The Venezuela crisis demonstrates what happens when the government of country obstructs the economy and stacks up debt.
As far as the major media is concerned the Venezuela crisis demonstrates what happens to the economy of third world countries. One recent consequence of this crisis was an electricity shortage.
The Washington Post recently reported on the economic crisis in Venezuela and singled out two key factors—destroying economic productivity and debt.
It really shouldn’t have been hard for the government to use some of its petrodollars on the poor without destroying the economy. Every other oil-rich country, after all, has figured that out. But you can’t redistribute oil profits if there aren’t oil profits to redistribute, or at least not many of them. And there weren’t after Hugo Chavez replaced people who knew what they were doing with people he knew would be loyal to him at the state-owned oil company. It didn’t help that he scared foreign oil companies off too. Or that he took money out, but didn’t put it back in, so that they can no longer turn as much of their extra-heavy crude into refined oil. Add it all up, and Venezuela’s oil production actually fell by about 25 percent between 1999 and 2013.
But that didn’t stop the government from going on a spending spree. How big of one? Well, even triple-digit oil prices weren’t enough to balance its books. So it got money from the one place it could: the printing press. And it has had to get a lot more now that oil prices have fallen so far the past two years. The result, as you might expect, of printing all these bolivars is that the bolivar has lost almost all its value against the dollar — and no, that’s not hyperbole. Since the start of 2012, the bolivar has, according to black market rates, fallen 99.1 percent against the dollar.
The problem here is that economic laws apply everywhere, not just in South America. In the United States we have a government that is increasingly choking off productive industries, like healthcare and industry. We also have a government addicted to spending more than it has.
We may not be as bad as Venezuela, but we will be.