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Post Why Do Fiat Currencies Makes Us Poorer?
Created by John Eipper on 09/29/19 2:11 PM

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Why Do Fiat Currencies Makes Us Poorer? (José Ignacio Soler, Venezuela, 09/29/19 2:11 pm)

Tor Guimaraes and John E have been discussing Tor's assertion that fiat currency makes people poorer. Tor cites the example of Nixon abandoning the convertibility of gold in 1971.

I am not deeply versed in what happened in the US, but the general interpretation of fiat money or "inorganic money" is money printed by banks without real assets for backup except their own future uncertain promise to support it.  This might sound overly simple, but it is clear and reasonable.

When banks issue fiat money without real backup, or artificially devalue the currency or decrease interest rates based on a certain monetary policy, whether it is to expand the economy, promote exports or to support their own expenses and fiscal deficits, what they are precisely doing is creating a perverse "tax" on the people by means of inflation. In the end consumers "pay" this tax through higher prices of goods and services, locally produced or imported. This tax produces a wicked result by making people poorer. More money is needed to acquire the same products if income remains equal. Obviously the way to reduce this effect would be to increase salaries and incomes accordingly at the same pace as inflation, but this seldom happens.

We have often seen this effect in high inflationary economies. In South America the examples are legion. Venezuela and Argentina are dramatic illustrations of this phenomenon at present.

A moderate inflation is a useful and necessary index for economies, as it shows a growing demand and consequently incentivizes an increase in production of goods and services. But the uncontrolled printing of fiat (virtual or unsupported) money only creates an extra artificial demand.

JE comments:  I understand the "inflation as tax" concept, and I've seen it in practice in Latin America.  But I'm still nonplussed why we don't have hyperinflation in the US.  The M2 money supply has basically doubled since the 2008 crisis, to nearly $15 trillion, but prices have not followed suit.  Is the US in a singularly privileged position, in that it can "print" money that the entire world has to use?

I hope our in-house economics gurus will take the time to explain this in lay terms.

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  • Why No Inflation in the US? (José Ignacio Soler, Venezuela 09/30/19 10:12 AM)

    In our continuing discussion on economics, John E asked, "I'm still nonplussed why we don't have hyperinflation in the US."

    I will try to give my humble interpretation, asking for the indulgence of the economists in the WAIS ranks.

    The effect of fiat money on the economy, besides the wicked "tax" I mentioned yesterday, is that it increases the liquid resources (M2) in the hands of the public. If the general productivity of society is not increased at a similar pace, the demand for goods and services is not fully satisfied by the supply. Consequently, prices rise and inflation is produced. That is what generally happens in less developed economies with lower productivity, fewer economic resources and less industrialization, such as Venezuela and Argentina.

    I do now know what productivity has recently been in the US compared to the M2 money supply in recent years, but I would think that productivity in the US has been increasingly and progressively growing--perhaps not at the same pace as M2, but probably close. This main effect together with some other macroeconomic factors in the US, such as the international demand for dollar reserves, interest rates, trade, export-import balance, devaluation and general monetary policies of the Federal Reserve, have probably been the causes for a low inflationary result.

    JE comments:  Nacho, to shift gears a bit--is there talk in Venezuela of going to "dolarización" in a post-Maduro government?  Ecuador went this route in 2000 to quiet the nerves of foreign investors.  The cost, of course, is the surrender of monetary policy.  Let's discuss this more.

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    • Dollar and Petro in Venezuela's Chaotic Economy (José Ignacio Soler, Venezuela 10/02/19 3:14 AM)

      In our ongoing discussion on economic issues, John E asked about a hypothetical dollarization of the Venezuelan economy, such as what happened in Ecuador.

      Because of clear ideological prejudices, the Venezuelan government is far from ever adopting the dollar as an official currency. Let's start by reviewing several failed attempts to fight hyperinflation. As I mentioned in the past there have been several changes in the currencies in the last 20 years: first from the old Bolívar to the Bolívar Fuerte, from the Fuerte to the Bolívar Soberano, and recently to the Bolívar again. In fact the equivalence between the old Bolívar and the new one is 1 old = 100,000,000,000 new; the math is easy.

      Another vain attempt to combat inflation and at the same time fight the dominance of the imperialist dollar, was the creation of Petro, a crypto-currency based on block-chain technology, apparently created with the help of Russians technicians, in 2017 or 2018. This digital currency was supposedly supported, one to one, by a barrel of oil (originally 1Pet = US$60) as an incentive to create confidence among investors and to obtain foreign currencies, including dollars (what irony!), rubles, yuan and so forth, as well as to incentivize trade for foreign and local transactions. The initial government Petro offer in 2018 was Pet 44M, and the government claimed (difficult to confirm) to have obtained more than US$740M. The Petro is apparently another vain attempt to boycott the use of the US dollar and to reject it as trading currency. The failure is because of a lack of confidence in the regime, the use of crypto-currencies for laundering money and Trump's economic blockade.

      A relatively successful attempt to release the dollar subordination was to change the International Reserves from US$ to gold. The disadvantage is a lack of liquidity and the complexities of trading precious metals.

      Anyway, the paradox is that despite government's attempts in the past to eliminate the US$ as a dominant economic currency, today the dollar is the currency being used unofficially by Venezuelans in any domestic transaction, from the most simple to most sophisticated, and the public is legally allowed to trade in dollars, as well as quote them in contracts and even many government services.

      JE comments:  I've found varying reports on the current price of the Petro.  Some sources say it no longer trades at all; others quote a price in the $16 range, down from the original $60, which means you can no longer turn each Petro into a barrel of oil.  Does this make the Petro the ultimate crypto-currency, as nobody knows what it is?

      Crypto-currencies are the most "fiaty" of all, as they are backed by nothing--not even the might of a nation-state.  If the Petro was/is based on the block-chain model, doesn't this mean they can be "mined" by insomniac computer whizzes?  But if there's an underlying barrel of oil, then there's no need for the block-chain feature.  Am I wrong?

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      • Sanctions against Venezuela (Eugenio Battaglia, Italy 10/05/19 3:58 AM)
        A quick question for José Ignacio Soler: Suppose the terrorist sanctions against Venezuela are canceled, would the economic situation improve? Sanctions are generally made by an Empire or a group of powerful states in order to strangle a weaker state into submission, or to bring about a regime change or a war.

        Generally the stronger parties succeed, but Italy in 1935-'36 overcame the sanctions, resulting in a strong increase in activity in many sectors. The sanctions even were almost a blessing for developing its industry, agriculture and infrastructure, but fatally the war arrived in few years.

        JE comments:  WAIS visits the topic of sanctions every year or so, and we may be overdue.  I don't see any relaxing of the measures against Maduro, but he's still firmly in power.  We could say the same thing about the regimes in North Korea, Iran, and even Russia.  And what about Cuba, 60 years later?

        If sanctions played baseball, they'd be batting around .150.  So why do nations "do" sanctions?  To show that they're doing something, even if only for the political satisfaction of the domestic audience?  Remember the alternative to sanctions:  war.

        [Cari WAISisti, please don't sanction your favorite website!  Tell us about the poems you've memorized, any language.  I'm assembling a program.  Who wants to join Enrique Torner, David Duggan, and Yours Truly?]

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        • Do Sanctions Hurt the Venezuelan Regime? (José Ignacio Soler, Venezuela 10/05/19 3:17 PM)
          Eugenio Battaglia asked whether the economic situation of Venezuela would improve if the the sanctions (might it be disproportional in this case to call these actions "terrorist"?) are canceled.

          The answer is short, but it is necessary to establish that the current economy is not a product of the sanctions. The economic crisis has been developing over a long time, even before the present presidential rule, by the inability and the corruption of the regime. It has been ideologically perverted and guided by irrational criteria. The sanctions are relatively recent and they cannot be blamed for creating the crisis at all. Might the situation improve if the sanctions are lifted?  Perhaps in some areas, but not in a definitive way to reverse the situation or resolve the crisis. The economic crisis has structural and ideologically deep causes. Unfortunately it would be difficult, if not impossible, to follow Italy's example of 1935-'36, as mentioned by Eugenio.

          I have already stated in a previous post that I doubt sanctions are useful for a definitive solution, to change non-democratic, autocratic or dictatorial states, such as Iran, Cuba or this country for that matter. Moreover, the population suffers the consequences. Only if these sanctions are the only way to exert some kind of pressure on such regimes might they be justified. At least they work to condemn, denounce and expose them.

          JE comments: It would be instructive, albeit impossible, to "prove" with data whether sanctions weaken a repressive regime or actually strengthen it in two ways: 1) by providing an evil outsider on which to cast the blame for the country's ills, and 2) by enabling the regime to justify even more repressive measures in the face of a "national emergency." The first factor has worked in Cuba for six decades.

          Sanctions do accomplish one thing, as José Ignacio Soler observes:  they condemn, denounce, and expose.  This counts for something.

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          • How Damaging are US Sanctions Against Venezuela? (Tor Guimaraes, USA 10/07/19 6:27 AM)
            I don't know much about the specifics of the Venezuelan situation and it would be a major project to get to the bottom of it. Nonetheless, my intuition tells me that José Ignacio Soler is discounting the US sanctions a little too much.

            When an 800-pound gorilla comes after you, like the US came after little countries all over the world including Venezuela, it is a very scary thing. The little nation's government should not be expected to behave reasonably toward its own population, because some of its citizens may be willing to sell themselves to the special interests lined up with the US government responsible for the sanctions.

            Frankly, I am surprised the Venezuelan government has survived this long. Probably the balance (quantity and intensity) in international support has provided the counterweight to the destructive power of the US (military, financial, economic, even hacking the Venezuelan power grid).

            JE comments:  The US (specifically, Mike Pompeo) denies any responsibility for the Venezuelan blackouts, but these days our "official" word is not much more reliable than Venezuela's.  What do we really know?  And what do the Venezuelan people believe?  I hope Nacho Soler can clarify.

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            • Prior to Sanctions, Venezuela was Already a Shambles (José Ignacio Soler, Venezuela 10/10/19 4:27 AM)
              Tor Guimaraes (October 7) seemed to question my claim that the US sanctions have had relatively little effect on the Venezuelan crisis. Maybe I did not explain myself clearly, or my explanation on the subject was not clearly understood.

              First let's establish, once more, that Trump's sanctions have been in full effect only since early this year (2019). Before that date only minor financial sanctions were applied by the Obama administration to specific people in the government and not on the economy or the financial sector in general.

              To show the Venezuelan crisis in the period from 1999 (the first year of the regime) to 2018 (before the sanctions) let's review some crucial facts.

              For instance:

              --Venezuela's GDP has been contracted for 5 or 6 years with negative indexes up to an estimated -10% in 2018. This was prior to the sanctions.

              --Hyperinflation and devaluation before the sanctions were progressively growing at unparalleled levels, as I have previously written on WAIS.

              --Oil production in 1999 was 4.3 million barrels/day; in 2018 it was about 1M B/day (presently in 2019 it is around 700,000).

              --The foreign debt in 1999 was about US$30 billion; in 2018 it was US$320 billion (nowadays in default).

              --Foreign currency reserves were reduced from more than US$100 billion to less than US$8 billion.

              --During that period more than 50,000 small, medium and large private businesses (industrial, agricultural, food, pharmaceuticals, etc.) closed up or were expropriated by the government and eventually closed as well (currently the industrial production capacity is only around 25% of peak levels).

              --More than 300 government-owned large industries (iron, aluminum, food, chemicals, etc.) were brought to ruin and are practically closed up.

              --During that period more than US$1000 billion from government budgets was wasted on futile projects, "social missions" or else "disappeared" altogether.

              --The extreme growth of poverty to a previously unimaginable number (this is estimated to be 70% of the population; retirement pensions and minimum salaries for instance are now at less than US$2/month).

              --Water, electricity, social security and other public services have failed or or collapsed altogether. Blackouts, shortages and so forth have been aggravated in that period as never before in the past, due to a lack of maintenance and necessary upgrade investments.

              --To make the final argument, the number of Venezuelans escaping the crisis to neighboring countries in that period (1998-2018) has amounted to more than 3.5 million people (in 2019 more than 5 million!). This is estimated to be the greatest wave of emigration in modern times, even greater than Syrian or elsewhere).

              Whether the current US sanctions will aggravate the situation remains to be seen in the near future. But contrary to what you might expect, as a product of the government's disguised dollarization of the economy, the scarcity of basic products, spare parts, food, medicines, etc. has been significantly reduced. Therefore, the supposed daily effects of the those sanctions are not really noticed by the general population.

              A question that many Venezuelans are asking is this: Where is the foreign cash being used in common transactions coming from? It seems from several sources, since exchange currencies controls have been practically eliminated. They come from private savings, foreign credit cards, banking transferals and family remittances from emigrants abroad. Perhaps most importantly, the cash is coming from money laundering of suspected illegal activities. (For instance, according to sources this week, on the Brazilian border, authorities from that country found a truck on its way to this country with more than US$300 million in cash in a hidden compartment).

              Finally, I hope those facts better explain that the current socio-economic crisis is not the product of sanctions. The crisis has been developing for a long time, because of ideological stupidity, ineptitude and corruption. The hypothesis of whether the economy would improve by canceling the sanctions is difficult to answer, but considering only the facts mentioned above, it is obvious this situation would be anyway very difficult to reverse without necessary radical structural reforms, something this regime is hardly capable of doing.

              JE comments:  The human exodus from Venezuela has impacted much of the world; it's a demographic phenomenon of historic proportions.  Both in Colombia and Chile, during my recent travels, I've heard complaints about "esos venezolanos" who hang out on the streets and (according to the locals' accounts) drain national services and cause mischief.  At the other end of the stereotype spectrum, a great number of Venezuelan professionals (especially physicians) have greatly increased the human capital in other Latin American nations.  I heard this view as well when I was in Chile.

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              • Venezuela Used to Have "Too Much Money" (Timothy Brown, USA 10/11/19 5:37 AM)
                More years ago than I care to count, when I was being transferred from Paraguay, I was offered the Consul General position in Maracaibo, Venezuela.

                When I researched the position, I was told that one of the biggest problem was that Venezuela had an excessively large surplus of funds generated by their petroleum export. Venezuela's problem was that they had too much money. How times change!

                One of my favorite saying is this:

                "Under Capitalism the millionaires are all Capitalists, while under Marxism all the millionaires are Marxists. Either way its the worker bees that get screwed."

                JE comments: This is a corollary to one of my favorite socio-political truisms. I like to put it on WAIS about once per year: "With capitalism, Man exploits Man. Under communism, it's the other way around." (This maxim long predates the use of gender-inclusive language.)

                Is there such a thing as "too much money"? A nation or people can suffer when the wealth comes from one natural resource. What do you do when the price collapses or the supply runs out? And in the meantime, you have the problem of inflation (more money chasing the same amount of goods) and the tendency of the national work ethic to atrophy. Think of Venezuela in the 1970s, Nauru until the end of guano, or silver-rich Peru in Colonial times.

                Extreme wealth has a way of turning into extreme poverty. This is a topic worthy of further discussion.

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                • Visiting Venezuela in 1970 (Henry Levin, USA 10/11/19 8:48 AM)
                  I first went to Venezuela in Caracas in 1970. It was a strange place, 12 years removed from the dictator, Pérez Jiménez. Under the Dictator, cars were forbidden to use their horns, so the older cars all had dents on the door on the driver's side from pounding the door by using their shoes to make a fearsome rhythm on the door and damaging the metal.

                  But, by 1970 you had the other reaction to buy a car with a very loud horn playing La Cucaracha or some other loud and noisy sound creating an impossible cacophony. There were still occasional gunshots from the roof to the street, mostly random, but in some gang neighborhoods. People had a good sense of humor. Subsequent visits took me to Guyana and the Cascadas, very beautiful. The overall situation was optimistic, and Venezuelans had great sense of humor. Incomes were rising, and people ate well. What a change.

                  JE comments:  Gracias, Hank!  If I could make one generalization about Latin America cities, it's this:  noise.  Caracas under Pérez Jiménez must have been eerily quiet.  The quietest major city I've visited in recent times is Berlin.  This is more from the Germanic sense of order than any prohibition of honking.

                  Google tells us that Zurich is the world's quietest city.  Perhaps, but I've never been.

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                  • Calling at Venezuelan Ports, 1955 Onward (Eugenio Battaglia, Italy 10/12/19 4:00 AM)
                    Continuing with the topic of Henry Levin's 1970 visit to Venezuela, let me share my distant memories of that country:

                    During my career at sea, I called at various ports of the proud "Cuna del Libertador" [Cradle of the Liberator]. First at La Guaira and later with tankers at various ports such as Maracaibo, Punta Cardón, Puerto Cabello, etc. As a captain I even obtained the license of Práctico at Maracaibo. The more fascinating trips were the ones going inland, navigating upriver on the Río San Juan and the Río Orinoco. On these two rivers it was a question of luck just not to run aground. On the Río San Juan in order to turn to come back it was necessary to actually go aground on the bank of the river with the bow and then pivot around the bow.

                    The bottom was mud and vegetation. The first time that I experienced this maneuver I was not very enthusiastic about it.

                    I always had a very good time with nice people and fantastic chicas. Moreover, I fortunately never went aground save the maneuver on the Río San Juan.

                    However my first impression was negative: I was a cadet on a passenger ship regularly calling at La Guaira on her way to main South American ports to reach Valparaíso. This ship would "unload," mostly in Venezuela, Italian immigrants from South Italy and many were also refugees from Istria, Fiume and Dalmatia. These poor people had left their homes to remain Italian in other parts of the country, but the new Italy--lay, democratic and antifascist--preferred to send them away in order to avoid problems.

                    It was in April 1955, and Pérez Jiménez was president. During my first call as cadet, at La Guaira, the seaman in charge of raising the national flags made a "terrible" mistake. He raised the Venezuelan flag on the left arm of the mast instead of the right side. Local authorities became angry and wanted to block the vessel for such a "terrible offense." The apologies of the Captain and the immediate correction of the position of the flag were not sufficient. After a long quarrel, the problem was finally solved with a fine. To be honest the Venezuelans were right but their reaction seemed to me rather exaggerated, probably was the "Pérez Jiménez atmosphere."

                    As Chief Officer I witnessed another quarrel, and this time it was funny. I was at Punta Cardón and I went to the Captain's Office to see the Captain quarreling with the Immigration/Custom Officers. They were shouting. The problem was the language, in South America, the authorities at ports wanted to speak only in Castellano or Portuguese (better say Brazilian) and my captain did not speak much Castellano. The locals were asking, "¿Cuánto lastre tienes?" (How much ballast do you have?) Unfortunately, as an old captain of cargo ships, the Captain understood "lastre" as slabs and swore that on board there was no lastre at all, which is impossible for a newly arrived tanker, so they were screaming at each other like hell. It was easy for me to solve the question with no problems.

                    Now I am very sorry about Venezuela's economic /political situation.  As everybody knows I do not like "Los Rojos" but at the same time I do not like sanctions and I wish all the best for the Venezuelan people.

                    JE comments:  Eugenio, it must take nerves of steel to beach the front of your ship and pivot around.  What could you possibly do if you get stuck?  A tow truck won't help much.

                    I am also moved by your experience of unloading your countrymen and countrywomen in a distant land.  For a staunch nationalist, it can only be a demoralizing thing to observe.  A curiosity:  have you heard of these emigrants (or their children/grandchildren) returning to Italy in large numbers?


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                    • Are Italo-Venezuelans Returning? (Eugenio Battaglia, Italy 10/13/19 5:40 AM)
                      Thank you, John E, for your nice comment on my post of October 12th. You really got my point.

                      To answer your question, I have heard that various Italians in Venezuela, including some children and grandchildren of refugees from Istria, Fiume and Dalmatia, have asked to return to Italy and to recover their Italian nationality if lost. Unfortunately the topic is not discussed much.  The argument is the "invasion" from the African immigrants.

                      JE comments:  The first wave of "returning" Italians came from Argentina, in the chaotic 1970s and '80s.  The rules used to be that you could claim Italian nationality if you had one documented grandparent born in Italy, which probably 50% of Argentines could/can do.  It was more complicated to recover Spanish nationality.  Eugenio, I'm summarizing a vague memory here.  Do you know if Italy's laws are the same at present?

                      The greatest returnee from Argentina may have been Alejandro de Tomaso, of Formula I and automotive fame, although he (re)settled in Italy (Modena) during the Perón era.  The logo of the legendary Pantera featured the national colors of Argentina.  See below.

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                      • Italy's Laws for Returning Emigrants (Eugenio Battaglia, Italy 10/14/19 3:57 AM)
                        Answering John E's question about the recovery of Italian citizenship, the law of "Jus Sanguinis" is still valid.

                        This law is very old, from 1912. Originally it referred to the descendant of an Italian father.  After the new Italian constitution of 31 December 1947, the descendant of an Italian mother can also recover Italian citizenship. The interested person must present the appropriate documentation to the Italian Consulate in his/her present town, in primis the birth certificate of the ancestor provided by the Italian town from which the same ancestor moved abroad. In some cases this may be a problem, as the descendants of a distant ancestor may not exactly be aware of the little village from where he/she was from.

                        The local Consul must verify that the ancestor never officially renounced Italian citizenship.

                        Using this law many non-citizen persons of Italian nationality could enter Italy.

                        After the long-overdue death of Tito and the dissolution of Yugoslavia, many Italians from the East Adriatic areas could enter Italy under this law. The exodus of this population from the East Adriatic areas is the fourth after 1866 (direct order of oppression by the Austrian Emperor Franz Josef), 1919 (after Woodrow Wilson's decision to favor the new Kingdom of the Croats, Slovenians and Serbs), and 1945-'47 (after the Diktat Peace Treaty).

                        See the study below about returning Argentines:


                        JE comments:  Lots of interesting data in this study.  One number that stands out:  already in 1991 less than 1% of Argentines were Italian-born.  In 1914, one-quarter of the residents of Buenos Aires were born in Italy, and the percentage may have been even higher in 1930.

                        Eugenio, are Argentine immigrant/"returnees" in Italy received with special affection, or are the locals fed up with immigrants regardless of their provenance--unless, of course, you're the Pope?

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              • Venezuela Crisis, Continued: What is to be Done? (Tor Guimaraes, USA 10/18/19 3:08 AM)
                Obviously the US government disagrees with José Ignacio Soler's claim that the US sanctions have had relatively little effect on the Venezuelan crisis (October 10). Otherwise, why would they persist?

                One interesting fact that no one has mentioned in this Forum yet, is that when Erdogan faced the attempted coup some years ago, the Venezuelan government was very sympathetic and offered to help. Under Chávez the Venezuelan gold reserves were physically brought back home.  Now this gold has been used to pay for food and other imports from Turkey. I did not know about this close relationship.

                José Ignacio wrote, "the Venezuelan crisis has been developing for a long time, because of ideological stupidity, ineptitude and corruption. The hypothesis of whether the economy would improve by canceling the sanctions is difficult to answer, but considering only the facts mentioned above, it is obvious this situation would be anyway very difficult to reverse without necessary radical structural reforms, something this regime is hardly capable of doing."

                What does he propose the Venezuelan people do? Replace the present government with a US puppet regime as usual?

                JE comments:  We must be aware that this question could put our friend in a compromising position.  Regarding the impact of the sanctions, would would be in a better place to judge, a citizen in Caracas or the US government?

                Let's explore further the Turkey connection.  I'd like to know more about the Ankara-Caracas axis.  Erdogan himself just faced a few days of US sanctions, and now has agreed to a cease-fire in Northern Syria.  Can we credit Trump with a "win" here?  Granted, does it count as a win when you caused the crisis in the first place?

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      • Venezuela's Petro and Block-Chain Currencies (José Ignacio Soler, Venezuela 10/08/19 12:02 PM)

        In a recent post (October 2nd) about fiat money, John E remarked that the "crypto-currencies" are the most "fiaty" of all. He wrote further, "if the [Venezuelan] Petro was/is based on the block-chain model, doesn't this mean they can be 'mined' by insomniac computer whizzes?" And finally, "if [with the Petro] there's an underlying barrel of oil, then there's no need for the block-chain feature."

        These are three interesting questions.

        First, it seems correct that the crypto-currencies are in principle currencies with no real backup. The original inspiration of this kind of money was to protect the user from a Central Bank's arbitrary use of fiat money with the high risk of inflation or losing its value. These currencies were also a means for anonymous transactions. With a decentralization system (block-chain or distributed ledger), anonymity and a limited amount of money available, the risk is apparently reduced or neutralized.

        Second, of the more than 1000 "cryptos" currently being used, only a few are endorsed by some kind of asset. It seems this backup is unnecessary, because the basic idea of these currencies is to give assurance through its "supposedly unbreakable" and highly sophisticated crypto graphical systems with a set of programmed rules to follow. The reasons some currencies, such as the Petro, use some kind of asset to back up the currency is maybe to create confidence among future investors or users when the currency is initially launched and to assure the public that they are not pyramid (Ponzi) schemes.

        However the Petro, being under the Venezuelan government's control, uses a barrel of oil as a one-to-one backup together with block-chain technology probably to disguise the system as a crypto-currency. In reality it is probably a way to finance itself, which otherwise would be illegal according to country's laws. It seems correct that the use of block chain technology would be unnecessary.

        Finally, if I understand correctly, the main function of the crypto-currency mining process is to issue new currency units, to confirm transactions in the system and to maintain the security in the system. The fact that most crypto-currencies use "blockchain" as the cryptographic encryption system does not necessarily imply "mining" is allowed by the system. This would be the case for the Petro.

        JE comments: José Ignacio, do Venezuelans have any confidence in the Petro?  I'm quite certain the answer is no, but I'd like to know more.  Latin America has a long tradition of "parallel" currencies, such as the Chilean Unidad de Fomento (UF), which is used for real estate and other large purchases:


        So...how about the WAISo? Every unit is backed by a WAIS post! At present, we have 41,820 units in circulation.  More are added daily.  With apologies to our friends in Korea, here's the symbol:

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    • Why No Inflation in the US? (Eugenio Battaglia, Italy 10/02/19 4:15 AM)
      The story is very simple.  As long as the US dominates with its empire, it can print all the fake money it wants.  But when the domination ends all other nations will ask for their money back, and this could mean bankruptcy.

      I hope this doesn't happen, as I receive U$ 350 dollars per month in pension. For me this very good money even if it is not much for 8 years of work.

      JE comments:  Eugenio, is your pension from the shipping company or from Uncle Sam in the form of Social Security?  Either way, pensions are on the WAIS radar of late (recall Robert Schenck's post yesterday).  We could launch a most instructive discussion on pensions around the world--the different types/models, amounts, and challenges.

      Perhaps Eugenio could start with an overview of the Italian system?

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      • My US Social Security (Eugenio Battaglia, Italy 10/04/19 11:24 AM)
        John E asked about my pension from the US. It is Social Security only. I just missed qualifying for an Amoco pension because I worked in the main office in the States for 8 years only, not the minimum of 10 to get the company pension. This has been unfortunate, but for my wife the Chicago winters were too cold, even if she enjoyed Chicago for so many other reasons, especially in her profession as an artist.

        In a future post, I will try to explain the pension system in Italy. Over the years it has been a mess with various systems but from a republic--lay, democratic, and antifascist--what can you expect?

        JE comments:  Something I've been meaning to ask Eugenio for a long time:  I like my republics to be lay, democratic, and antifascist.  Does that make me too mainstream?  Banal?

        Be that as it may, I'd like to hear more experiences of "non-traditional" pensioners in the WAIS ranks.  How may live in a country other than the one paying their retirement?  What are the challenges?

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        • Social Security and US Expats in Mexico; from Joan Nagelkirk (John Eipper, USA 10/07/19 3:10 AM)
          Joan Nagelkirk writes:

          Greetings from the Sequoia National Forest, where am am taking a break from my Mexican life to spend a little time with my two daughters and my grandson.

          In response to Eugenio Battaglia's pension comment, my US Social security payment is automatically deposited into my US bank account. Whenever I need cash I simply write a check in dollars to my Mexican bank and they convert it same day into a deposit in pesos. It is seamless, with no fees.

          But of course that is not a pension, though it seems to me that the same system should work for pension payments.

          And how are you? I enjoy reading the WAIS dialogues.

          JE comments: Doing well, Joan, thanks!  So good to hear from you.

          I first met Joan Nagelkirk at the WAIS '13 conference in Adrian. Formerly of Chicago, she has lived in San Miguel Allende, Mexico, for the last couple of years.  Joan, I'd love to know more about your daily life.  San Miguel can only be described as "cute as a button," and I think every visitor dreams of settling down there.  But at the same time, there are questions of practicality:  when every store in town sells art or tchotchkes, where do you go for your weekly shopping?  And an even more general curiosity:  does it ever get "old" to reside permanently in a tourist Mecca?

          Next up:  Eugenio Battaglia on the pension system in Italy.

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          • The Practicalities of Living in a Tourist Mecca: San Miguel Allende (from Joan Nagelkirk) (John Eipper, USA 10/11/19 4:59 AM)
            Joan Nagelkirk writes:

            John E asked about the practicalities of living in San Miguel Allende.  I stopped the US practice of weekly shopping 18 years ago when I moved to Switzerland. In the central square near my apartment there was a wonderful food market full of locally grown produce every Tuesday, Thursday, and Saturday. I still remember my shock at being asked if the tomatoes were for today or tomorrow. Heaven!

            Similarly in San Miguel, I shop for fresh food at the mercados, which are open every day. The fresh fruit, avocados, tomatoes are at peak ripeness and full of flavor. The main mercado is a 10-minute walk from my house. I also have my favorite pollería, cheese shop, butcher shop, etc. I take much delight in this communal style of shopping with local vendors. The only time I go to La Comer, an American-style supermarket, is when I need to load up on beer, wine, and/or cleaning supplies.

            As to your question about living in a tourist Mecca, at least this one has retained its colonial charm and is not full of high-rises like Cancún or Puerto Vallarta. About 9 months of the year the tourists are not really all that noticeable, but in January, February and March it's a different story. Most of us who live here full time stay out of the tourist areas as much as possible during those months, similar to staying out of European vacation spots during the school vacation months.

            What is somewhat unique here is the rich cultural life supported by full-time expats as well as middle-class Mexicans. For example one of my neighbors, originally from New York, produces bilingual plays and musicals at the San Miguel Playhouse. Likewise for the ProMusica concerts performed by high-quality chamber music groups imported from other cities around the world. And then there is the annual Writers Conference with related Literary Sala events through the year. I am slowly making my way into the Spanish literary scene, thanks to a tennis friend whose husband is a writer. His recent book introduction was my first fully Spanish event. Certainly I missed all the nuances, but I understood enough to grasp what they were talking about, and even caught a few jokes. I hope to do much more of this in the future as my Spanish improves.

            So no, I am not growing tired of living here where people are incredibly warm and welcoming, the weather is perfect, and the cost of living is much less than in Chicago. Quite the contrary actually--I see no reason to go back.

            JE comments:  Joan, where do I sign?  I first visited San Miguel in (gasp) 1984.  Even then I wanted to retire there, although I had yet to start actually working.

            This Latin Americanist wants to know more about the literary scene in San Miguel.  Is there a lot of interaction between the Spanish- and English-language literati?

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            • Language and the Literary Scene in San Miguel de Allende (from Joan Nagelkirk) (John Eipper, USA 10/21/19 3:08 AM)
              Joan Nagelkirk writes:

              When John E commented on my post of October 11th, he asked if there was much interaction between the English- and Spanish-speaking literati of San Miguel de Allende.

              The visual arts are well integrated, aided by the founding of an art school in the 1950s that still offers a well-respected MFA program. A former textile manufacturing facility now provides art workshops and exhibition spaces, along with numerous smaller galleries around town.

              The literary scene is less well integrated. The annual Writers Conference invites writers from Mexico, the USA, and Canada to participate. Events with Spanish speakers have simultaneous translations, but I'd estimate the attendees to be 90% English speakers. Likewise the Spanish book introduction I attended was about 95% Mexican.

              Maybe we need you, John, to move here and be the catalyst for better literary integration.

              JE comments:  Perhaps, Joan--at least for a visit!  We plan to be in Guadalajara (not terribly far away) in March.  Among other delights, San Miguel is home to the world's best ice cream, with flavors like tequila, corn, and rose.

              ¿Hasta marzo?

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              • An Arts Center in Guanajuato, and Mexico's Best Ice Cream (Patrick Mears, Germany 10/21/19 2:15 PM)
                I read with interest Joan Nagelkirk's remarks about interaction between the two groups of literati in San Miguel de Allende.

                I thought of my brother-in-law and his partner, who live one-half of the year in neighboring Guanajuato. They founded an art center in that city that is going strong. This non-profit foundation place is well worth visiting when in Guanajuato and is located at Positos 81, just up the hill from the Alhóndiga de Granaditas in the Zona Centro. The name of the entity is "Foro Cultural 81." Here is the link to the foundation's website:


                My brother-in-law and his partner purchased what had been a semi-derelict building and, over a period of about six years, invested substantial sums and their own labor into renovating this space and litigating with the owner of an adjoining parcel, but finally accomplished their goal. Notwithstanding that they are both Americans, Guanajuato-area artists and musicians often use this space for exhibitions and performances. You can access on the website linked above many photographs of activities that have taken place in this space.

                Finally, I enjoy the ice cream in San Miguel de Allende, but I think that the ice cream sold on the square in Dolores Hidalgo has it beat, hands down.

                JE comments:  A beautiful arts center (check out the website).  I know the Alhóndiga neighborhood well, but Pat Mears has caught a major goof for this Hispanist:  It's not San Miguel that's famous for the exotic ice cream, but another town in Guanajuato state, Dolores Hidalgo.  Given my shame and embarrassment, all I can do is shake my fist:

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        • Italy's Pension System (Eugenio Battaglia, Italy 10/07/19 3:39 AM)
          A couple of days ago our esteemed moderator asked me about the Italian pension system. It is rather complicated as is everything in Italy. We try to make things difficult while the US tries to make things simple. Anyway I will try to present a general overview.

          The first national insurance for invalidity and old age became compulsory in Italy on 21 April 1919, but it was considerably improved by the great social program of the fascist government on 30 December 1929, which included coverage for the widows and orphans, etc. Italy was becoming the most advanced progressive social state in the world (of course the new republic--lay, democratic and antifascist--has cancelled many of the benefits). No wonder that after the 1934 mission of Rexford Tugwell and Raymond Moley and their glowing report on fascist Italy it is possible to find, even if no American will admit it, some genuine fascist ideas in the New Deal.

          After the war the system continued. The age for retirement was generally 55 for women and 60 for men, with a possibility of extending the working time for 5 years or shorten it in the case of a strenuous job. Retired people were entitled to 80% of the average earnings received in the last 5 years and not according to the contributions paid in. Now one's pension is based only on the amount of money contributed during one's working life, while the age for retirement has risen to 67 years.

          A few months ago a temporary reform was enacted, called "quota 100," by which a person 62 years old and with 38 years of contributions can retire. Most probably the new government will cancel that.

          Years ago for some time it was even possible to retire after only 25 years of contributions at any age, but this was later cancelled, as it was certain to bankrupt the system.

          Additionally there are private pensions and for the last few years, a voluntary complementary pension, not attached to the state but to the financial markets.

          People working for some years abroad are covered by international bilateral treaties, with many countries including the US, all of Europe, Australia, etc

          A producer can therefore work in other countries for some years without reaching the minimum period in any single country, but through these treaties the two (or more) countries will accept the total years worked and each one will pay a pension according to the contribution made in each country.

          Of course the combined system, even if excellent, generally pays less than a continuous contribution in a single country.

          One bad thing about US Social Security was (at that time; it may have changed now) a rather low amount that could be paid in.  Let's say if one was earning 100 he or she to contribute only up to 70. Therefore the SS pension is very low.  I never could understood why.

          Finally, taxes are paid in the country where the pension is received. I pay tax on my US SS pension to Italy.

          JE comments:  Pensions worldwide are threatened by the problem of sustainability.  Laws were enacted when people died youngish, and had large families to support them.  I like free stuff as much as the next guy, but imagine having to pay everyone from age 55 (or even 60) 80% of their salary for eternity.

          Hence the move to defined-contribution pensions, instead of the defined-benefit model.  While it's fun to watch your nest egg grow (and we all become a gung-ho capitalists), the underlying theory is this:  you're on your own, Amigo.

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