Venezuela, Part Whatever

More on the collapse of Venezuela, this time considerably more tragic than the beer shortage.

Prednisone and Cellcept, immunosuppressive drugs to avoid rejection of transplanted organs, disappeared from Venezuelan public and private pharmacies since early July, patients told AFP.

Consequently, hundreds of patients are faced with a critical situation: their treatment cannot be interrupted not even for a day, as they could lose the kidney or liver for which they waited for years.

"When (human) prednisone ran out, everybody started to look for the canine drug," reported the President of the Venezuelan Pharmaceutical Federation (Fefarven), Freddy Ceballos.

Socialismo o Muerte!, as they used to say in Cuba.

Or maybe both.

Grexit: Sooner or Later

Most Europeans want Greece gone.

YouGov polls show that a) Most Europeans would like to see Greece out of the Eurozone; and b) Most think they will be gone in five years.

The question asked in the poll was “Would you prefer Greece to leave or stay part of the Eurozone?” and although Germans unsurprisingly feel most negative towards Greece, a majority in all countries polled disapproved of the recent bailout deal, and would prefer the debt-ridden country to leave the common currency.

Venezuelan Beer Shortage, Part II

Well, yes, it's true that the whole point of this post
was to justify slipping this picture in here.
Clever of me, wasn't it?

Last week, I mentioned that Venezuela was running out of beer (together with a bit of snark that failed states ought to make darned sure they have plenty of booze to deaden the pain). Maybe instead of being snarky, I should have offered some serious advice to any R4ers traveling to Venezuela: Keep your mouth shut about the beer shortage.

Without knowing the crimes alleged against him, the general director of the Venezuelan Federation of Liquor Producers (Fevelif) was arrested on Friday, July 24. According to local media, Fray Roa could appear in court on Monday, July 27.

While there remains no stated justification for the arrest, Venezuelans haven’t failed to notice that it occurred right after Roa shared revelations with journalist Gabriela Frías on her television program Global Portfolio, broadcast on CNN en Español. […]

The industry representative complained about the lack of raw materials for the production of beer and malt in the country.

Ain’t socialismo wonderful?

The Greek Economic Soap Opera Isn't Over

In case you thought the Greek economic clown show was over – nope, it rolls on and on.

Reports out of Athens are that the left wing of the ruling party tried to execute a seizure of the Bank of Greece’s reserves, a deal with Russia, and a return to the drachma.

From Reuters:

Some members of Greece’s leftist government wanted to raid central bank reserves and hack taxpayer accounts to prepare a return to the drachma, according to reports on Sunday that highlighted the chaos in the ruling Syriza party.

It is not clear how seriously the plans, attributed to former Energy Minister Panagiotis Lafazanis and former Finance Minister Yanis Varoufakis, were considered by the government and both ministers were sacked earlier this month. However the reports have been seized on by opposition parties who have demanded an explanation. […]

In an interview with Sunday’s edition of the RealNews daily, Panagiotis Lafazanis, the hardline former energy minister who lost his job after rebelling over the bailout plans, said he had urged the government to tap the reserves of the Bank of Greece in defiance of the European Central Bank.

Lafazanis, leader of a hardline faction in the ruling Syriza party that has argued for a return to the drachma, said the move would have allowed pensions and public sector wages to be paid if Greece were forced out of the euro.

“The main reason for that was for the Greek economy and Greek people to survive, which is the utmost duty every government has under the constitution,” he said.

Financial Times adds in re Russia (quoted from Forbes):

Mr Lafazanis visited Moscow three times as Mr Tsipras’s envoy after Syriza came to power in January. In return for signing up to a new gas pipeline project, he hoped for at least €5bn in prepayments of gas transit fees, according to people briefed on the initiative. But the Russians rejected the deal the week before the EU summit.

“It was all a fantasy,” said a senior Greek banker. “The Left Platform’s dreams of free gas and a Russian-backed drachma have crumbled away.”

Forbes goes on to note that it is questionable at best that the pipeline will ever be built, anyway.

I’m glad the Greeks are back — they’re so entertaining.

Beer Shortage in Venezuela

One would think that a failed government would take pains to ensure a copious supply of alcohol as a way to deaden the senses.

The Coming Municipal Pension Disaster

Everybody knows about Chicago, of course, but there are a number of cities and states with huge pension shortfalls.

Moody’s, which in 2013 began using a lower rate than governments do to calculate future liabilities, has estimated that the 25 largest U.S. public pensions alone have $2 trillion less than they need. Cincinnati and Minneapolis are among cities Moody’s has since downgraded.
 

The credit-rating company said in a report Friday that the shortfall in Dallas’s police and firefighters’ pension system will more than triple to $4.7 billion because of the accounting-rule shift.

Houston is mentioned elsewhere in the article as having been recently warned.

Many funds have hidden their deficits by assuming unrealistically high returns on their investments.

The California Public Employees’ Retirement System, the largest U.S. pension, this week said it earned just 2.4 percent last fiscal year, one-third of the annual return it projects. The California State Teachers’ Retirement System, the second-biggest fund, gained 4.5 percent, compared with its 7.5 percent goal.

Competition Raises Prices

Here’s how little understanding some folks have of economics.

Yesterday Pennsylvania Gov. Tom Wolf vetoed a bill that would have privatized the sale of wine and liquor while liberalizing the rules for selling beer in the Keystone State. Wolf counterintutively argues that replacing the state monopoly with private businesses would be bad for consumers. “During consideration of this legislation,” he says, “it became abundantly clear that this plan would result in higher prices for consumers.” He also worries that letting private businesses sell beer and wine would result in “less selection for consumers.”

To be fair, Wolf probably knows perfectly well that competition lowers prices – the real motive behind his veto was most likely to protect the public employee unions.

Taxing Drivers for Every Mile Driven

Here’s a great example of governments getting caught up in the Law of Unintended Consequences. The feds have offered incentives for buyers of electric and hybrid vehicles, and they have mandated (and the market has forced drivers toward) greater fuel efficiency in gasoline vehicles. But the states are dependent upon gasoline taxes for a significant portion of their budgets.

Solution: Tax people by mileage driven, coming soon to Oregon, (a system cleverly named OreGO), with twenty-eight other states considering such programs.

Oregon’s Department of Transportation has been working on it for 15 years as a way to eventually replace the gas tax, which has been flat due to an influx of high mileage vehicles and people driving less.

Right now the program is voluntary and being capped at 5,000 participants, but an ODOT official told Fox News the ultimate goal is to make it mandatory and change the way states pay for roads — forever.

However:

Two of the three OReGO systems track and store a car’s every move.

Europeans’ Views of Europeans

The Independent (UK) offers a possible explanation for part of the Greece/EU divide. The Greeks simply view themselves very, very differently from how the rest of Europe sees them.

Chicago Downgraded Again

Ho-hum, another rating service downgrades Chicago.

    Citing the lack of a long-term plan to fund pensions for city police and fire personnel, another financial ratings agency has lowered its credit rating for Chicago city government.

    Standard & Poor’s Ratings Services announced Wednesday it lowered its rating on City Hall’s general obligation bond debt one notch, from ‘A-’ to ‘BBB+’ with a negative outlook. That’s still above its “junk” rating.

    The move follows Moody’s Investors Service rating the city’s debt at junk status in May. The Moody’s downgrade contributed to city taxpayers being forced to accept higher interest rates on a $674 million borrowing deal that occurred shortly after the rating was issued.

Hey, Detroit, make a bit of room there in the Bankruptcy Bin.

Tsipras Gets Sent to His Room

Other than their approximate equality in height, doesn't Alexis Tsipras look pretty much like a six-year-old getting a lecture from mom and dad?

Which is, come to think of it, pretty much what's happening.

Chinese Stockmarket

As if Grexit weren't enough to worry about in terms of the world economy...

Some Asian markets on Monday declined less than anticipated in response to Sunday's Greek No vote. It may be because the Chinese market was being propped up. Per USAToday:

    On Saturday, China’s 21 largest brokerage firms said they would spend a whopping 120 billion yuan (about $19.3 billion) to try to stabilize the market, according to Chinese state media. The firms will actually buy stock funds themselves.

    The goal is to show regular mom and pop investors that the big players still think buying stocks is a good idea. It’s a similar strategy to companies buying back their stock when they think it’s undervalued.

The Economist had this to say about the situation:

    The crash has underlined the burgeoning role of debt in Chinese share-trading. Goldman Sachs reckons outstanding margin financing, at 2.2 trillion yuan ($355 billion) earlier this week, was the equivalent of 12% of the value of all freely traded shares on the market, or 3.5% of China’s GDP. Both “are easily the highest in the history of global equity markets,” its analysts noted. With Chinese shadow banks and peer-to-peer lenders also offering cash to investors, the amount of hidden leverage in the market is estimated to be as much as 50% higher. That debt helped fuel the initial rally. It is now adding to the pain, as leveraged investors rush to sell their holdings to cover their debts.

How Dumb is Donald Trump?

In his campaign kick-off, Donald Trump said a bunch of stupid things. His comments about Mexican illegal immigrants got the most attention, but he also said:

“When did we beat Japan at anything?”

When' just a couple days later, the USA beat Japan in the Women's World Cup (USA! USA!) a lot of people took pleasure in laughing at The Donald. :

Even before the game though, it was a really, really stupid thing to say (even by Trump’s standards). Is he not aware of what has been called Japan’s ‘Lost Decade’? Is he stuck in the ’90s or something?

The Lost Decade ... is the time after the Japanese asset price bubble's collapse within the Japanese economy. The term originally referred to the years from 1991 to 2000, but recently the decade from 2001 to 2010 is often included, so that the whole period of the 1990s to the present is referred to as the Lost Two Decades or the Lost 20 Years... Over the period of 1995 to 2007, GDP fell from $5.33 to $4.36 trillion in nominal terms, real wages fell around 5%, while the country experienced a stagnant price level. While there is some debate on the extent and measurement of Japan's setbacks, the economic effect of the Lost Decade is well established and Japanese policymakers continue to grapple with its consequences.

What Trump said was the sort of thing people were saying twenty-five years ago.

The Worst-Case Scenario

Much talk recently about 'Grexit' -- the collapse of Greece's economy and the possibility that they may leave (or be tossed out of) the Euro and maybe even the EU. Grexit = GReek EXIT.

Tomorrow they are holding a referendum to decide if they will accept their creditors' final offer. Except the creditors have withdrawn the offer, so they are voting on whether or not to accept a deal that doesn't exist. Which is pretty much the degree of reality with which Greece has been conducting itself throughout this whole thing.

Anyway, as we await the results of the Greek psuedo-referendum, Foreign Policy has a look at what might happen if Grexit were combined with an implosion of the Chinese stock market.

If Greece defaults and eventually has to abandon the euro, the currency’s sheen of invulnerability will disappear. The impossible will have become possible, and investors will be forced to consider the fact that other countries — Portugal may be next in line — might someday exit the eurozone as well. 

Uncertainty about the underlying value of the euro will increase dramatically. There will be no way to know what the euro or euro-denominated securities ought to be worth if the makeup of the eurozone itself is unpredictable. Central banks built up euros as a counterweight to dollars in their reserves for years; that trend, already in reverse, could turn into a swan dive.

And then there's China.

Now throw in the bursting stock-market bubble in China. Companies there have used high stock prices to pay off debt through new public offerings. But investors have borrowed hundreds of billions to finance their portfolios, pushing prices still higher. If the markets crash — and even a loosening of rules on margin trading hasn’t been able to stop their recent slide — free-spending companies will have garnered an undeserved measure of solidity at the expense of millions of Chinese households. Billions in private saving will have financed a raft of pointless projects, destroying wealth and distorting incentives at the same time. 

The global implications will be equally bad. Many financial institutions have undoubtedly bet against the Chinese markets, but those that held onto Chinese securities will be forced to pull back the riskier assets in their portfolios. Any contagion of Greece’s problems in other less-creditworthy countries will be magnified. Meanwhile, Chinese investors will have to sell their holdings abroad to cover their margins and losses at home. Major markets will drop, except for the beneficiaries of the usual flight to safety.

In addition, FP goes on, China will cut way back on imports, impacting numerous countries (China buys ¼ of Australia's and South Korea's exports).

Read the whole thing, it's interesting, and a bit scary. How likely?:”This week, analysts gave Greece up to a 50 percent chance of leaving the eurozone. The Shanghai Composite has already plunged by 20 percent since June 12.”

Ain't Socialism Wonderful?

In Cuba, if you wait in line for two hours and pay 10% of your monthly salary (assuming you're at the top of the wage scale), you can get a single scoop of ice cream from the state-owned ice cream shop.

Your choices are strawberry and … strawberry.

Acknowledging the Arguments Against Free Trade

I am a fairly hardcore free-trader; sometime, I’m afraid, just reflexively so. I think, however, that it may be time to re-examine my position, and be more careful about judging each trade proposal on its own merits.

I was impressed by this article by David Frum in The Atlantic, which is predominately pro-trade (and, more specifically, pro-TPP), but it ends with this cautionary note that I think free-traders such as myself should take heed of:

Trade is a pro-growth policy. But when the proceeds of growth are not widely shared, and not perceived as widely shared, it becomes difficult to sustain the consensus in favor of pro-growth measures—especially when those measures seem to impose costs on American workers.

Tomorrow Will Be Interesting in Athens

I've been following the Grexit drama for what seems like most of my life, though in reality it has only been several months (with roots reaching back to 2009). But we finally seem to be coming to the end game.

Dorothea Lambros stood outside an HSBC branch in central Athens on Friday afternoon, an envelope stuffed with cash in one hand and a 38,000 euro ($43,000) cashier’s check in the other. 

She was a few minutes too late to make her deposit at the London-based bank. She was too scared to take her life-savings back to her Greek bank. She worried it wouldn’t survive the weekend. 

“I don’t know what happens on Monday,” said Lambros, a 58-year-old government employee. 

Nobody does. Every shifting deadline, every last-gasp effort has built up to this: a nation that went to sleep on Friday not knowing what Monday will bring. A deal, or more brinkmanship. Shuttered banks and empty cash machines, or a few more days of euros in their pockets and drachmas in their past - - and maybe their future.

Good luck to the Greeks, but this seems unlikely to end well for them. As Margaret Thatcher noted, the problem with socialism is that eventually you run out of other people's money, and Greece has run out.

Zimbabwe Gives up on Its Currency

Zimbabwe is killing off its worthless currency as of Monday. Holders of the Zimbabwean dollar can exchange for US dollars at a rate of Z$35,000,000,000,000 = US$1 (that's thirty-five quadrillion).

The southern African country started using foreign currencies like the U.S. dollar and South African rand in 2009 after the Zimbabwean dollar was ruined by hyper-inflation, which hit 500 billion percent in 2008.At the height of Zimbabwe's economic crisis in 2008, Zimbabweans had to carry plastic bags bulging with bank notes to buy basic goods like bread and milk. Prices were rising at least twice a day.

This brings to mind stories I've heard about the Weimar Republic in the early Twenties.

Apparently, some Zimbabweans sell banknotes to tourists as souvenirs. With a Z$100 trillion note being worth about forty cents, that's probably a good course to follow. Heck, if I were in Zimbabwe, I'd probably pay a couple bucks for one.

Connecticut Gets Really Dumb

From CoyoteBlog (one of my favorites):

But the biggest blow is making permanent a 20% surtax on a company’s annual tax liability—a tax on a tax—and for the first time taxing Connecticut companies on their world-wide income, rather than what they earn in the state. 

If I were a governor of another state, I'd have my Economic Development office make up a list of large international corporations headquartered in Connecticut, and I'd be on the phone a large part of every day calling their CEOs.

How Segregated Public Housing Came to Be

A historian argues on NPR that inner-city ghettos are the result of conscious public policy begun under FDR.

Richard Rothstein, a research associate at the Economic Policy Institute, has spent years studying the history of residential segregation in America. 

“We have a myth today that the ghettos in metropolitan areas around the country are what the Supreme Court calls ‘de-facto’ — just the accident of the fact that people have not enough income to move into middle class neighborhoods or because real estate agents steered black and white families to different neighborhoods or because there was white flight,” Rothstein tells Fresh Air’s Terry Gross. 

“It was not the unintended effect of benign policies,” he says. “It was an explicit, racially purposeful policy that was pursued at all levels of government, and that’s the reason we have these ghettos today and we are reaping the fruits of those policies.”

Rothstein cites primarily two federal policies; one in regard to public housing:

… policy was that public housing could be used only to house people of the same race as the neighborhood in which it was located, but, in fact, most of the public housing that was built in the early years was built in integrated neighborhoods, which they razed and then built segregated public housing in those neighborhoods. So public housing created racial segregation where none existed before.

The second policy he cites involves FHA financing:

 … the Federal Housing Administration gave builders like Levitt concessionary loans through banks because they guaranteed loans at lower interest rates for banks that the developers could use to build these subdivisions on the condition that no homes in those subdivisions be sold to African-Americans.