Hugo Chavez leaves a mess behind
The Globe and Mail
Published Tuesday, Mar. 05 2013
Hugo Chavez, one of Latin America’s most formidable politicians, will be remembered for his enduring political acumen and virile charm. But ultimately, the great caudillo fell short in his goal of establishing an alternative model of development for his country, and for the world. The Bolivarian revolution – named for the independence hero Simon Bolivar – did not succeed.
Fourteen years after he came to office, Mr. Chavez leaves the Caribbean nation of 29 million with less poverty, but also with a weaker democracy, a polarized electorate, a high crime rate and a movement that cannot be sustained without its leader. His socialist policies depended on Venezuela’s great oil wealth, and so did his diplomacy. He propped up Cuba with heavily subsidized oil (100,000 barrels a day) and attacked the U.S., even as Venezuela remains heavily dependent on oil exports to that country.
There is no doubt the 58-year-old leader, with his signature red beret and military fatigues, had an almost messianic hold on supporters. After years of being excluded from the political process, the poor could relate to his informal language and folksy style. Every week on his live television program, Alo Presidente, Mr. Chavez sang, read poems, danced and talked, sometimes for hours. He had 3.2 million followers on Twitter. “Chavez always loved the limelight. He was always the best talker,” said a former Canadian diplomat who served in Venezuela from 2003 to 2006. “But he also played to Venezuela’s deep dictatorial roots.”
The missions he created to spread the country’s huge oil wealth more equitably did succeed in decreasing poverty and illiteracy, and in improving health outcomes. However, Mr. Chavez failed to create a political system with a meaningful system of checks and balances. Instead, under his leadership, control was centralized under the president, the state bureaucracy became more corrupt and unaccountable, and the judiciary less independent. The opposition and press were under constant attack. “He eroded the quality of democracy in a country with a long history of democracy,” notes Max Cameron, a Latin American specialist at the University of British Columbia. “He bullied opponents and made black lists for people who opposed him.”
These anti-democratic tendencies came out early in his life. Born to a poor family of teachers in Sabaneta, Barinas state, Mr. Chavez, who had Indian and Spanish roots, was one of seven children. His grandmother raised him. Even as a young man, he had a tremendous sense of destiny, and joined the military with the idea of carrying out a coup, which he eventually did in 1992, against the government of then-president Carlos Andres Perez. The coup failed, and he spent two years in a military jail before he was pardoned. He eventually came to power through the ballot box in December, 1998. In 2002, el comandante himself suffered a coup attempt, one that he blamed on the U.S. He returned to office a few days later, and went on to win by a larger margin of victory in the 2006 election.
Increasing authoritarianism marked his later years in office; in 2006, Mr. Chavez nationalized electricity companies and held a referendum which eventually passed to change the Constitution to allow unlimited terms in office for elected officials.
With his passing, the country enters a period of instability and uncertainty. Many believe there can be no Chavismo without Chavez, and that the factions within the movement will fight for power and self-destruct. His self-appointed successor, Nicolas Maduro, is favoured by the civilian wing within the movement, and by Cuba, while the President of the National Assembly, Diosdado Cabello, has the support of the military. Opposition leader Henrique Capriles, the Governor of Miranda state, who lost the 2012 presidential election by 11 points, is also a credible challenger.
His successor will face steep economic challenges. Though Venezuela has the world’s largest proven oil reserves, the sector is beset by inefficiency and the economy remains overly reliant on oil revenues which account for 30 per cent of gross domestic product. Oil output at the state-owned Petroleos de Venezuela is lower than it was in 1999. There has been no foreign investment in this sector for four years. Inflation is high, and the currency overvalued. “He is leaving a huge mess behind,” said the diplomat. “There is no transparent budget, and last year the government wildly overspent because it was an election year. The deficit and the debt are out of control.”
This ultimately is the Chavez legacy. It is a shame that he did not put his political gifts to a better end, and set Venezuela, a country he so loved, on a path to long-term economic growth and development and the strengthening of democratic institutions. Its neighbour, Brazil, has succeeded in doing this, as well as creating a more equitable society. In the end, perhaps that model would have served Mr. Chavez better, instead of the one he chose to follow.
Statistics: Posted by yoda — Tue Mar 05, 2013 7:02 pm
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Daniel J. Mitchell
I greatly admire Switzerland’s “debt brake” because it’s really a spending cap.
Politicians are not allowed to increase spending faster than average revenue growth over a multi-year period, which basically means spending can only grow at the rate of inflation plus population.
Theoretically, taxes could be hiked to allow more spending, but that hasn’t happened. The Swiss are very good about voting against tax increases, so the politicians don’t have much ability to boost the revenue trendline.
Since the debt brake first took effect in 2003, the burden of government spending has dropped from 36 percent of GDP to 34 percent of economic output – a rather remarkable achievement since most other European nations have moved in the wrong direction.
As part of my self-serving efforts to promote Mitchell’s Golden Rule, I’ve been advocating for spending caps in the United States, and I’ve favorably cited legislation proposed by Congressman Brady of Texas and Senator Corker of Tennessee.
Now I have some new evidence on my side. David Hogberg of Investor’s Business Daily looks at the current fiscal mess in America and discovers – gee, what a surprise – that spending has grown very rapidly since the late 1990s.
President Obama says he wants a “balanced” approach to the fiscal cliff. But critics argue the real problem is spending, which has far outstripped rising tax revenue as well as economic growth. Federal government revenue rose from $1.7 trillion to $2.4 trillion from fiscal 1998 to 2012, slightly exceeding inflation. Revenue growth averaged 2.9% annually, despite two recessions, bear markets — and tax cuts. But federal spending rose nearly twice as fast — 5.7% per year — surging from $1.6 trillion to $3.5 trillion over that same span. The spending spike also exceeds growth in the population.
What’s the solution to this mess? I make the argument for a spending cap.
Dan Mitchell, senior fellow at the libertarian Cato Institute, says the U.S. government needs a spending cap. “It’s an issue of trendlines and that’s everything in fiscal policy,” Mitchell said. “If you are on a path where government spending grows faster than the private sector of the economy, which is your tax base, then in theory there is no level of taxation that will be enough to stabilize the system. … If we had kept government spending down to just increases for inflation and population growth, we wouldn’t be in the trouble we’re in now.” Limiting spending to increases in inflation and population growth over 1998-2012 (an annual average of about 3.3%) would have given dramatically different results. The U.S. would have spent $2.6 trillion in FY 12, about $900 billion less than what it actually did. The latest deficit would be $157 billion, a fraction of the actual $1.089 trillion.
I’ve crunched the numbers to show that we could balance the budget in just 10 years if we just limited spending so that it grew by “only” 2.5 percent annually.
David did the same thing, but looking backwards instead of forward. Here’s the chart included with his article. As you can see, the budget mess would be very manageable today if the Bush-Obama spending binge hadn’t occurred.
But politicians don’t like spending caps for the same reasons that burglars don’t like armed homeowners. As Veronique de Rugy notes, if we imposed a spending cap, they would be forced to reform entitlements.
While a spending cap would help, some analysts contend that it would need to be coupled with entitlement reform. “If you don’t reform Social Security, Medicare and Medicaid, you’ll have a hard time staying within the cap,” said Veronique de Rugy, senior research fellow at the libertarian Mercatus Center. …”To make it feasible and enforceable you’d have to do a constitutional amendment,” said Mitchell. “But even short of that, at least if you start talking about it and set it as your goal it would get people focusing on the real problem … which is government spending growing faster than the private sector.”
This brings us to the real challenge. How do we get politicians to impose reforms when they benefit from the current system? Barring a miracle, they’re not going to tie their own hands.
But I think our chances of success will be much higher if advocates of good fiscal policy kept reminding the crowd in Washington that the real problem is too much spending and that red ink is just a symptom of the underlying disease.
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Marc Faber: US ‘Financial Mess’ Will Force Government to Take Your Gold
Economist Marc Faber, publisher of the Gloom, Boom and Doom report, says the government will seize privately held gold, even as he continues to buy physical gold himself.
“I prefer to play the commodity space by owning physical gold,” Faber tells Chiefsworld. “If I were an American, I would store it outside the U.S., because in the U.S., it is not completely unlikely that they will eventually take it away.”
“Like in 1933, gold will be purchased back by the government” because eventually the financial mess will be so bad that gold prices “will go ballistic, and the government will take away something from a minority, and not many people own gold."
Editor’s Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did:
“When gold prices shoot up, it will be quite a popular measure to take it away from these rich people,” Faber says. “It’s happened before.”
From May 1, 1933, until 1974, U.S. citizens could no longer hold gold as a protection against paper money, which also lost its gold backing at the same time.
Foreign central banks could continue to exchange the U.S. dollars that came into their possession – known as eurodollars for decades — for gold and did so particularly when the U.S. dollar was devalued and then floated against the gold price in 1971.
Faber says he’s not in a hurry to buy gold, but accumulates gold every month because he believes the gold market is still under a correction.
Faber notes that the Chinese economy is slowing, and says it will slow further and perhaps crash at some point, which is why he is staying out of commodities other than gold.
Meanwhile, Nomura’s Bob Janjuah says markets are so rigged by government policies that investing dangers lurk virtually everywhere.
"My personal recommendation is to sit in gold and non-financial high quality corporate credit and blue-chip big cap non-financial global equities," Janjuah writes at Zero Hedge.
"Bond and currency markets are now so rigged by policy makers that I have no meaningful insights to offer, other than my bubble fears."
Elsewhere, Gold traders are getting more bullish after billionaire hedge-fund manager John Paulson told investors it’s time to buy the metal as protection against inflation caused by government spending.
Twelve of 22 surveyed by Bloomberg expect prices to gain next week and five were neutral. Paulson & Co. is already the biggest investor in the SPDR Gold Trust, the largest exchange-traded product backed by bullion, with a stake valued at $2.9 billion, a Securities and Exchange Commission filing Feb. 14 showed.
Gold for April delivery, the most actively traded contract, rose $10.90, or 0.6 percent, to settle Thursday at $1,722.20 a troy ounce on the Comex division of the New York Mercantile Exchange.
Editor’s Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
Read more: Marc Faber: US ‘Financial Mess’ Will Force Government to Take Your Gold
Statistics: Posted by DIGGER DAN — Sat Mar 03, 2012 2:52 pm
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