The Venezuela Myth Keeping Us From Transforming Our Economy

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Modern Monetary Theory (MMT) is getting significant media attention these days, after Alexandria Ocasio-Cortez said in an interview that it should “be a larger part of our conversation” when it comes to funding the Green New Deal. According to MMT, the government can spend what it needs without worrying about deficits. MMT expert and Bernie Sanders advisor Prof. Stephanie Kelton says the government actually creates money when it spends. The real limit on spending is not an artificially imposed debt ceiling but a lack of labor and materials to do the work, leading to generalized price inflation. Only when that real ceiling is hit does the money need to be taxed back, and then not to fund government spending but to shrink the money supply in an economy that has run out of resources to put the extra money to work.

Predictably, critics have been quick to rebut, calling the trend to endorse MMT “disturbing” and “a joke that’s not funny.” In a February 1st post on The Daily Reckoning, Brian Maher darkly envisioned Bernie Sanders getting elected in 2020 and implementing “Quantitative Easing for the People” based on MMT theories. To
debunk the notion that governments can just “print the money” to solve
their economic problems, he raise the specter of Venezuela, where
“money” is everywhere but bare essentials are out of reach for many, the
storefronts are empty, unemployment is at 33%, and inflation is
predicted to hit 1,000,000% by the end of the year.

Blogger Arnold Kling also pointed to the Venezuelan hyperinflation. He described MMT as “the doctrine that because the government prints money, it can spend whatever it wants . . . until it can’t.” He said:

To me, the hyperinflation in Venezuela exemplifies what
happens when a country reaches the “it can’t” point. The country is not
at full employment. But the government can’t seem to spend its way out
of difficulty. Somebody should ask these MMT rock stars about the
Venezuela example.

I’m not an MMT rock star and won’t try to expound on its subtleties.
(I would submit that under existing regulations, the government cannot
actually create money when it spends, but that it should be able to. In
fact MMTers have acknowledged that problem;
but it’s a subject for another article.) What I want to address here is
the hyperinflation issue, and why Venezuelan hyperinflation and “QE for
the People” are completely different animals.

What Is Different About Venezuela

Venezuela’s problems are not the result of the government issuing
money and using it to hire people to build infrastructure, provide
essential services and expand economic development. If it were,
unemployment would not be at 33 percent and climbing. Venezuela has a
problem that the US does not have and will never have: it owes massive
debts in a currency it cannot print itself, namely US dollars. When oil
(its principal resource) was booming, Venezuela was able to meet its
repayment schedule. But when oil plummeted, the government was reduced
to printing Venezuelan Bolivars and selling them for US dollars on
international currency exchanges. As speculators drove up the price of
dollars, more and more printing was required by the government,
massively deflating the national currency.

It was the same problem suffered by Weimar Germany and Zimbabwe, the
two classic examples of hyperinflation typically raised to silence
proponents of government expansion of the money supply before Venezuela
suffered the same fate. Prof. Michael Hudson, an economic rock star who supports MMT principles, has studied the hyperinflation question extensively. He confirms that
those disasters were not due to governments issuing money to stimulate
the economy. Rather, he writes, “Every hyperinflation in history has
been caused by foreign debt service collapsing the exchange rate. The
problem almost always has resulted from wartime foreign currency
strains, not domestic spending.”

Venezuela and other countries that are carrying massive debts in
currencies that are not their own are not sovereign. Governments that
are sovereign can and have engaged in issuing their own currencies for
infrastructure and development quite successfully. A number of
contemporary and historical examples were discussed in my earlier
articles, including in Japan, China, Australia, and Canada.

Although Venezuela is not technically at war, it is suffering from
foreign currency strains triggered by aggressive attacks by a foreign
power. US economic sanctions have been going on for years, causing at
least $20 billion in losses to the country. About $7 billion of its assets are now being held hostage by the US, which has waged an undeclared war against Venezuela
ever since George W. Bush’s failed military coup against President Hugo
Chavez in 2002. Chavez boldly announced the “Bolivarian Revolution,” a
series of economic and social reforms that dramatically reduced poverty
and illiteracy and improved health and living conditions for millions of
Venezuelans. The reforms, which included nationalizing key components
of the nation’s economy, made Chavez a hero to millions of people and
the enemy of Venezuela’s oligarchs.

Nicolas Maduro was elected president following Chavez’s death in 2013
and vowed to continue the Bolivarian Revolution. Like Saddam Hussein
and Omar Qaddafi before him, he defiantly announced that Venezuela would not be trading oil in US dollars, following sanctions imposed by President Trump.

The notorious Elliott Abrams has now been appointed as special envoy
to Venezuela. Considered a criminal by many for covering up massacres
committed by US-backed death squads in Central America, Abrams was among
the prominent neocons closely linked to Bush’s failed Venezuelan coup
in 2002. National Security Advisor John Bolton is another key neocon
architect advocating regime change in Venezuela. At a January 28 press
conference, he held a yellow legal pad prominently displaying the words “5,000 troops to Colombia,” a country that shares a border with Venezuela. Apparently the neocon contingent feels they have unfinished business there.

Bolton does not even pretend that it’s all about restoring
“democracy.” He said on Fox News, “It will make a big difference to the
United States economically if we could have American oil companies
invest in and produce the oil capabilities in Venezuela.” As President Nixon said
of US tactics against Allende’s government in Chile, the point of
sanctions and military threats is to squeeze the country economically.

Killing the Public Banking Revolution in Venezuela

It may be about more than oil, which recently hit record lows in the
market. The US hardly needs to invade a country to replenish its
supplies. As with Libya and Iraq, another motive may be to suppress the
banking revolution initiated by Venezuela’s upstart leaders.

The banking crisis of 2009-10 exposed the corruption and systemic weakness
of Venezuelan banks. Some banks were engaged in questionable business
practices.  Others were seriously undercapitalized.  Others were
apparently lending top executives large sums of money.  At least one
financier could not prove where he got the money to buy the banks he

Rather than bailing out the culprits, as was done in the US, in 2009 the government nationalized seven Venezuelan banks, accounting for around 12% of the nation’s bank deposits.  In 2010, more were taken over.  The government arrested at least 16 bankers and issued more than 40 corruption-related arrest warrants for others who had fled the country. By the end of March 2011, only 37 banks were left, down from 59 at the end of November 2009.  State-owned institutions took a larger role, holding 35% of assets as of March 2011, while foreign institutions held just 13.2% of assets.

Over the howls of the media, in 2010 Chavez took the bold step of
passing legislation defining the banking industry as one of “public
service.”  The legislation specified that 5% of the banks’ net profits
must go towards funding community council projects, designed and
implemented by communities for the benefit of communities. The
Venezuelan government directed the allocation of bank credit to
preferred sectors of the economy, and it increasingly became involved in
the operations of private financial institutions.  By law, nearly half
the lending portfolios of Venezuelan banks had to be directed to
particular mandated sectors of the economy, including small business and

In an April 2012 article
called “Venezuela Increases Banks’ Obligatory Social Contributions,
U.S. and Europe Do Not,” Rachael Boothroyd said that the Venezuelan
government was requiring the banks to give back. Housing was declared a
constitutional right, and Venezuelan banks were obliged to contribute
15% of their yearly earnings to securing it. The government’s Great
Housing Mission aimed to build 2.7 million free houses for low-income
families before 2019. The goal was to create a social banking system
that contributed to the development of society rather than simply
siphoning off its wealth.  Boothroyd wrote:

. . . Venezuelans are in the fortunate position of having
a national government which prioritizes their life quality, wellbeing
and development over the health of bankers’ and lobbyists’ pay checks. 
If the 2009 financial crisis demonstrated anything, it was that
capitalism is quite simply incapable of regulating itself, and that is
precisely where progressive governments and progressive government
legislation needs to step in.

That is also where the progressive wing of the Democratic Party is
stepping in in the US – and why AOC’s proposals evoke howls in the media
of the sort seen in Venezuela.

Article I, Section 8, of the Constitution gives Congress the power to
create the nation’s money supply. Congress needs to exercise that
power. Key to restoring our economic sovereignty is to reclaim the power
to issue money from a commercial banking system that acknowledges no
public responsibility beyond maximizing profits for its shareholders.
Bank-created money is backed by the full faith and credit of the United
States, including federal deposit insurance, access to the Fed’s lending
window, and government bailouts when things go wrong. If we the people
are backing the currency, it should be issued by the people through
their representative government. Today, however, our government does not
adequately represent the people. We first need to take our government
back, and that is what AOC and her congressional allies are attempting
to do.


This article was first published on Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including Web of Debt and The Public Bank Solution. A 13th book
titled Banking on the People: Democratizing Finance in the Digital
Age is due out soon. She also co-hosts a radio program on PRN.FM called “
It’s Our Money.” Her 300+ blog articles are posted at

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