The Venezuela Myth Keeping Us From Transforming Our Economy
<https://www.truthdig.com/articles/the-venezuela-myth-keeping-us-from-revolu
tionizing-our-economy/>
Modern Monetary Theory (MMT) is getting significant media attention these
days, after Rep. Alexandria Ocasio-Cortez
<https://www.marketplace.org/2019/01/24/economy/modern-monetary-theory-expla
ined> said in an interview that it should be a larger part of our
conversation when it comes to funding the Green New Deal. According to
MMT, the government can spend what it needs without worrying about deficits.
MMT expert and Bernie Sanders adviser professor
<https://www.youtube.com/watch?v=H_il45h3Nmo&t=1017s> Stephanie Kelton says
the government actually creates money when it spends. The real limit on
spending is not an artificially imposed debt ceiling but a lack of labor and
materials to do the work, leading to generalized price inflation. Only when
that real ceiling is hit does the money need to be taxed back, but even then
its not to fund government spending. Instead, its needed to shrink the
money supply in an economy that has run out of resources to put the extra
money to work.
Predictably, critics have been quick to rebut, calling the trend to endorse
MMT
<https://www.zerohedge.com/news/2019-01-21/disturbing-rise-modern-monetary-t
heory-mmt> disturbing and
<https://www.bloomberg.com/opinion/articles/2019-01-17/modern-monetary-theor
y-would-sink-u-s-in-debt> a joke thats not funny. In a Feb. 1 post on the
Daily Reckoning,
<https://dailyreckoning.com/the-next-great-monetary-experiment-part-ii/>
Brian Maher darkly envisioned Bernie Sanders getting elected in 2020 and
implementing Quantitative Easing for the People based on MMT theories. To
debunk the notion that governments can just print the money to solve their
economic problems, he raised the specter of Venezuela, where money is
everywhere but bare essentials are out of reach for many, the storefronts
are empty, unemployment is at 33 percent and inflation is predicted to hit 1
million percent by the end of the year.
Blogger Arnold Kling also pointed to the Venezuelan hyperinflation.
<http://www.arnoldkling.com/blog/mmt-and-venezuela/> He described MMT as
the doctrine that because the government prints money, it can spend
whatever it wants . . . until it cant. He said:
To me, the hyperinflation in Venezuela exemplifies what happens when a
country reaches the it cant point. The country is not at full employment.
But the government cant seem to spend its way out of difficulty. Somebody
should ask these MMT rock stars about the Venezuela example.
Im not an MMT rock star and wont try to expound on its subtleties. (I
would submit that under existing regulations, the government cannot actually
create money when it spends, but that it should be able to. In fact, MMTers
have <http://www.levyinstitute.org/pubs/wp_778.pdf> acknowledged that
problem; but its a subject for another article.) What I want to address
here is the hyperinflation issue, and why Venezuelan hyperinflation and QE
for the People are completely different animals.
What Is Different About Venezuela
Venezuelas problems are not the result of the government issuing money and
using it to hire people to build infrastructure, provide essential services
and expand economic development. If it were, unemployment would not be at 33
percent and climbing. Venezuela has a problem the U.S. does not, and will
never have: It owes massive debts in a currency it cannot print itself,
namely, U.S. dollars. When oil (its principal resource) was booming,
Venezuela was able to meet its repayment schedule. But when the price of oil
plummeted, the government was reduced to printing Venezuelan bolivars and
selling them for U.S. dollars on international currency exchanges. As
speculators drove up the price of dollars, more and more printing was
required by the government, massively deflating the national currency.
It was the same problem suffered by Weimar Germany and Zimbabwe, the two
classic examples of hyperinflation typically raised to silence proponents of
government expansion of the money supply before Venezuela suffered the same
fate. Professor Michael Hudson, an actual economic rock star who
<https://peofdev.wordpress.com/2017/07/31/michael-hudson-on-modern-monetary-
theory/> supports MMT principles, has studied the hyperinflation question
extensively. He
<http://michael-hudson.com/2012/08/financial-predators-v-labor-industry-and-
democracy/> confirms that those disasters were not due to governments
issuing money to stimulate the economy. Rather, he writes, Every
hyperinflation in history has been caused by foreign debt service collapsing
the exchange rate. The problem almost always has resulted from wartime
foreign currency strains, not domestic spending.
Venezuela and other countries that are carrying massive debts in currencies
that are not their own are not sovereign. Governments that are sovereign can
and have engaged in issuing their own currencies for infrastructure and
development quite successfully. I have discussed a number of contemporary
and historical examples in my earlier articles, including in
<https://ellenbrown.com/2017/06/27/sovereign-debt-jubilee-japanese-style/>
Japan,
<https://ellenbrown.com/2018/02/27/funding-infrastructure-why-china-is-runni
ng-circles-around-america/> China,
<http://www.webofdebt.com/articles/commonwealth_bank_aus.php> Australia and
<https://ellenbrown.com/2012/04/01/oh-canada-imposing-austerity-on-the-world
s-most-resource-rich-country/> Canada.
Although Venezuela is not technically at war, it is suffering from foreign
currency strains triggered by aggressive attacks by a foreign power. U.S.
economic sanctions have been going on for years, causing the country at
least
<https://www.telesurenglish.net/news/Venezuela-Lost-Millions-as-Result-of-US
-led-Sanctions-Maduro-20190102-0013.html> $20 billion in losses. About $7
billion of its assets are now being
<https://www.rt.com/news/450057-cynical-sanctions-us-lavrov-venezuela/> held
hostage by the U.S., which has waged an
<https://venezuelanalysis.com/analysis/14263> undeclared war against
Venezuela ever since George W. Bushs failed military coup against President
Hugo Chávez in 2002. Chávez boldly announced the Bolivarian Revolution, a
series of economic and social reforms that dramatically reduced poverty and
illiteracy as well as improved health and living conditions for millions of
Venezuelans. The reforms, which included nationalizing key components of the
nations economy, made Chávez a hero to millions of people and the enemy of
Venezuelas oligarchs.
Nicolás Maduro was elected president following Chávezs death in 2013 and
vowed to continue the Bolivarian Revolution. Recently, as Saddam Hussein and
Moammar Gadhafi had done before him, he defiantly announced that
<https://www.rt.com/news/441448-venezuela-drops-dollar-currency/> Venezuela
would not be trading oil in U
<https://www.rt.com/news/441448-venezuela-drops-dollar-currency/> .
<https://www.rt.com/news/441448-venezuela-drops-dollar-currency/> S
<https://www.rt.com/news/441448-venezuela-drops-dollar-currency/> .
<https://www.rt.com/news/441448-venezuela-drops-dollar-currency/> dollars
following sanctions imposed by President Trump.
The notorious
<https://www.theamericanconservative.com/larison/pompeo-puts-elliott-abrams-
in-charge-of-regime-change-in-venezuela/> Elliott Abrams has now been
<https://venezuelanalysis.com/analysis/14263> appointed as special envoy to
Venezuela. Considered a war criminal by many for covering up massacres
committed by U.S.-backed death squads in Central America, Abrams was among
the prominent neocons closely linked to Bushs failed Venezuelan coup in
2002. National security adviser John Bolton is another key neocon architect
advocating regime change in Venezuela. At press conference on Jan. 28, he
held a yellow legal pad prominently displaying the words
<https://truthout.org/articles/the-us-is-orchestrating-a-coup-in-venezuela/>
5,000 troops to Colombia, a country that shares a border with Venezuela.
Clearly, the neocon contingent feels it has unfinished business there.
Bolton does not even pretend that its all about restoring democracy. He
blatantly said on Fox News, It will make a big difference to the United
States economically if we could have American oil companies invest in and
produce the oil capabilities in Venezuela.
<http://nixontapes.org/chile.html> As President Nixon said of U.S. tactics
against Salvador Allendes government in Chile, the point of sanctions and
military threats is to squeeze the country economically.
Killing the Public Banking Revolution in Venezuela
It may be about more than oil, which recently hit record lows in the market.
The U.S. hardly needs to invade a country to replenish its supplies. As with
Libya and Iraq, another motive may be to suppress the banking revolution
initiated by Venezuelas upstart leaders.
The banking crisis of 200910
<https://en.wikipedia.org/wiki/Venezuelan_banking_crisis_of_2009%E2%80%9310>
exposed the corruption and systemic weakness of Venezuelan banks. Some banks
were engaged in questionable business practices. Others were seriously
undercapitalized. Others still were apparently lending top executives large
sums of money. At least one financier could not prove where he got the money
to buy the banks he owned.
Rather than bailing out the culprits, as was done in the U.S., in 2009
<https://venezuelanalysis.com/news/5082> the government nationalized seven
Venezuelan banks, accounting for around 12 percent of the nations bank
deposits. In 2010, more were taken over. Chávezs government arrested at
least 16 bankers and issued more than 40 corruption-related arrest warrants
for others who had fled the country. By the end of March 2011, only 37 banks
were left, down from 59 at the end of November 2009. State-owned
institutions took a larger role, holding 35 percent of assets as of March
2011, while foreign institutions held just 13.2 percent of assets.
Over the howls of the media, in 2010 Chávez took the bold step of passing
legislation defining the banking industry as one of public service. The
legislation specified that 5 percent of the banks net profits must go
toward funding community council projects, designed and implemented by
communities for the benefit of communities. The Venezuelan government
directed the allocation of bank credit to preferred sectors of the economy,
and it increasingly became involved in private financial institutions
operations. By law, nearly half the lending portfolios of Venezuelan banks
had to be directed to particular mandated sectors of the economy, including
small business and agriculture.
In a 2012 article titled <https://venezuelanalysis.com/analysis/6942>
Venezuela Increases Banks Obligatory Social Contributions, U.S. and Europe
Do Not, Rachael Boothroyd said that the Venezuelan government was requiring
the banks to give back. Housing was declared a constitutional right, and
Venezuelan banks were obliged to contribute 15 percent of their yearly
earnings to securing it. The governments Great Housing Mission aimed to
build 2.7 million free houses for low-income families before 2019. The goal
was to create a social banking system that contributed to the development of
society rather than simply siphoning off its wealth. Boothroyd wrote:
Venezuelans are in the fortunate position of having a national government
which prioritizes their life quality, wellbeing and development over the
health of bankers and lobbyists pay checks. If the 2009 financial crisis
demonstrated anything, it was that capitalism is quite simply incapable of
regulating itself, and that is precisely where progressive governments and
progressive government legislation needs to step in.
That is also where, in the U.S., the progressive wing of the Democratic
Party is stepping inand why Ocasio-Cortezs proposals evoke howls in the
media of the sort seen in Venezuela.
Article I, Section 8, of the Constitution gives Congress the power to create
the nations money supply. Congress needs to exercise that power. The key to
restoring our economic sovereignty is to reclaim the power to issue money
from a commercial banking system that acknowledges no public responsibility
beyond maximizing profits for its shareholders. Bank-created money is backed
by the full faith and credit of the United States, including federal deposit
insurance, access to the Feds lending window, and government bailouts when
things go wrong. If we the people are backing the currency, it should be
issued by the people through their representative government.
Todays government, however, does not adequately represent the people, which
is why we first need to take our government back. Thankfully, that is
exactly what Ocasio-Cortez and her congressional allies are attempting to
do.
<https://www.truthdig.com/author/ebrown/> Ellen Brown
Ellen Brown is an attorney, chairman of the Public Banking Institute, and
author of twelve books including "Web of Debt" and "The Public Bank
Solution."
