UK, out of more than 170 countries;
  • The World Bank puts Wales at 27th, ahead of more than 150 other nations; and
  • The United Nations ranks Wales 31st place, with more than 160-odd countries beneath it.

Each organization has per-capita GDP figures for a different number of countries; currently there is something like 195 recognized independent nations.

Map of Wales.

Map of Wales.

Wales fares relatively well among European Union nations, as well, ranking in the top half, according to Borthlas.

The real issue why it’s difficult for regions such as Wales, Scotland and Catalonia to gain traction when it comes to independence is multi-fold.

First, these areas are often compared economically to the countries of which they are a part. Wales and Scotland aren’t going to stack up very well against the UK as whole, but then again, neither would England proper. But if there’s a place in the world for the likes of Andorra, Belize, Equatorial Guinea and Liechtenstein, entities such as an independent Wales, Scotland and Catalonia would not only have little problem surviving, but would almost certainly thrive.

Next, traditionalists, and certainly hidebound imperialists, are almost always reluctant to give up that which they have spent centuries holding reign over, for psychological and political reasons.

Finally, the loss of any portion of a nation to independence means a loss of money, one way or the other. Some may point to a region such as Wales and say that it receives significant sums from the UK Treasury. However, Wales is denied sovereign control over its natural resources, including water, mineral and energy exports.

Ultimately, the bottom line tends to be the bottom line these days when it comes to adhering to the concept of self-determination.

Does New Hampshire really smoke like a locomotive?

The interesting graphic above details cigarette sales state by state between 1970 and 2012. While there’s no question smoking has declined in the US over the past 40-plus years, the trend has nuances not indicated in the chart.

If one looks at the map for 2012, the last year shown, cigarette sales are greatest in West Virginia, Kentucky and New Hampshire, with the three states registering 105, 100 and 94 packs sold per resident, respectively.

New Hampshire would seem out of place with Kentucky and West Virginia, two states located firmly in the Appalachians, where smoking is more accepted culturally in a region noted for its blue-collar lifestyle.

On the other hand, a significant portion of New Hampshire now serves as a bedroom community for Massachusetts’ white collar labor force, with the commensurate rise in housing bringing an increasing number of young middle- and upper-middle class individuals into the state, hardly the sort known for consuming large amounts of smokes.

However, it almost certainly wasn’t nicotine-frenzied Granite State residents alone that drove New Hampshire cigarette sales in 2012, but individuals from all of New England.

In 2012, a pack of cigarettes cost $4.86 in New Hampshire, compared to $6.97 in neighboring Maine, $7.60 in Vermont and $8.49 in Massachusetts. Prices were almost as high or even higher in the other two New England states: $8.16 a pack in Rhode Island and $8.85 in Connecticut.

Cigarette sales per capita, 2012.

Cigarette sales per capita, 2012. Click on to understand.

Factor in that New Hampshire has no sales tax and you had a happy hunting ground for those wanting to stock up on cheap cigarettes. And the difference in price made a short drive worthwhile: someone from Massachusetts, for example, who drove over the border to New Hampshire could save nearly $75 on just two cartons (20 packs) of cigarettes.

West Virginia’s average price for cigarettes in 2012 was $4.84 a pack, the lowest in the country. Prices in all neighboring states were higher: Virginia, $5.43; Ohio, $5.67; Maryland, $6.53; Kentucky, $6.56; and Pennsylvania, $6.93. It’s easy to see that residents in border states would likely at least partly drive up sales in a bid to save money.

Kentucky, however, is an outlier. Its price per pack wasn’t cheap – it ranked in the top half of the nation in terms of cost per pack in 2012 – so why did it come in second in per capita cigarette sales?

Looking at the cost of cigarettes in surrounding states, Tennessee, $4.91 a pack; Virginia, $5.43; Indiana, $5.56; Missouri, $5.87; and Illinois, $10.25, all but the latter are cheaper than Kentucky.

However, Kentucky had just seen prices spike due to increases in state and federal cigarette taxes, raising the cost per pack from $4.97 to $6.56.

While some Kentuckians may have been able to cross the border to buy less-expensive smokes in bordering states, it was likely inconvenient for others to do so, due to distance and terrain. And, of course, some people are going to smoke, no matter what the expense. Over time, Kentucky’s per capita rate will drop, but not into the range of, say California or Utah.

And it doesn’t matter how high the government raises cigarette taxes; at some point, smokers will simply begin buying tax-free bootleg smokes.

So while smoking is certainly on the decline in the US, trying to gauge the impact of tax increases on smoking on a state-by-state basis is an iffy proposition. Pushing up the price of cigarettes in one state may simply be driving at least a portion of consumers to surrounding states, particularly if prices are significantly lower.

(HT: Carpe Diem)

I’ll see your plutonium and raise you one microgram of californium

californium-knows-how-to-party

When comparing apples and oranges, the former sell for nearly double the latter, at least according to what’s available at a nearby grocery store. Yet the price per ounce – 10 cents and 5 cents, respectively – are miniscule compared to some of the world’s rarer materials.

Consider white truffles: An ounce of the prized fungus, which grows for just a couple of months of the year almost exclusively in one part of Italy and is best located by special pigs, sells for more than $140 an ounce. Seem excessive? That doesn’t even begin to compare with some even more expensive items, according to the online publication Visual Capitalist.

Saffron, a spice native to Greece and Southwest Asia and used mainly as a seasoning and coloring agent in food, goes for more than $310 an ounce.

Palladium, a rare metal used in catalytic converters, among a number of items, sells for more $500 an ounce, while gold, the monetary standby of yore, is currently fetching nearly $1,200 an ounce.

Iranian beluga caviar, taken from sturgeon found mainly in the Caspian Sea, brings nearly $1,000 an ounce.

Yet those don’t come close to some upper-end items, according to the Visual Capitalist.

Plutonium, the radioactive element used in the first atomic bomb and employed at nuclear power plants, goes for more than $110,000 an ounce.

The Visual Capitalist estimated that an ounce of high-quality diamonds, nearly 142 carats, would sell for more than $1.8 million.

Finally, californium, a man-made element used to help start up nuclear reactors, would sell for more than $750 million an ounce – if that much californium could ever be produced.

Today, californium can be made only in milligram amounts and is available from the US government for $10 per millionth of a gram, a microgram.

How big would one-millionth of gram of californium be? I don’t know, but it’s probably not something you want to trust the summer intern with.

(Top: Slightly humorous meme in place of image of Californium, which is so small and rare that no decent image of it can be found on the internet.)

Ability to sustain pearly platitudes dwindling rapidly

sustainable

Yet another word battered into meaningless by overuse and corporate marketing.

Here’s a hint: once the big boys of industry start littering their advertising with a specific term, such “sustainable” or “going green” or “giving back,” that term has probably not only been utterly co-opted, but lost any real meaning.

Sustainability, or its elite cousin, “sustainable development,” always seemed like a loaded term, anyway – another way of saying that a small group somewhere thinks it should have the ability to control how a much larger segment of people live their lives, based on what the smaller group believes is in everyone’s best interests.

The goal of sustainability is what’s best for the planet. The problem is, who’s determining what’s best for whom, and what the cost in economic, political and intellectual liberty?

Most of us, say, can agree it would be nice if the Amazon wasn’t stripped to look like a World War I battlefield. But is it right to tell the dirt-poor Brazilian farmer, trying to scratch out of a living, that he can no longer clear trees to grow crops to feed his family and try to earn a living, so that first-world do-gooders can feel like they’ve effected change?

I’ll have the free lunch – as long as he’s paying for it

freelunch_thumb

Here’s an unsurprising bit of news out of our nation’s capital:

An overwhelming majority of Washington, D.C., residents support a proposal before the District Council to give each worker in the city 16 weeks of paid time off to care for a newborn or for a dying family member, according to the Washington Post.

The predictable part is that more than half of those polled also say they don’t want workers themselves to have to pay for the largesse.

Sorry, guys (and gals), but as Milton Friedman stated ever so eloquently, there’s no such thing as a free lunch. Someone somewhere is going to have to pick up the tab.

If you understand and accept that you’re going to pay one way or the other, that’s fine. But if you expect others to willingly pony up, or that benefits will flow like manna from heaven, you’ve got another thing coming.

The last time I looked the District of Columbia doesn’t have its own printing presses with which to churn out money, so D.C. would have to raise taxes and/or cut employees to pay for such a benefit.

Understand, that’s not a judgment on whether the benefit is worth the cost, but a simple matter of fact. If workers are going to be allowed 16 weeks of paid time off to care for newborns or dying family members, the district will need funds to oblige.

Those pushing for the minimum wage to be increased to $15 an hour need to recognize this reality, as well. Over the course of a year, a full-time worker making $15 an hour would earn a little more than $32,000. That’s all well and good but, again, that money has to come from somewhere.

As the alchemists of old discovered, you can’t get something for nothing. There is a cost to every benefit, even if that cost is hidden. To pretend otherwise is to be foolish, disingenuous or willingly naïve.