My tweets on protectionism

I am against protectionism... but... and

All trade deficits are not created equal
If a nation has a trade deficit resulting from importing too much of tomorrow’s goods and exporting too little of yesterday’s, that deficit is worse than if importing too much of yesterday’s goods and exporting too little of tomorrow’s

All capital surpluses are not created equal
If foreigners invest too little in your nations’ current existing assets, and too much in your tomorrows’, that capital surplus is not as good as if they invest much in your current existing assets, and less in your assets of tomorrow.

Are not nations who retaliate against the imposition of tariffs by imposing their own tariffs just as protectionist as those who started imposing tariffs?

Was it an accident or is it a statist setup?

In 1988, suddenly, without asking anybody, least us citizens, bank regulators, for the purpose of setting the capital requirements for banks, decreed the risk weight of the sovereign, the government, to be Zero Percent, while the risk weight for We the People was set at 100%.

Not having to hold capital against sovereign debt permits banks to lend to government at lower rates; which translates into a regulatory subsidy of government debt.

Then in response to the 2007-08 crisis, itself a result from distorting bank regulations, central banks launched quantitative easing, which basically meant injecting liquidity into the economy by purchasing government debt; and for example the Fed has ended up with about of US$ 4.5 trillion in government paper.

Much of the liquidity injected went to prop up real estate, bonds and shares, but a lot of it spilled over into more demand for government paper.

Naturally, interest rates for public debt fell, and many, like pension funds, in order to adjust for their liabilities, had to purchase even more public debt.

And while regulatory subsidies of public debt are kept in place, this vicious circle will continue.

And to top it up, too many “experts” now advance the argument that government should take advantage of these low interest rates, to launch infrastructure projects.

Let me be very clear about it, the fact that government might (artificially) even be paying a negative rate on its borrowings, does not mean it should borrow, because it is still very capable of investing those funds in projects yielding even more (real) negative rates.

I do not know how we got to this point, whether by accident or whether a set up by runaway statists. You tell me!

PS. When utilities were being privatized in South America, I often heard accusations in terms of “savage neo-liberalism”. Since these utilities were not adjudicated to whoever offered to serve us citizens the best and the cheapest, but to whoever offered to pay the government the most, a tax advance that left us with a huge bill to pay at private investment rates of return, to me those privatizations were much more an expression of sadist statism.

The Hugo Chavez Revolution cheated the poor

And before “Chavistas” stop reading this let me point out that the title does not imply that Hugo Chavez, as a person, deceived the poor, all the time, since for sure he himself was also much deceived by some of his most dedicated followers.

So let me explain the Great Deception.

If there is one thing that the Chavez Revolution holds, is that it foremost works for the poor of Venezuela... and it congratulates itself with reports where the Gini coefficient evidences that inequality has declined in Venezuela. Well ... that is completely false unless you want to argue that this was achieved by impoverishing many of those who had something more.

(PS. In fact some Bolivarian Revolution revolutionaries have confessed their need of keeping the poor poor)

But the Gini coefficient in itself contains falsehoods. As an example, its calculations, for “methodological" reasons, does not include the income of those who became rich via corruption and deviation of funds, like the “boli-bourgeois” (the new rich) and the “briefcase companies” (a name for those who have abused the foreign exchange controls)

And I can argue the Great Deception even stronger.

Imagine that the government had not directly given dollars to other countries or purchased services at inflated prices (Cuban doctors and nurses)

Imagine that the government had not given away the gasoline in Venezuela ($ 6 cents per gallon, € 1.5 cents per liter) and had sold it at its international price.

Imagine that it has not sold cheapo-dollars to those traveling abroad

Imagine that it has not sold cheapo-dollars for imports, those who benefit criminal importers, for instanbce those who over-invoice, or good faith importers, by providing very generous distribution margins ... and which all ultimately delivers only a tiny portion of benefits to the population which, precisely because it is poor, consumes less imports.

And imagine instead that all these resources just HAD BEEN distributed equally in cash among all Venezuelans.

In such a case, I assure you that the Gini coefficient would have shown a vastly larger, more real and more sustainable reduction of inequalities in Venezuela.

So you the poor of Venezuela and you the middle class in the process of being part of the poor in Venezuela, demand your share of the net oil revenues, in cash, in dollars.

And please, I beg you, stop being so naïve as to believe the story that some experts, no matter where they come from, no matter how beautiful they speak to you, know better than what you know what to do with an amount that can represent 150-250 dollars monthly for each one of you 

PS . Reading about some new government efforts to further indebt our country, I beg our students: “You, who would be the surest payers of this debt, declare that debts, incurred only to postpone much needed corrections are "odious", and that therefore you have not the slightest intention of sacrificing yourself by paying these.

PS . Some thoughts during Christiane Amanpour’s interview of Nicolas Maduro:

How can one ask other countries for respect when one disrespects one’s own countrymen?

How can one ask for a multi-polar world while requiring a single-polar country?

How can a government which manages 98% of all the exports of the country, declare itself so innocent of its problems?

How can you say to sleep like a baby and wake up with such large bags under the eyes?

Do you think that Hugo Chavez would sleep happy as Maduro says he does, when so much unhappiness abounds?

Some countries have governments that washes brains, Venezuela has one which is brainwashed

Translated from El Universal

The merry-go-round of aluminum prices

Any time now, either the privatization of the aluminum industry goes forward or the process is delayed indefinitely, rather, definitely delayed until after the upcoming presidential elections.

One of the most debated issues during the run-up to privatization has been that of the establishment of the price at which the privatized entity will supply primary aluminum to the local market. The opinions of the parties involved normally reflect directly their particular interests. While on one hand, the potential bidders interested in acquiring the aluminum concerns don’t want to see any limitations imposed, the local buyers of primary aluminum naturally wish to be awarded the right to purchase unlimited volumes and minimum prices.

At the risk of sticking my nose where it doesn’t belong, I would dare say that the final price the Venezuelan state would receive for the privatization of the industry’s components would be higher should no limitations on future sales be imposed than if obligations to sell to the national market at specially favorable prices were built in from the onset. Accordingly, it is obvious that as a tax payer and party, however theoretically, to a minuscule portion of the national fiscal wealth, I retain a certain right, as co-underwriter, to make my opinions known.

I will begin by establishing certain parameters. Aluminum is a metal for which the global markets establish reference prices on a daily basis (through the London Metal Exchange), that is, it is a commodity. Supposing that today’s quotes are based on the cost of aluminum of US$ 1,500 per ton fob at a European port and that the cost of transportation to Venezuela is US$ 60 per ton, this means that anyone wishing to import primary aluminum to Venezuela must pay US$ 1,560 per ton plus the cost of the internal freight to its final destination. On the other hand, if someone wishes to export aluminum to Europe from Venezuela, he will must foot the bill for the freight in order to meet the reference price of US$ 1,500 per ton. This means he will receive US$ 1,440 (i.e. the reference price less freight charges of US$ 60 per ton to Europe) less local transportation costs.

Under normal conditions, it could be expected that prices for primary aluminum in the local market with cash terms and reasonable volume purchases would be set within the abovementioned band (that is, between US$ 1,560 and US$ 1,440). Should prices be set higher than the maximum, this is certainly due to other aspects such as the existence of protectionary measures aimed at blocking aluminum imports.

Should the opposite occur, that is that the resulting price is set below the lower level of the band, this is probably due to special regulations such as price controls and the accumulation of incentives to import. For example, the exporter may prefer to sell aluminum locally at lower prices in order to be able to offset sales taxes immediately rather than sell overseas at higher prices and waiting patiently in line for the tax authorities to reimburse him for this sales tax.

Evidently, as a loyal Venezuelan I am interested in insuring that any primary industry such as the aluminum sector can develop and invest in downstream processing facilities which will produce added value, generate employment and participate in the general well being of the country.

However, I do believe that the best method available to the State in order to insure the coherent development of internal markets is the outright elimination of artificial barriers, not the creation of new ones.

Should the National Executive, in the case of the privatization of the Venezuelan aluminum sector, concede advantages to local buyers of primary aluminum and as a result reduce the price potential investors are willing to put on the table, this reduction in price could be construed as being a subsidy paid in advance to the local market without exacting anything in return. Doesn’t seem logical to me!

It would seem logical, however, to obligate the Executive to intelligently study the future development of the market in order to manage prices within reasonable limits. Any efforts to block winning bidders from taking undue advantage of their local strengths are merely partial justifications for this study. It is much more important to identify any artificial tendencies that are normally created by the Government itself and that are usually the principal causes of these abnormal situations in the first place.

Having decided to capitalize on some of the advantages offered by privatization, let us, for God’s sake, not turn around and forsake these by nationalizing free market rules and regulations.