What is the impact of mass media on the currency of nations? The Venezuelan case

A practical example of the influence of the media on the monetary situation of the countries is found in what has happened in Venezuela between 2014 and 2015, time during which a digital media, a website written from outside Venezuela has determined the value of the national currency of the country against the dollar in the unofficial currency market.

The most striking event occurred the week beginning May 25, 2015, when the parity set by the website doubled the maximum official rate established by the Venezuelan monetary authorities, which placed the value at about 200 bolivars per dollar. But that week, the aforementioned web page, placed the value of the bolivar in the unofficial market at about 220 per dollar, more than doubled. The page authors have explained that they make their calculations based on the average resulting from the addition of two values: a) the implicit value of money (M1 / International Reserves) and the price of the bolivar against the dollar in the city of Cucuta on the border between Venezuela and Colombia. But the resulting average of the two figures never justifies the amount allocated by the website to the value of the Venezuelan currency against the dollar. As a simple example we can say that the week that began on May 18, 2015, the implied value of the bolivar against the dollar was 128 bolivars. In addition, the values of transactions bolivar / dollar on the Colombian-Venezuelan border are not registered in official records to establish with certainty the reality exchange. So, therefore, that the figures published by the website indicated constitute a double speculation: a) to establish a figure speculation with no basis in economic and b) speculation in the stockjobber sense.

http://politicayeconomiaunavisiondiferente.blogspot.com/2015/05/la-devaluacion-en-venezuela-y-colombia.html

But how can this happen?

Well, all social phenomena can be explained. In this case, it occurs because in Venezuela there is an exchange control since 2006 that difficult transaction in the economy and creates a situation in which demand outstrip supply of foreign exchange at the official price; there are also three exchange rates, which exacerbates the problem.

Why economic actors assign credibility to mass media?

Since the media appeared on the social scene, most people assigned them great credibility. The word spread by the media, the press first and then radio and television has always enjoyed great prestige and very few people question its veracity. In the cyber world of the XXI century, the tradition of media credibility has been extended to the new forms of communication: Internet and digital media; therefore, the information disclosed by the website portals as the mentioned in this article have captured the attention and credibility of an important part of the public.

But in the case of Venezuela, the damage caused to the economy by the manipulated information of the webstite without economic objectivity is such that the Central Bank of Venezuela and the association of private banks in the country during the week of May 25, 2015 had to express its alert to economic actors to avoid believing in baseless figures released by the mentioned digital media, confirming that the only official figures that should be respected by economic actors for their own benefit are the figures disclosed by the monetary authority .

In the link below the official declaration of the Banking Association of Venezuela can be seen:

https://www.asobanca.com.ve/site/home.php

What happened in Venezuela regarding information on the monetary reality is an extraordinary communication phenomenon which confirms the great power of the media and its influence in politics, economics and social change, as amply explains the book entitled Sobrepoder (Spanish) Overpower:

Sobrepoder, Amazon, print edition, paperback 

http://www.amazon.com/Sobrepoder-comunicaci%C3%B3n-influyen-pol%C3%ADtica-econom%C3%ADa/dp/9801241373/ref=asap_bc?ie=UTF8

16 essays on the crisis of the Venezuelan economy and its solution

For those interested in the situation of the Venezuelan economy and its solution, I have gathered in this work, chronologically, the links to the various articles and essays I have written on the subject from 2011 to now, June 2014. I have also included some reflections of universal content that provide the basis for the explanation of the Venezuelan phenomenon. I think the important thing is not only do diagnostics as is the custom, but to present alternatives to solve problems. Here are the various links:

Money is only metal and paper without intrinsic value

http://pablorafaelgonzalez.blogspot.com/2011/06/money-is-only-metal-and-paper-without.html

Fiscal deficit and size of the economy

http://pablorafaelgonzalez.blogspot.com/2011/09/fiscal-deficit-and-size-of-economy_18.html

Banco de Inglaterra reconoce que emitir más dinero es la solución

http://pablorafaelgonzalez.blogspot.com/2011/10/banco-de-inglaterra-reconoce-que-emitir.html

Dimensión ética del crecimiento económico

http://pablorafaelgonzalez.blogspot.com/2011/11/dimension-etica-del-crecimiento.html

Es la economía una disciplina racionalista o una disciplina empírica

http://pablorafaelgonzalez.blogspot.com/2012/03/es-la-economia-una-disciplina.html

Por qué es necesario construir un nuevo modelo económico equilibrado, sin prejuicios ideológicos

http://pablorafaelgonzalez.blogspot.com/2012/08/por-que-es-necesario-construir-un-nuevo.html

Venezuela debe crear una nueva moneda a la par del dólar el bolívar oro

http://pablorafaelgonzalez.blogspot.com/2013/01/venezuela-debe-crear-una-nueva-moneda_2.html

¿Obtendría Venezuela alguna ventaja de la devaluación de su moneda?

http://pablorafaelgonzalez.blogspot.com/2013/01/obtendria-venezuela-alguna-ventaja-de.html

Cómo resolver el problema monetario y cambiario de Venezuela

http://pablorafaelgonzalez.blogspot.com/2013/05/como-resolver-el-problema-monetario-y.html

Venezuela acumula 800 mil por ciento de devaluación, una experiencia extraordinaria en el mundo

http://pablorafaelgonzalez.blogspot.com/2013/07/venezuela-acumula-800-mil-por-ciento-de.html

Los efectos políticos de la hiperinflación, el espejo en que Venezuela debería mirarse

http://pablorafaelgonzalez.blogspot.com/2013/09/los-efectos-politicos-de-la.html

Dolarizar o crear una nueva moneda

http://pablorafaelgonzalez.blogspot.com/2013/10/dolarizar-o-crear-una-nueva-moneda.html

El respaldo del dinero

http://pablorafaelgonzalez.blogspot.com/2013/10/el-respaldo-de-las-monedas.html

Si es posible eliminar el control de cambio sin descapitalizar las reservas

http://pablorafaelgonzalez.blogspot.com/2013/11/si-es-posible-eliminar-el-control-de.html

La ética del comercio y su impacto en la economía de las naciones

http://pablorafaelgonzalez.blogspot.com/2013/11/la-etica-del-comercio-y-su-impacto-en.html

Una solución al problema económico de Venezuela es crear el bolívar oro y permitir el libre uso del dólar como moneda alterna

http://pablorafaelgonzalez.blogspot.com/2014/01/una-solucion-al-problema-economico-de.html

The political effects of hyperinflation, the mirror in which Venezuela should look

The noted American economist Paul Anthony Samuelson (1915-2009), 1970 Nobel Prize for Economics, wrote a concept worth having ever present, Samuelson said that "The economic cycle presents to democratic nations a challenge, almost an ultimatum: either get control depressions and inflations extreme better than they did until World War II, or the political structure of society will be in danger." And he added that "the political strength of a democracy is closely linked to effective maintenance and strongly stable quality of life and high levels of employment, to the point that it would be safe to say that the multiplication of dictatorships and the resulting world War II were due in large part to the inability of the world to address adequately the economic problem." (1)

Samuelson was very clear that the Great Depression with unemployment sequel was what caused the political radicalization of Europe and the United States itself in the first decades of the twentieth century and so, after the war, published in its books the above warnings, to help political leaders avoid future repetition of such unfortunate occurrences.

The origins of inflation in recent years

The thirty-year period between 1945 and 1975, was called the Age of Keynes, a stage characterized by employment growth, production and economic recovery of countries devastated by World War II. But from 1975, due to currency manipulation in some countries, especially Germany, the world economy went into a period of uncertainty and the phenomenon of inflation and unemployment began to show signs of recurrence. Contributing to this, the decision of OPEC  in 1973, to suspend the supply of oil to the United States and the countries that had supported Israel during the Yom Kippur War (October 1973), fact known as the Arab oil embargo, which caused a violent increase in oil prices and triggered the recession in the West.

The increase in oil prices created a new global financial reality, which gave oil countries extraordinary resources that had never before enjoyed. That immense wealth that came from the major industrialized countries, especially, as big oil buyers, returned to these countries in the form of deposits in their banks, as oil countries put that money in international banking. It is then when it begins to take shape the debt crisis in developing countries, which would become visible in the eighties, as banks sought ways to place the new amount of money among the developing countries. The developing countries were forced to contract loans as not having to pay the new prices of energy and the new prices of finished products bought in industrialized nations; this is the origin of the debt.

The facts stated above in the first instance affect the nations of Latin America, especially Argentina, Bolivia, Brazil and Peru, countries that experienced hyperinflation processes in the eighties and nineties of the 20^th century. A common element to the process of hyperinflation in these countries was the external debt crisis; there came a time when they could not pay their commitments and forced it to devalue their currencies, a fact that, in my opinion, was the main cause of hyperinflation in these countries, not excluding, of course, other structural elements.

Solution

The common solution to the problem of hyperinflation in each of the above countries was the establishment of a currency peg. That was the key decision of the economic program adopted by the Minister Domingo Cavallo, in Argentina, in 1991. Similar measures were taken by Bolivia, which had the highest rate of hyperinflation of the continent in the eighties and corrected by adopting a fixed exchange rate and fiscal reforms. Peru followed a similar path, like Brazil and managed to reverse the process of hyperinflation.

Venezuela should consider the experience of other Latin American countries

Venezuela, which is on the brink of hyperinflation, should consider the experience of the Latin American countries that have already gone through that process and design a control program hyperinflation. The concept of the stabilization program, unfortunately, is largely discredited, but may be created a formula to respond to the urgent need to prevent hyperinflation progress and this necessarily involves the creation of a new currency with fixed exchange at par the dollar, that I have called the bolivar gold. The cumulative devaluation in Venezuela is more than 800 000 percent when you consider the price of the market that you cannot say. When a country reaches that level of devaluation has no alternative but to generate the confidence needed to restore the balance of the economy and this requires tying to the international currency of payment, which is the dollar.

(1)    Paul Anthony Samuelson, Curso de Economía Moderna, páginas 3 y 420, Aguilar, Madrid, 1975, citado por Pablo Rafael González en Una Idea Concreta para Combatir la Desocupación, la Doble Jornada y la Media Jornada, página 8, Book Surge Publishing, 2006, North Carolina, USA. 

Venezuela accumulates 800,000 percent of devaluation approximately, an extraordinary experience in the world

In the current context, Venezuela's economic problem has no solution because the country suffers an extraordinary situation: Venezuela experiences a cumulative devaluation of about 800,000 per cent between 1983 and 2013.

This figure, which at first seems incredible, is the true reality of the economy.

In Venezuela there is an official price of the currency currently at 6.30 per dollar, which represent the same 6,300 bolivars of the 2008. In that year, 2008, the monetary authorities created a new currency, the bolivar fuerte, (strong bolivar), and removed three zeros; so 1 bolivar of the present really represents 1,000 bolivares of the year 2008. However, there is a secondary market, whose price cannot be disclosed in Venezuela because it is forbidden by a special law on the subject. There are therefore two realities: the official and the street.

If you compare the price of the current unofficial currency - the figure that legally cannot be said - but including its three zeros of 2008 with the price of the currency in 1983 - last year that had a parity of 4.30 per dollar- the devaluation is approximately 800,000 percent. To verify this figure It is sufficient to only apply a simple rule of three: if 4.30 bolivares was 100 percent, 800,000 percent is x.

800,000 percent of devaluation is an extraordinary figure and I do not know if there is a similar experience in the world.

An economy that has reached that level of devaluation has no other alternative than to adopt extraordinary measures also. That is the only way to combat hyperinflation Venezuela suffered for years which has increased lately.

The alternatives for a solution in a case like this are twofold: a) dollarization of the economy or b) to create a new currency. The first alternative has advantages but also disadvantages, one is that a dollarized country loses its monetary sovereignty; the second alternative, if is done in a serious manner, may represent an effective solution.

I have argued for a long time to create a new currency, the bolivar oro,   (bolivar gold ) at par with the dollar, a new currency of free access in the market with enough support in dollars and gold. I think that it would be the solution, because wages and prices would be homologated to those in the nations that use the dollar as its official currency.

Facts have proved and continue to prove that none of the paths followed until now on foreign exchange have yielded positive results. To find the solution would have to find a completely different way to the followed so far.

The devaluation is, essentially, what prevents solving Venezuela's economic problems: inflation, speculation, shortages, low production and unemployment. The other problem is the legal insecurity of investments.

Albert Einstein: "Problems cannot be solved by the same level of thinking that created them."

The austerity policy is not necessary, a thesis different from traditional concepts of monetary policy

Index

1. Extract

2. Why austerity?

3. Why devaluation?

4. What to do to avoid the austerity policies?

5. What to do to avoid currency devaluation?

6. Conclusion

1. Extract

Austerity and currency devaluation are two policies currently affecting several countries. Austerity is the main problem of economic policy of the United States and the countries of Southern Europe, Portugal, Spain, Cyprus, Italy and Greece, while devaluation is present in Latin American countries such as Venezuela and Argentina. These facts make it clear that millions of people around the world suffer the consequences of austerity and devaluation.

2. Why austerity?

Governments impose austerity policies due to lack of money to meet the needs of society.

3. Why currency devaluation?

Governments devalue the currencies of their countries for two main reasons:

a) To get more money in national currency, since the amount of money in circulation theoretically should be in relation to the amount of international reserves which consist dollars USA and /or gold, and

b) To compete more effectively in international markets, since currency devaluation reduces prices of their export products.

4. What to do to avoid the austerity?

The austerity solution is very simple:

a) Issuing more money in national currency to meet the requirements of the factors involved in the economic process.

b) No international organization or any country has the authority to impose on another country how much money issue or not.

c) The only limitation for the countries is the availability of foreign currency, i.e. the amount of dollars to buy into international markets.

d) If a country does not have enough foreign currency ---dollars --- a problem arise because it cannot pay its external commitments. In that case, countries have two options:

- Produce more, better and at a competitive price to sell more in international markets and so to obtain extra dollars and / or

- Borrow money to the financial system, which ultimately is bad for the country, because international debts tend to become eternal, as it is very difficult to pay them in full because of the burden of interest.

e) We affirm therefore that governments are free to issue all the money in local currency to meet the needs of their economies and for that reason are not justified to subject people to the painful effects of the austerity policies. The concept of inorganic money is something absurd without intellectual base basis in reality, because money cannot be inorganic; money is simply a medium of exchange.

f) The gold backing of money is an illusion, because all the gold in the world would not be enough to support all of the money in circulation. Money is a trust instrument, i.e., paper and coins with no intrinsic value that circulate through the good faith and acceptance as a means of payment on the part of economic actors, nothing more.

g) The dollar of the United States of America does not have enough gold backing; consequently, all the world's currencies using the dollar as a backup not have enough support.

5. What to do to avoid currency devaluation?

a) The devaluation to address the fiscal deficit does not make sense because if it is true that governments get more money in first instance, at medium term they lose because of the inflation of all goods and services they buy. Therefore, devaluation for fiscal purposes is absurd.

b) Furthermore, the devaluation to improve competitiveness in international markets is not justified, because markets do their purchases in base not only of lower prices but also on factors such as quality and security of supply. Price is one of the variables that determine the buying decision in foreign markets but it is not the only or the most important.

6. Conclusion

Lack of money should not limit economic growth and should not be the cause of the poverty of nations. The reason is very simple: because countries are free to issue all the money in local currency that require their economies.

The lack of money should not be the cause of the poverty of nations

“In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual.” Galileo Galilei, 1564-1642

Index

1. Synthesis
2. . Premise
3. Money, boom and recession
4. Money and Inflation
5. Without backing in precious metals
6. Means domestic and international means of payment
7. Difference between public economy and private economy
8. The issuance of money is an act of sovereignty of countries
9. The lack of money should not be the cause of the poverty of nations
10. What happens when a country does not have enough international means of payment?
11. Dollars and local currency
12. The back of the currencies
13. Values ​​of currencies against the dollar
14. The exchange rate
15. To support the exchange rate governments should have enough dollars
16. Why it is not necessary to devalue
17. The G20 confirms the previous idea
18. U.S. has no foreign debt
19. The case of Venezuela, the Bolivar gold
20. Conclusions

1. Synthesis

The aim of this essay is to demonstrate that lack of money should not be the cause of the poverty of nations, because governments are free to issue all the money that require their economies; therefore there is no justification to impose at nation’s painful sacrifices like financial constraints and the devaluation of currencies.

I realize that my idea about the issuance of money is in opposition to the orthodox concept that exists in the world on the subject, which ensures that spending not should exceed income. But I'm sure I can hold my arguments in a logical, rational and verifiable sense.

2. Premise

There are things that man can create while others no; for example, man cannot create natural resources such as water or oil but he can print or not any amount of money. That freedom to create money is the key to economic behavior; using a metaphor we can say that money is the lifeblood of the economic process and production heart.

3. Money, boom and recession

Man has established restrictions on freedom to issue money. These barriers determine economic expansion or recession, prosperity or poverty, so it is very important to understand the role of money in the economy.

4. Money and Inflation

Throughout history money has been accused of causing inflation and that's one of the reasons for restricting its issuance; the Quantity Theory of Money logically explains the phenomenon. But really the excess money is not the main cause of inflation. The main cause of inflation is human selfishness that knows no limits to the accumulation of wealth.

5. Without backing in precious metals

The first coins were made of gold. That was the first restriction on issue of money. The gold and silver coins circulated for a long time. Then came the bank notes backed by gold, to ensure its value. But, in the mid-twentieth century, that relationship changed and banknotes ceased to have gold backing.

Since World War II, with the creation of the International Monetary Fund, the world adopted the U.S. dollar as reserve new instrument to support the value of currencies.

It should be noted, however, that neither the dollar nor the rest of the currencies has now enough backing in gold nor can be transformed in gold. They are essentially fiat currencies, i.e. currencies that circulate through the good faith of the economic agents, possess no intrinsic value and represent only a means of payment.

From the creation of central banks only governments have the legal capacity to issue money. Money has unlimited liberating power; this mean that when you pay with money you are automatically free of debt.

We can say, in short, that the money circulating in the world has no gold backing. The dollar, which is the reserve currency of value, is not supported in gold, and consequently, the world currencies that use the dollar as backing neither has backrest.

6. Means domestic and international means of payment

The first thing is to distinguish between internal means of payment or currency of each country and international means of payment, which as we stated before is the dollar of the United States of America.

7. Difference between public economy and private economy

The Orthodox concept in income and expenses says that spending must not exceed the income, but that principle does not apply to public economics. The reason is simple: because the government has a privilege not enjoyed by the private economy: the governments have legal authority to issue money thing that individuals cannot do. Individuals and corporations are tied to its income, governments no.

8. The issuance of money is an act of sovereignty of countries

Governments have therefore sovereign capacity to issue the currency of its own country in amounts necessary to meet the requirements of its economy. Neither the international agencies nor the foreign governments have authority to impose to other nations how much money to issue or not.

9. The lack of money should not be the cause of the poverty of nations

All the foregoing concepts show that governments can finance domestic spending by issuing domestic currency, because the payment of the internal activities of a country is made in the currency of each country currency.

If there is not enough money for attending the economic needs of an economy the government is responsible because it is who must ensure the availability of financial resources. Consequently, the lack of money should not be the cause of the poverty of nations because countries have autonomy and sovereign capacity to issue money.

10. What happens when a country does not have enough international means of payment?

The problem arises when countries do not have enough dollars to buy goods and services or pay foreign currency debt. Then nations have two options: a) produce more to sell more in international markets and thus get more dollars or b) borrow from international banks. That was how began the great debt of developing countries from the seventies of the last century as a result of rising oil prices.

11. Dollars and local currency

There is no justification to ask loans in dollars to convert those dollars in the currency of each country. This practice has led to extreme indebtedness of developing countries.

12. The back of the currencies

Theoretically, the backing of the countries’ currencies is the amount of international reserves in dollars, gold and IMF values.

13. Values ​​of currencies against the dollar

The parity of national currencies of the countries against the dollar should be set by a formula in which the total amount of money in circulation must be divided by the sum total of the country's international reserves.

The result of this division should be theoretically the exchange rate of the national currency against the dollar and, therefore, should represent the external purchasing power of the domestic currency.

14. The exchange rate

But countries do not always respect the formula above and this determines the considerations some experts make regarding the purchasing power parity, the overvaluation and devaluation.

15. To support the exchange rate governments should have enough dollars

Governments can set a fixed exchange rate of its currency against the dollar, but this requires that they are willing to cover the demand for dollars with its own reserves of that currency when circumstances require. If not, immediately raises the informal dollar market in which the price ---any amount--- is fixed by the private owners of the dollars.

16. Why it is not necessary to devalue

Governments can issue all currency requiring their economies without officially devalue its national currency, i.e. without altering the exchange rate between the national currency and the dollar. The reason is very simple: because what counts in the end is not the amount of domestic currency of a country, but only the total amount of foreign reserves, the steady flow of dollars and the willingness of the government's to keep the exchange rate officially established through intervention, when necessary, the foreign exchange market.

17. The G20 confirms the previous idea

At its 2013 summit held in Moscow, the Group of 20 officially declared on February 16, 2013 that a "currency war between major economies is unfounded.” The Group requested does not stimulate the economies through the manipulation of exchange rates.

http://www.reuters.com/article/2013/02/16/us-g20-highlights-idUSBRE91F02620130216

18. U.S. has no foreign debt

Under international rules, foreign debt is the debt acquired in foreign currencies. Consequently, the U.S. debt cannot be considered foreign debt but domestic debt, because it is constituted in its own currency, the dollar.

For the reason stated before the United States can deliver the amount of money needed to meet their domestic needs and the needs of the international economy without this being considered a fiscal cliff.

The same is applicable to the other countries of the world which can issue all the necessary money in their national currencies to meet the needs of their economies without representing a danger of fiscal cliff.

I think the fiscal cliff occurs only when a country cannot meet its international payments, i.e.  payments in foreign currency.

19. The case of Venezuela, the Bolivar Gold

Since 1983 Venezuela has been unable to escape the vicious circle devaluation-inflation-devaluation and shall not be able to find a solution unless it changes its course and look completely new economic formulas.

I proposed creating a new currency, at par with the dollar, the Bolivar gold, based on oil and gold reserves of Venezuela, as a way to achieve monetary stability, lower inflation and getting a higher level of welfare.

20. Conclusions

- Money is a creation of man who is free to print more or less as needed, therefore there is not none justification to impose painful measures of austerity and devaluation of  currencies, like happen currently in many countries of the world.

- In the modern world money has no backing in precious metals.

- Money has no intrinsic value. Its value is acceptance, faith of economic agents in their capacity as mean of payment, nothing more.

- For the same reason stated above the devaluation of the currencies does not make sense, since governments can issue currency without altering the exchange rate against the dollar.

- As warned the Group of 20 Summit in 2013 held in Moscow on February 15, 2013, "governments should not stimulate the economies through the manipulation of exchange rates”.