Thursday, March 22, 2007

Venezuelan currency gets new name, number

Of all the startling measures announced by President Hugo Chavez this year, from the nationalization of major utilities to threats of imprisonment for violators of price controls, none has baffled economists quite like his venture into monetary reform.

I think that economists would have another list than just the implementation of policies about price controls. Which one was the loss of the independence of the Central Bank.
First, Chavez said the authorities would remove three zeroes from the denomination of the currency, the bolivar. Then he said the new bolivar, worth 1,000 old bolivars, would be renamed the bolivar fuerte, or strong bolivar.

Finally, at the behest of Chavez, the central bank said last week that it would reintroduce a 12 1/2 -cent coin, a symbol of Venezuela's prosperity in the 1960s and 1970s before freewheeling oil booms ended in abrupt devaluations, after three decades out of circulation.

Chavez champions these ideas, which will take effect in January, as ways to combat inflation, which in recent weeks crept up to 20 percent, the highest in Latin America.

Window dressings like this move does nothing without significant structural reforms. In all the cases I have seen none have resulted in a stable currency or any reduction in inflation without major changes happening. To give you an example, Timeline: Zimbabwe's economic woes.
In 1998 it started out with an exchange rate of:
Exchange rate: 1 US dollar (USD) = 24 Zimbabwean dollars (ZWD)
Then it reached a level of:
December 2005: Exchange rate: 1 USD = 77,965 ZWD.
And then they decided to introduce a new currency:
August 2006:Exchange rate: 1 USD = 101 new ZWD = 101,347 old ZWD
And how did this help?
Exchange rate: 1 USD = 259 new ZWD = 259,793 old ZWD.
'Hoarders' blamed
Officials blame "hoarders" for shortages of basic goods and price increases for food on the black market. Chavez says that the renaming and redenominating of the currency will instill confidence in it.

Gaston Parra, the president of the central bank, went on television last week to emphasize that the effect of these measures on the value of Venezuela's currency would be neutral, neither increasing or decreasing salaries, debts, nor the price of consumer goods.

Private economists, however, say that the changes, combined with inflation, could heighten confusion over prices. Those economists say that the inflation is a result of a surge in public spending by Chavez and increasingly jittery efforts by the wealthy to circumvent tightening controls on prices and foreign exchange.

"We're witnessing policy in the form of window dressing, all carried out at the whim of one man whose strong point is not economics," said Hugo Faria, an economist at the Institute of Higher Management Studies, a private business school here. "Anyone who sees a 12 1/2 -cent coin as a remedy for this country's problems isn't thinking too clearly."

Yes, blaming anyone beside Government Officials is just a waste of breath. The troubles with their inflation and thus their currency is well beyond a little window dressing that is trying to instill confidence. It is government policies that are creating inflation as well as creating incentives to circumvent the government regulations. Obviously Hugo has little understanding of economics and has very poor advisers. Confidence comes from making logical decisions and not rash decisions by an authoritarian dictator.
Inflation climbing rapidly
Inflation has been climbing rapidly since January when a sharp decline in the black-market value of the bolivar pushed up prices of imported goods.

Since Chavez moved to nationalize major telephone and electricity companies in January, Venezuelans have rushed to take money out of the country, currency traders say.

That exodus has caused the bolivar to weaken by about 20 percent to a level of 4,000 to the dollar on the black market, placing it among the world's worst-performing currencies this year.

When it was announced the nationalizations earlier this year also caused this drop ot around 4000 to the US dollar.

One way that they have moved money out of the country was take stock certificates from Venezuela and transfer them to the USA which then becomes an ADR and when sold they become US dollars.

PS: Not sure where title link went to but saw another blog with some more information.
Monetary reform in Venezuela: the zeroes are the problem

Gastón Parra, the president of the central bank, went on television this week to emphasize that the effect of these measures on the value of Venezuela's currency would be neutral, neither increasing or decreasing salaries, debts nor the price of consumer goods.

Update (5-11-07): Can "New" Currency Abate Venezuelan Inflation?


Wednesday, March 07, 2007

The Political Economy of Alternative Energy

Let me just preface this piece with that I love Dr. Arnold Kling's insight and brilliance. But I was a little disappointed in his latest attack piece on Al Gore.
"Gore has had a consistent position of purchasing carbon offsets to offset the family's carbon footprint — a concept the right-wing fails to understand. Gore's office explains what Mr. Gore has asked is that every family calculate their carbon footprint and try to reduce it as much as possible. Once they have done so, he then advocates that they purchase offsets, as the Gore's do, to bring their footprint down to zero."
-- Denny Haldeman (scroll down to email responses to the op-ed)

Suppose that a friend of yours is trying to lose weight, and he tells you, "If I eat this salad, it will be good for me. So then I can have cake for dessert." What would you tell your friend?

Al Gore is trying to say that by investing in alternative forms of energy, he is "offsetting" the heavy use of conventional electricity for his home. This is like saying that eating salad entitles a dieter to enjoy cake for dessert.

Yes the desire to get to do bad things when you first deceive yourself by doing good is a natural human trait (or was it only taught by authoritarian parents?). And we will ignore the glaring question as to whether Al Gore has reduced his carbon footprint as much as possible. But Dr. Kling has failed to be the investigative reporter he should be.

First, our little thread at AlGore - Do as I say not as I do started the discussion off with a link to Gore isn't quite as green as he's led the world to believe.
But according to public records, there is no evidence that Gore has signed up to use green energy in either of his large residences. When contacted Wednesday, Gore's office confirmed as much but said the Gores were looking into making the switch at both homes. Talk about inconvenient truths.

And then a piece entitled Al Gore’s Personal Energy Use Is His Own “Inconvenient Truth”, which brings into question whether he is doing everything to reduce his demand for energy and more importantly carbon emitting energy. Next we see that This time, voting climate favors Al, which points out that: The snitch said fewer than 300 people requested the special ballot in the documentary category, which was won by Al Gore's "An inconvenient Truth" Sunday.

So when I came across the post entitled: The Profit of Doom I noticed the writer talking about purchasing stocks for carbon offsets. But from my prior research and reading a variety of articles, then purchasing any stock is not part of the scheme. To atone for your sins you are not suppose to benefit from your penance. So I tended to ignore the messages but did read the link to Group questions level of energy use at Gore home.
Gore's power bill shows, however, that the former vice president may be doing just that. Gore purchased 108 blocks of "green power" for each of the past three months, according to a summary of the bills. That's a total of $432 a month Gore paid extra for solar or other renewable energy sources.

Thus it sort of shot down some of the points in the above blog post. So I ignored the rest of the article including this portion:
"They, of course, also do the carbon emissions offset," she said.

That means figuring out how much carbon is emitted from home power use, and vehicle and plane travel, then paying for projects that will offset that with use of renewable energy, such as solar power.

Gore helped found Generation Investment Management, through which he and others pay for offsets. The firm invests the money in solar, wind and other projects that reduce energy consumption around the globe, she said.

Luckily, someone posted a link to Generation Investment Management and after looking at the site it was easy that this was no carbon offset plan but just a normal equity fund that invested in a variety of common stocks. But the real break came from finding the link to SEC Filing FORM TYPE:13F-HR. And what stocks are included in this portfolio?

A list of their holdings, and value in thousands:
AFLAC INC----------------13315
AQUANTIVE INC------------4615
AUTODESK INC-------------12712
BLACKBAUD INC------------4765
GREENHILL & CO INC-------9473
JOHNSON CTLS INC---------13711
METABOLIX INC------------5209
NORTHERN TR CORP---------14333
NUVEEN INVTS INC---------7389
STAPLES INC--------------11921
SYSCO CORP---------------11085
TECHNE CORP--------------22309
UBS AG-------------------14079
VCA ANTECH INC-----------4858
WATERS CORP--------------8875

So Staples qualifies for Carbon Offsets? And while I have not looked at all the companies, most do not have anything to do with renewable energy or solving global warming.

So a good scam when you can pull it off. We came up with the analogy that a Priest sins and for his penance he must tithe to the collection plate that he gets to skim off the excess.

Energy Fallacy

Gore isn't quite as green as he's led the world to believe

Al Gore’s Personal Energy Use Is His Own “Inconvenient Truth”

This time, voting climate favors Al

The Profit of Doom

Generation Team: Hon. Al Gore is Chairman


Is Al Gore Really "Carbon Neutral"?


Why Can't Shareholders Be Trusted to Set CEO Pay?

Well it just shows that if you read enough of anyone you can eventually find some common ground-with respect to the above blogger link.
Representative Barney Frank has proposed a law that would require corporations to have non-binding polls of their shareholders on CEO compensation packages. According to Marketplace Radio, the opponents of this measure claim that shareholders have diverse interests and aren't in a position to properly assess CEO compensation.

Well it is their assets, I would assume that owners of capital should know how to manage it-even if indirectly. But I would say it should be binding votes. I would also make political contributions or lobbying also mandatory for a vote. Once a year is fine and if there needs to be emergency measures enacted then the board can approve until the next meeting.
It would be helpful if the media teased this one out a bit further -- the shareholders aren't qualified to determine the pay of their top employee, but the insiders (a corporate board that usually owes their position primarily to the CEO) somehow can be trusted to act in their interest.

True enough. Yes people in a corporation/government/organizations tend to have different goals than the stakeholders.
The media also portray this as a government intervention into the corporate sector. Of course, this is nonsense. The corporate sector is a creation of the government (individuals can have partnerships, legal corporations are a creation of the state), the question here is about setting the right rules. The government already imposes a long set of rules for corporate governance, including rules on disclosure of financial data and also rules ensuring that the rights of minority shareholders are protected. The issue here is whether it is necessary to change the rules to ensure that CEOs do not abuse their insider power to get exorbitant compensation packages. (I discuss this issue in a chapter of the Conservative Nanny State.)

Ahhh, and we were doing so well. We had to get distracted by the theory that corporations being a creation of the government. Don't partnerships have rules, regulations and laws that govern them also? If partnerships can be granted outside the government then what is the difference between 2 people owning stakes in a company and 1 million? Would these rules also be enforced if there were no Government? Would the stock markets police themselves over the long run?