Readers over the age of 45 have memories of the Soviet death rattle upon the shores of Central America during the Reagan administration. Witnessing a political regime the size and depth of Soviet Russia implode while it masqueraded its imminent decline was missed by even the most devoted economic and foreign policy professionals. Reagan had a kitchen cabinet, a personal consortium of policy professionals whom he could call upon for strategic clarity. This mattered because entire swaths of academia, media and governments abroad never knew the extent of the rot that Solzhenitsyn, John Paul II, Thatcher and a handful of others intuitively knew.
Venezuela embodies the Soviet trend of an expansionist dying regime, captured by Iranian proxies and financially underwritten by Moscow. Even still, the death rattle of Chavista has found a lifeline: starvation as official domestic state policy.
How did a nation state with the world’s largest reserves of oil develop the highest rates of inflation? The answer is dependency and political culture. There is much for progressives to mine as they ponder the near permanent ascendancy of the Pax Americana, of American exceptionalism prior to fracking.America was hostage to Islamic autocrats throughout the 20th century. Not anymore. Yet places like Venezuela shouldn’t be in default.
S&P Global is a rating agency tracking the default rates of sovereign bonds. Those are bonds backed by foreign governments. According to S&P Global, 2017 had the lowest level of defaults since 1977. Of the 131 nation states tracked, only Venezuela and Mozambique defaulted.
Ideas have consequences. The origin of default rests with American ingenuity. The collapse of commodity prices accompanying sharp reversals of capital back to the Unites States beginning in 2011 have wiped out dependent autocrats from Caracas to Riyadh.
Maduro’s leadership of Venezuela failed to pay interest on two dollar denominated bonds whose grace period ended on November 13th. Realistically, Venezuela remains in partial default, but the wreckage is permanently embodied socially as hungry citizens flee to Colombia. Beijing’s willingness to roll over its loans to Caracas only delayed official default. The regime continues to procure oil output to international companies providing the regime with hard dollar denominated currency, nevertheless Maduro’s regime is cut off from American credit markets leaving it dependent on foreign regimes who seek to envelop its remaining oil assets.
Because so many currencies are no longer pegged to the dollar or gold, commodity rich nation states borrow in their domestic currency regardless of output or GDP. Oxford Economics, a consultancy has reported 11 nation states possess foreign bonds denominated in more than 20% of its GDP.
Want to know what keeps militant autocrats alive throughout the world: interest payments given to those holding dollar or Euro denominated bonds. This explains why Federal Reserve chair Janet Yellen felt the ground move under her during Congressional testimony regarding the efficacy of audit the Fed.
As the U.S. continues to dominate its foreign competitors in oil and natural gas output, it’s working American citizens who fear currency deprecation or inflation as a way of eroding fiscal claims. The working stiff knows a thing or two about getting screwed!
Venezuela is a cautionary tale for Saudi Arabia, Libya and regions of kleptocracies across the world who cannot, will not compete for market fundamentals.
As of this writing, Caracas is capable of payments on its local currency debt, assisting it with maintaining a stronger credit rating on local liabilities than on U.S. denominated bonds. But the die is cast. The population is starving, migrants are on the move to Colombia and hyperinflation has eroded the remaining bonds of solidarity that underwrote a Marxist appeal.
Overall, as 2017 comes to close, we should take time to reflect how fortunate Americans are to live in nation that values a market based economy; for as American statecraft ramps up its appeal abroad in ‘the long war’, we have yet to harness our strengths in securing liberties abroad.
Tyrants across the world have much to fear as the U.S. stems the tide of retrenchment. Making others compete is the source for American renewal