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1  Economy / Economics / Not communism (II):Worsening inflation caused Venezuela’s economic recession on: August 25, 2021, 06:43:28 AM
I mentioned in a previous article: Neither "Dutch disease" nor "abnormal trade" can explain Venezuela's current economic recession and hyperinflation.
Not communism: The real cause of hyperinflation in Venezuela

The root of Venezuela’s economic problems lies in the failure of domestic economic policies and the resulting inflation, which is embodied in Venezuela’s deteriorating domestic inflation, which eventually evolves into super inflation. Deteriorating inflation is the root cause of a series of domestic economic problems in Venezuela and further leading to economic recession.


Deteriorating inflation has a huge impact on Venezuela's economic growth.

Venezuela’s GDP growth rate reached a high point of 5.6% in 2012, and has since turned into a continuous decline. At the same time, 2013 was the year when Venezuela’s CPI turned to a rapid rise, reaching 40.6% that year, breaking the previous average (2002). -The average CPI of Venezuela in 2012 was 23.3%).In the five years from 2012 to 2016, there was a sharp contrast between the decline in GDP growth and the rise in CPI. We can even think that during this period of Venezuelan economy, for every 10% increase in CPI, the GDP growth rate will drop by 1%.


It can be considered that the rapidly rising inflation has brought three significant effects to Venezuela's economy and government fiscal system.

  • 1.Through the Olivera-Tanzi effect, the government's fiscal revenues and expenditures have deteriorated.

Quote
Oliveira-Tanz effect refers to the fact that due to the significant time lag between government revenue (nominal currency revenue) between the time of collection and the time of expenditure, rapid inflation can lead to a significant decrease in the actual purchasing power of fiscal revenue, which in turn causes fiscal revenue and expenditure facts The deficit or expansion of the deficit. For example, if prices rise by 50% within half a year, if fiscal revenue in the first half of the year is arranged for expenditure in the second half of the year, its actual purchasing power will drop by 25%. In this way, the government will have to increase nominal fiscal expenditure in order to maintain the actual effect of fiscal expenditure.

  • 2.Promote the shift of output and employment to the underground economy, further eroding the government's tax base.

With the slowdown and decline of export revenue and fiscal revenue, the Venezuelan government has continuously strengthened its artificial control of the foreign exchange market and prices, and price distortions abound in the domestic economy. Rising inflation has further stimulated people to engage in speculative activities.
Tax evasion and irregular employment have become regular behaviors of ordinary people in Venezuela. In this economic environment, government taxation and fiscal pressure will inevitably increase day by day.

  • 3.Hinder export growth.

The Venezuelan currency, the Bolivar, has been depreciating continuously on the foreign exchange black market since 2003, but the depreciation of the official exchange rate has been seriously lagging behind the market exchange rate. The rise in domestic inflation has caused a real appreciation of the domestic currency on the one hand, and a shortage of foreign exchange on the other. Faced with the shortage of foreign exchange, the Venezuelan government has continuously strengthened the control and rationing of foreign exchange resources, which objectively led to the further deterioration of expectations of devaluation and domestic inflation.



The economic history of many Latin American countries since the 1970s has repeatedly shown that high inflation is the main manifestation of macroeconomic instability and the most important factor hindering economic growth and recovery. The high inflation rate in Venezuela after 2013 is the root cause of the country’s economic disaster.


Opinion Source:International Economic Review/2017/No. 6
2  Economy / Economics / Not communism: The real cause of hyperinflation in Venezuela on: August 20, 2021, 07:07:09 AM
These have nothing to do with communism, and there is no need for such a topic to cause opposition.
Enjoy comunism: Venezuela raises monthly minimum wage to $2.40
Enjoy comunism (II): Venezuela to cut 6 zeros from its currency


Venezuela has seen an increase in inflation since 2013, and fell into a super-inflation vortex at the end of 2016. At the same time, Venezuela's national economy began to decline in 2014, and the negative GDP growth rate in 2016 was as high as 18%. Venezuela has become the only country in the world that faces both super inflation and deep economic recession.

The two currently popular explanations-"the Dutch disease" and "abnormal trade theory"-are not sufficient to explain Venezuela's economic disease.


  • the Dutch disease:
Quote
In economics, the Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (for example natural resources) and a decline in other sectors (like the manufacturing sector or agriculture). The presumed mechanism is that as revenues increase in the growing sector (or inflows of foreign aid), the given nation's currency becomes stronger (appreciates) compared to currencies of other nations (manifest in an exchange rate). This results in the nation's other exports becoming more expensive for other countries to buy, and imports becoming cheaper, making those sectors less competitive. While it most often refers to natural resource discovery, it can also refer to "any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment".

The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959.
Venezuela's economic structure does have the characteristics of "Dutch disease", that is, it is highly dependent on the exports of a single industrial sector. However, many economies that also have the characteristics of "Dutch disease" have only experienced an economic slowdown after the international oil price fell since 2014, and there is no such a serious economic recession as Venezuela. Moreover, Venezuela, like other countries with similar economic structures, has accumulated a large amount of foreign exchange funds during the period of high oil prices. These resources would have been sufficient to deal with the problems of falling oil prices and economic downturns.


  • abnormal trade theory:
There is a view that an important reason for Venezuela’s current economic recession is Venezuela’s tensions with the United States and the United States’ trade sanctions against Venezuela.

By comparing the changes in bilateral trade between the United States and China and Venezuela in recent years, we can also see that the two are very similar. This shows that political factors or foreign relations are not the real reason for Venezuela’s serious difficulties in import and export trade. The decline in international oil prices in 2014 did have an adverse effect on Venezuela’s export growth, but the decline in Venezuelan exports was earlier than the change in oil prices. This once again shows that the changes in Venezuela's foreign trade and economic situation are mainly related to domestic factors.


The main reason for the Venezuelan economy to slip into the predicament of super-inflation and deep recession lies in the country, which lies in the mistakes of the Venezuelan government's economic policies, including excessive fiscal expenditure policies and improper foreign exchange control measures. The Venezuelan government may have placed too much emphasis on the positive effects of foreign exchange control measures in the short term, but has overlooked their long-term negative effects. When the foreign exchange resources held by the government are nearly exhausted, the depreciation expected by foreign exchange controls has rapidly increased, leading to an overall deterioration in domestic inflation expectations and actual inflation.

1.Continue to expand fiscal expenditure when the economy slows down, consuming the previous reserve resources.

2.Excessive and improper control of the foreign exchange market.



Improper control of the foreign exchange market is undoubtedly the main reason for the current dilemma in Venezuela. In order to eliminate inflation expectations, the huge difference between the official exchange rate and the market exchange rate must be narrowed. From this perspective, the Venezuelan authorities have two options if they want to overcome the emerging super inflation and economic recession.

1).Strengthen price control and even move towards full control, close the 2,000-kilometer border with Colombia, completely cut off all economic exchanges between the domestic private sector and the outside world, and cut off the private sector’s channels of contact with the market exchange rate; at the same time, further strengthen the control of prices , To weaken the public’s expectations of devaluation and inflation. The difficulty of this path lies in the effectiveness and stability of policy implementation.

2).Implement major economic policy adjustments with international assistance, abolish foreign exchange controls, and shift to full relaxation. Comprehensive control cannot continue to play a role in the long-term, and the removal of foreign exchange control is the fundamental measure to eliminate the difference between the official exchange rate and the market exchange rate in the medium and long term.

Opinion Source:International Economic Review/2017/No. 6



3  Bitcoin / Bitcoin Discussion / Bitcoin are not by nature money, but money consists by its nature of bitcoin? on: August 13, 2021, 09:02:25 AM
Marx mentioned in "A Contribution to the Critique of Political Economy"
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Gold and silver are not by nature money, but money consists by its nature of gold and silver.

1. "Gold and silver are not by nature money" means that gold and silver are not inherently currency. Because gold and silver first appeared in the market as a general commodity, only when the commodity exchange developed to a certain historical stage, a fixed commodity of equivalent value was needed as a medium of exchange, called general equivalent, when the general equivalent was concentrated on gold and silver.  When gold and silver are fixedly used as general equivalents, it is currency. Because gold and silver do not become currency as soon as they come to the world.

2. "money consists by its nature of gold and silver", which means that money should be born of gold and silver, or that gold and silver are born with the excellent characteristics of being currency, which is determined by the natural properties of gold and silver.

So can we deduce the process of Bitcoin becoming a general equivalent from the process of gold and silver becoming a general equivalent?


1.gold was very valuable in ancient times.

The ancient smelting technology is relatively poor, and it is impossible to make copper, iron and other metals into exquisite utensils. You can only choose metals with a relatively low melting point and corrosion resistance as smelting materials. Since silver will become black after air oxidation, it is desirable to preserve the utensils for a long time. Must choose gold as the material. Since the output of ancient gold and silver was very low, the value of gold and silver was guaranteed to be high.

2.Gold and silver, especially gold, were not suitable as a standard currency in ancient times. As a currency, precious metals have the following disadvantages:


  • The output is too small to support social and economic development

Almost all the large gold and silver mines discovered by humans are in Africa and America, not within the scope of the ancient civilized world.

  • The value is too high to be used in daily transactions, and the loss of segmentation is too large

The gold cakes of the Han Dynasty,China, weighed 250 grams each and were valued at 13,000 dollar, which were not used in most transactions. However, if you divide a large piece of gold and silver, there will be loss in the process of dividing and recasting.

  • The quality is mixed, ordinary people can hardly identify

Not to mention the ancients, even the current experts and scholars can hardly judge the specific content of gold and silver in gold and silverware without the help of professional instruments.


These three difficulties have become important factors preventing the large-scale use of gold and silver as currency in ancient societies. In ancient, cattle, salt, and tobacco were generally used as trading intermediaries.

When a large number of gold and silver mines were discovered later, gold and silver were generally used as currency. Later, the gold standard as we know it originated in the United Kingdom. Due to the discovery of a series of large gold mines in Africa and America, the price of gold began to fall. This currency system was first proposed by Newton and fixed the price of gold per ounce at 3 pounds, 17 shillings and 10.5 pence.

In 1797, the United Kingdom announced the coinage regulations, issued gold coins and stipulated the gold content.
In 1816, Britain passed the "Gold Standard System Act" and began to issue paper money with gold as collateral, and the British gold standard was formally established. This situation continued until the World War I.

The fundamental reason for the establishment of the gold standard is not the rarity of gold, but the skyrocketing production of gold, which happened to be controlled by the world's most powerful Britain at that time;If Spain is the world's largest country, I guess it will implement the silver standard.


According to the formation trajectory of the above gold standard.Can we deduce what it takes for Bitcoin to become a currency?
1. Segmentation, this does not need to be resolved for now. Bitcoin can be split to 8 decimal places
2. The total amount is small, the same reason as above. The reason why Satoshi Nakamoto set the total amount of Bitcoin at 21 million seems to be based on the global economic aggregate at that time
3. No major economy promotes Bitcoin. This economy needs to hold a lot of Bitcoin. And it has a lot of voice in the world. Similar to Britain at that time
4. To use Bitcoin, you need to learn some knowledge, while gold and silver don’t need to learn complex knowledge.
5.Does Bitcoin have its intrinsic value? Except for the energy and equipment required for mining to give it a certain value, there is no value that ordinary people understand. Such as: a vase made of gold can be stored for a long time, so gold is very valuable.

opinion source:https://www.gold.org/cn/page/9372
4  Other / Meta / Is there discrimination in the forum on: August 07, 2021, 07:55:12 AM
The cause of the incident was that I had a dispute with a member of a forum in the economic sector because of a point of view.

The title of the post is China-everything is fine! But everything is bad ...(To be honest, I don't think this topic belongs to the economic sector. I think it’s more appropriate to put it in the Politics & Society

But this is not the point of the problem. The crux of the problem is that he mentioned in his reply:
If there was any doubt in my mind that the forum is being specifically targeted by Chinese handlers, this removes that doubt.

I would like to ask, is there such a statement or discrimination circulating in the forum?I’m not sure if there is a certain unspoken rule for a certain nation, a certain culture.Please let me know if so.

If yes, can you give some examples of racial discrimination or ethnic discrimination.If not, that would be great.



being specifically targeted by Chinese handlers

What I want to say is that before that I just checked the post silently and responded to the post. I have never published any topics about China.

Of course I am very grateful to friends who share knowledge in the forum. I will continue to study and also avoid getting into political discussions.


I personally respect all races, all nationalities.My reply to amishmanish was just because I was angry.
5  Other / Beginners & Help / Why buy bitcoins and not altcoins? on: August 04, 2021, 09:39:21 AM
I have seen a lot of opinions about not buying altcoins and always holding bitcoins before registering.

But is there a kind of data to support this? Please don’t just experience it----every time Bitcoin falls, there will be a new ATH to explain.

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