This past week you may have caught some interesting pieces of news flowing out of Venezuela. Military units were starting a mutiny against Venezuelan President Nicolas Maduro (source). Russian PMCs were reported to be guarding Maduro (source). England blocks the withdrawal of $1.2 billion in gold from a stash of $8 billion that the government had hidden away in Britain (source).
By themselves these articles may not seem like much, but together they paint a picture of a nation torn apart and a head of government scrambling to get out before he’s executed by the people he’d been oppressing for years. The country is falling apart and has been for decades. People have been suffering under a corrupt and brutal regime, but it looks that may all be over soon.
Venezuela sits atop the world’s largest proven oil reserves. They should be even wealthier than Saudia Arabia, yet one of the biggest problems in Venezuela is the widespread shortage of food and the malnutrition that accompanies it. Most of the population lost weight under this collective lack of food causing an average weight loss of 19 or more pounds per year. The people jokingly call this the “Maduro Diet”.
So how did they get there?
To get a good picture of how this happened we need to go back in time to the previous regime, the Presidency of Hugo Chavez. During Chavez’s reign the thought was to use Venezuela’s vast oil reserves to pay for everything the people needed. To that end the government took over the oil industry and began importing goods for the people from overseas. This coupled with the promise of vast social programs paid for by the oil made Chavez temporarily very popular with the people. That popularity wouldn’t last.
Chavez’s plan had a couple flaws in it. First, it fell into the same trap that’s plagued civilization for as long as its been around. A government with total control of the economy only works when it is 100 percent staffed with saints. Get just one sinner on board and the corruption train will depart the station for catastrophe-ville. The second flaw was this plan depended on oil revenue staying high. Once the price of oil dropped off the chart so did all those nice things Chavez promised to his citizens.
This was what got the snowball rolling. Further missteps by the government just made it roll faster and get a whole lot bigger.
A lot of those imports were food items. So as this collapse in oil prices and government promises unfolded, the shelves in supermarkets started to look a little bare. But there was still food for most people. This would change shortly as Venezuelan farmers began to feel the pinch of a shrinking economy and government corruption.
In the US, when a farmer wants to buy a new tractor from John Deere its no problem to pay for it in the local currency because the factory takes US Dollars without question. That’s because the US Dollar is one of the most steady currencies in the world and you don’t need to worry that the Dollars you took in today from a customer won’t buy you as much tomorrow when you try to spend it. This isn’t the case with Venezuelan Bolivars which at the time (and today) have an uncertain future. Other than the certainty that it will be worth far less in the future.
So when that Venezuelan farmer contacts John Deere about buying a new tractor to help with the increased demand for food, John Deere asks for payment in US Dollars. No problem, right? Our farmer can just go to the bank and exchange his Bolivars for Dollars. The only problem was that this was what everyone in the country was doing. The Chavez government didn’t like that all their valuable and stable Dollars were fleeing to foreign nations. So Chavez created a new government bureaucracy to control “capital flight” and limit the amount of valuables leaving their shores.
What this meant to our farmer was the bank would tell him they could only exchange Bolivars for Dollars up to a government mandated limit, which of course wasn’t enough for his new tractor. Funnily enough, if you were in good with the administration you had a much higher limit. Remember that part about needing to have 100 percent saints running things? This is what happens when that number is less than 100 percent.
So what can our farmer do now that he can’t buy the things he needs to keep up with demand? He can raise prices of course. Supply and demand. Economics 101 stuff right there. Unfortunately, this is what everyone else in the country was doing too. When everyone raises prices you get inflation.
To give you an idea of how bad this inflation is here are the numbers for January 2017 and March of 2018. In 2017 the monthly minimum wage was equivalent to $31.17 USD, but by March of 2018 the minimum wage would only get you $6.13 (source). In about one year it shrunk to just one sixth of its former buying power. Try feeding a family on that.
People simply couldn’t afford our farmer’s new higher rates. So, again, the government stepped in and set caps on the prices our farmer could charge. From the shopper’s perspective this is a good thing because now they can afford to feed their families again. However, now our farmer can no longer make money from traditional methods. As has happened countless times in the past when this situation has cropped up, a black market formed. But this leaves our farmer with a dilemma. He can go bankrupt by obeying the law, or he can pay his bills but risk going to jail.
What a lot of farmers ended up doing was get out of the agriculture business altogether. After all, Chavez had implemented a generous social welfare system that they could live off of funded by all that oil the country owns. The only problem was oil prices remained low and revenue from it couldn’t keep up with all of Chavez’s financial promises. The snowball only got bigger.
In 2013 Hugo Chavez, after battling cancer for two years, died leaving a country in chaos. His Vice President, Nicolas Maduro, claimed that Chavez’s death was an assassination by the CIA caused by infecting him with a cancer forming virus. Then Maduro assumed leadership.
For the people of the country, like our farmer, things didn’t change for the better under Maduro. In fact they got much worse.
With foreign sellers unwilling to take unstable Bolivars and a regime unwilling to part with its valuable Dollars, the black market for food only got bigger and blacker. People were smuggling in food across the border and selling it at outrageous prices. Ports sat empty. Murder skyrocketed to the highest rate in the world as desperate people turned to violence.
Again, the regime stepped in and put the military in control of food distribution.
But remember what I said about needing 100 percent saints? Yet again, this number was well below 100. One import business reported having to charge the government double the going rate on corn contracts. Half of that money was needed for bribing the military at the port.
This was an uncharacteristically wise move for Maduro because it did two things. First, it brought the black market under his control. Second, it kept the military disinclined to rebel while they were making loads of money under the table by shaking down merchants. Maduro may not be the brightest guy when it comes to policy for taking care of his citizens, but he performs at Einstein levels when it comes to preserving his own hide.
However brilliant that move was at preventing a military coup it still left the regular guy hanging out to dry and losing 19+ pounds per year. You can only do that for so long before people hit a wall, and it looks like this particular train is about to smash right into that wall.
Now you might be wondering why our farmer doesn’t just rally all of the others that are upset like him and just vote Maduro out of office. While technically that is possible what happens in Venezuela is every time the public rallies in support of an opposition candidate then armed groups of “grass roots” protesters arrive to break them up. These gangs are known as “Colectivos” and are totally not government backed paramiltary troops that have guns even after private ownership of firearms was outlawed. They are simply concerned citizens making sure only the right people get into office. So our farmer and his friends might have some problems if they decide they want to run a platform against Maduro.
In May of 2018 Venezuela held elections which Maduro won by a landslide. “Won” for certain definitions of the word. A lot of nations, the US included, chose not recognize the validity of this election. So did the National Assembly of Venezuela. They voided the election and appointed the head of the National Assembly, Juan Guaido, as acting President. Nicolas Maduro wasn’t inclined to abide by the will of the National Assembly though and refused to hand over power.
Venezuela now has two men claiming leadership of the country. The board is now set and the world is watching. Things could get ugly really quick in Caracas. Let’s hope they don’t.
Now I hope you fine folks out on the Internet have a better grasp of the situation in Venezuela as it stands today. It’s my hope that those suffering in Venezuela can climb their way out of the hole created by their corrupt government. It truly is a horrible situation they’re stuck in.
I personally have found their story fascinating and a tremendous life lesson for the rest of the world. It is the reason that Venezuela and all its current problems ended up as the backdrop for my book LOST CITY OF GOLD (link). A place where the food supply is a more powerful weapon than anything a soldier could carry is a place where shadowy figures can easily disappear from the world. No one cares about the strange people on the mountain top doing research on bio weapons when the entire village is starving. Only the next meal is important.
A lot of what I pulled into LOST CITY OF GOLD was straight from the research I did for this article. The only made up part is about the mad scientists creating genetically engineered monsters to conquer the world with.
Or is it?