[News] Financial Imperialism: the Case of Venezuela - this is how disaster Capitalism works

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https://www.counterpunch.org/2019/03/05/financial-imperialism-the-case-of-venezuela/ 



  Financial Imperialism: the Case of Venezuela

by Jack Rasmus <https://www.counterpunch.org/author/jack-rasmus/> - 
March 5, 2019
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Invasion of Venezuela by US and its proxies is just around the corner! 
This past week vice-president Pence flew to Colombia once again—for the 
fifth time in recent weeks—to provide final instructions to US local 
forces and proxy allies there for the next step in the US regime change 
plan.

Evidence that the ‘green light’ for regime change and invasion is now 
flashing are supportive public statement by former president, Barack 
Obama, and several high level US Democratic party politicians and 
candidates, directly attacking the Maduro regime.  They are signaling 
Democrat Party support for invasion and regime change. Events will now 
accelerate—just in time perhaps to coincide with the release of Mueller 
Report on Trump.

Behind the scenes it is clear, as it has been for months, that US 
Neocons are once again back in charge of US foreign policy, driving the 
US toward yet another war and attempt at regime change of a foreign 
government.

*US Strategy in Brief*

The US Neocon-led strategy is increasingly clear: establish a 
‘beach-head’ on the Colombian-Venezuelan (and Venezuelan-Brazilian) 
border under the guise of providing humanitarian aid. Use the aid to get 
Venezuelans on the border to welcome the US proxy forces to cross over. 
Set up political and military structures thereafter just inside the 
Venezuelan borders with Colombia and Brazil, from which to launch 
further similar efforts deeper into Venezuela.  Repeat this province by 
province, step by step, penetrating Venezuela space until enough local 
units of the Venezuelan military change sides and convince one or more 
of the Venezuelan military hierarchy to join them. Establish a dual 
state and government within and along the border of the Venezuelan state 
this way. A breakaway State and dual power within the country. Make it 
appear, by manipulating the media, that the Venezuelan people are rising 
up against the Maduro government, when in fact it is US proxy forces 
invading and using opportunist local politicians, military, and others 
in the ‘conquered’ zones, as the media covers for their invasion.

The main ideological justification being used for the invasion and 
regime change is that the Maduro government has grossly mismanaged the 
Venezuelan economy and driven its people into poverty. With Democrats 
now joining Trump and Republicans in support of invasion, the liberal 
mainstream US media, as well as the rightwing alternative media, are 
both pushing the same line, to blunt US opposition to invasion and yet 
another war before the final military assault is launched.  Somehow the 
democratic elections less than a year ago, which returned the Maduro 
government to power, did not represent the ‘will of the people’.  
Explanations how they did not are thin and unconvincing, moreover. Nor 
is any explanation given how US policies and actions have played the 
central role in destroying Venezuela’s currency and economy. And the 
financial measures used to destabilize the economy are especially opaque.

*Financial Imperialism: The Case of Venezuela*

Venezuela today is a classic case how US imperialism in the 21^st 
  century employs financial measures to crush a state and country that 
dares to break away from the US global economic empire and pursue an 
independent course outside the US empire’s web of entangling economic 
and financial relations.

Here’s how US ‘financial imperialism’ has worked, and continues to work, 
with the intent of assisting regime change in the case of Venezuela.

In a world where US Capitalism is the dominant hegemon the US 
currency—the dollar—is the centerpiece of the US global economic empire. 
The dollar serves as the global trading currency as well as the global 
banking reserves currency. More than 85% of all global trade (export and 
import) is done in dollars. Certain commodities, like global oil and oil 
futures contracts, are traded virtually only in dollars.  Recently more 
countries have begun to peg their own currency to the dollar, allowing 
it to move in tandem with the dollar. Some have even eliminated their 
currency altogether and now use only the US dollar as their domestic 
currency. Increasingly as well, more countries are issuing their 
domestic bonds in dollars (i.e. dollar denominated bonds).  And their 
central banks follow the US central bank, the Federal Reserve’s, policy 
as it raises or lowers US interest rates that in turn cause the US 
dollar to rise and fall. They do so even if rising US interest rates 
mean rising rates in their own economies that precipitate recessions and 
mass unemployment. These are all examples of the growing financial 
integration with the US Imperial State and economy.

But even those economies that maintain their own currency are at the 
mercy of the US dollar. Since the dollar is the global trading and 
reserves currency, whenever the dollar rises in value due to US monetary 
policy changes, or US inflationary pressures, or just changes in supply 
or demand for the dollar, the currencies of other countries fall in 
value.  As the dollar rises in value, other currencies fall. That’s how 
global exchange rates work in the 21^st  century global US empire where 
the dollar is the trading-reserves currency. Other currencies—the 
British pound, Euro, and even less so the Japanese Yen or China Yuan—are 
still largely insignificant as reserves or trading currencies. And it 
appears very unlikely they will soon replace the dollar—one of the key 
pillars of the US empire.

The US has the power to engineer a collapse in a country’s currency. A 
collapse in its currency means the price of imported goods rises 
rapidly, especially those goods it can only be obtained by imports—i.e. 
medicines, critical food commodities, intermediate business goods 
necessary for domestic manufacturing, etc.  Accelerating import 
inflation in turn leads to domestic businesses cutting back production 
due to lack of affordable resources, commodities, or parts. Mass layoffs 
follow production cutbacks. Rising inflation brought on by currency 
collapse is thus accompanied by rising unemployment. Wage income and 
consumption in turn collapse and thereafter the economy in general.

Widespread shortages of key imports, inflation, and domestic production 
decline and unemployment brought on by the shortages and inflation 
simultaneously lead to social discontent and loss of support for the 
government.  Opposition groups and parties proclaim these problems are 
due to the mismanagement of the economy by the government, or corruption 
by its leaders, or just socialist policies in general. But in fact the 
economic crisis—i.e. shortages, inflation, production, unemployment—is 
traceable directly to the root cause of the collapse of the currency 
engineered by US imperialist policies intent on crashing the economy as 
a prelude to regime change and economic reintegration to the US global 
economic empire.

There are many ways the US can, and does, cause a collapse of a 
country’s currency. One set of measures are designed to cause a severe 
shortage of dollars in the target country’s economy.

A shortage of dollars drives up the value of the US dollar in the target 
economy which, in turn, drives down the value of the country’s own 
currency.  The US has been engineering a collapse of Venezuela’s 
currency, the Bolivar, now for years—first by causing dollars in 
Venezuela to flow out of the country and, secondly, by measures 
preventing Venezuela from obtaining dollars from abroad.

US policy over the last several years at least has been to force US 
companies doing business in Venezuela to repatriate their dollars back 
to the US or else divert them elsewhere globally among subsidiaries. Or 
just to leave Venezuela and take their dollars with them. US policy has 
also been to publicize and promote wealthier Venezuelans with dollars to 
take them out of the country and invest them in Colombia, where the US 
has arranged an online investment firm with the assistance of its 
Colombian government ally. Rich Venezuelans have been encouraged as well 
to send their money to Miami banks. And to move there in large numbers, 
which they have, taking their dollars with them or dumping their 
Bolivars in exchange for dollars. The outflow of dollars from Venezuela 
has raised the value of dollars that remain in Venezuela on the black 
market there, thereby helping to depress the value of the Bolivar in 
Venezuela even further.

These measures pale, however, to US imperial efforts to prevent 
Venezuela from obtaining dollars in global markets in an effort to try 
to offset the outflow of dollars from the economy.

For example, the US has taken action to prevent US and global banks from 
lending dollars to Venezuela, or from participating in underwriting and 
insuring Venezuelan bond issues which would also raise dollars for 
Venezuela if allowed. Bank loans and bond funding thus dry up, depriving 
the government of alternative sources of dollars.  More dollar shortage; 
more Bolivar domestic currency collapse—i.e. more expensive imports, 
more inflation, more shortages, declining production, rising 
unemployment….more discontent.

The main effort by which the US is attempting to deprive Venezuela of 
dollars is to impose sanctions on other countries that try to buy 
Venezuelan oil.  Oil sales are the number one source of the country’s 
dollar acquisitions, since all oil trade is done in dollars and 
Venezuela depends on 95% of all its government revenues from selling its 
oil. The US imposes sanctions on would be buyers and thus cuts off 
access to dollars, as it simultaneously through other policies works to 
encourage dollar flight out of Venezuela and cut off bank loans and bond 
issuance by the country. And if the prior bonds and loans were ‘dollar 
denominated’, then the lack of dollars to pay the interest and principal 
coming due leads directly to defaults and in turn to business collapse 
and even more unemployment.

Venezuela has turned to selling its oil to China and Russia and a few 
other countries. It has been forced to resort to paying its interest and 
principal on past loans from these governments with shipments of oil 
instead of payments in dollars.  As the US turns to sanctions as an 
economic ‘weapon’ to enforce its will on other countries, which it has 
been doing in recent years, more countries are become aware of the 
tactic and are taking countermeasures. They are dumping dollars (or 
reducing their purchases of dollars in world markets) and buying gold. 
China and Russia are leading this way, while experimenting with 
non-currency dependent trade.

Another recent move by the US to deny Venezuela dollars and collapse its 
currency has been to seize the Venezuelan oil distribution company, 
CITGO in the US. Its remittances back to Venezuela have been in dollars. 
By seizing CITGO, the US deprives the country of yet another source of 
dollars, with which Venezuela might otherwise have been able to purchase 
imports of food, medicines, and other economically critical goods. So 
Venezuelans in this case are clearly forced to forego these critical 
imports due to US policy—not due to economic mismanagement by its 
government. Moreover, adding insult to injury, the dollar funds from 
CITGO seized by the US are being delivered to the Venezuelan 
government’s opponents and its hand-picked ally of the US, Guido. The 
opposition now gets to finance its counter-revolution with the money 
formerly remitted to Venezuela. The counter-revolution is financed at 
the expense of critical goods and services that otherwise might have 
been made available to the Venezuelan people.

Seizure of the CITGO asset is not the only such example of dollar 
deprivation. Other assets in the form of inventories, investments, cash 
in US banks, etc. are also being impounded. And not just from the 
Venezuelan government.  Individual Venezuelan companies and individual 
citizens have been having their assets in the US impounded as well. And 
the US is increasing its pressure on foreign governments to impound and 
seize assets as well—of the government, businesses, and citizens.

The impoundment and seizure has recently been extended as well to 
Venezuelan gold stocks held offshore in other countries, in direct 
violation of international law. Recently the US company and mega bank, 
Citigroup, has been forced to withhold Venezuelan gold in violation of 
its contracts with the country. The Bank of England has also been asked, 
and is complying, with the US demand to freeze Venezuelan gold deposited 
in the UK. And countries like Abu Dhabi, where gold is traded globally, 
have been asked to stop trading in Venezuelan gold. Gold is a substitute 
money for the US dollar. So preventing gold access to Venezuela is like 
preventing dollar access as well. With its gold, Venezuela could more 
easily buy dollars, or trade for goods directly, than with using 
Bolivars that are falling in value and sellers are less likely to take 
as payment.

Countries with economies whose currency is seriously declining in value 
are able to get a loan to stabilize its currency from the International 
Monetary Fund, the IMF.  Recent examples are Argentina, Turkey, South 
Africa, and even Pakistan. But the IMF is an institution set up by the 
US in 1944. The US maintains with its close European allies a majority 
vote on IMF decisions. The IMF does nothing the US does not approve. Its 
mission is to lend to countries in need of stabilizing their 
currencies.  The IMF, however, as an appendage of the US global empire, 
has refused to lend Venezuela anything to help stabilize its currency.

This is in contrast, for example, to the record loan of more than $50 
billion recently provided to Argentina once that country put in its 
current business and US-friendly Macri government. (The record IMF loan, 
by the way, was so that Argentina could pay off debts owed to US and 
other speculators in the early 2000s. So Argentina saw little of that 
$50b. What the payoff did enable, however, was for Macri and other 
Argentinian bankers to go to New York to get new loans from US banks 
once it repaid the speculators, from which Macri and friends no doubt 
personally benefitted immensely).

As the Venezuelan currency collapses due to US arranged dollar 
shortages, Venezuela must print even more Bolivars to enable it to 
purchase what goods from abroad it might still be able to buy.  A 
collapsed currency means the price of imported goods rises 
proportionately.  So more Bolivars are needed to buy the goods that are 
continually rising in price. Printing more Bolivars adds to the supply 
of Bolivars in the economy which raises domestic price inflation even 
further.  But the excess printing is in response to the currency 
collapse which is engineered by the dollar shortage and the falling 
exchange rate in the first place. The over supply of Bolivars is not due 
to mismanagement; it is due to the shortage of dollars and the desperate 
effort by the Venezuelan government to somehow pay for inflating import 
goods.

The falling price of crude oil in 2017-18 added further pressure on the 
Bolivar.  The collapse of oil prices globally appears unrelated to US 
policy. But it wasn’t. The oil Venezuela has been able to continue to 
sell, mostly to China or Russia, declined by 40% in price in 2018. The 
global oil deflation of 2018 thus generated less oil revenue for the 
country and thus fewer dollars.

But that too was due indirectly to US policy and economic conditions.  
The collapsing price of oil in 2018 is directly attributed to US shale 
oil producers raising their output by more than a million barrels a day, 
which increased the world oil supply and depressed world oil prices. The 
US then attempted to manipulate world oil output with Saudi Arabia but 
that exacerbated the over-production and deflation problem still 
further. Here’s how: The US attempted to impose sanctions on Iranian oil 
in 2018. Saudi Arabia believed it would capture the customers that Iran 
would lose, and therefore it, Saudi Arabia, also raised its output of 
crude as US shale producers raised theirs. But Iran was able to continue 
to sell its oil, as US sanctions broke down. The result of the US shale 
overproduction plus Saudi overproduction was a 40% collapse in world oil 
prices in 2018 that further deprived Venezuela of much needed government 
revenue—apart from US sanctions on Venezuela oil sales.

US monetary policy in 2018 further exacerbated the currency crisis in 
Venezuela—as it did elsewhere in Latin America and emerging markets in 
general. In 2017-18 the US central bank launched a policy of raising 
interest rates. Since other world central banks respond to the US 
central bank, world rates began to rise as well.  Rising US interest 
rates caused a rise in the US dollar, and as the dollar rose in 2017-18 
emerging market currencies fell. They fell for Venezuela in part due to 
this effect, as well as due to other causes mentioned.

Falling currencies precipitate what is called ‘capital flight’ out of 
the country. Less money capital means less available for investment and 
thus lower production output and more unemployment. So currency collapse 
precipitates not only inflation but recession as well. To prevent the 
capital fight, emerging market economies raise their own domestic 
interest rates. This led to recession, for example, throughout Latin 
America in 2017-18.  Capital flight out of Venezuela has been 
significant since 2016, as wealthy Venezuelans sent more of their 
dollars out of the country to Miami, thus exacerbating dollar shortages 
in Venezuela and further driving down the value of the Bolivar left behind.

US sanctions on other countries, banks, and companies offshore are 
designed not only to prevent Venezuela access to dollars and money 
capital offshore. Sanctions also target real goods trade, like oil and 
other key commodities.  But there’s another means by which the US shuts 
down the flow of real goods into and from a country, causing shortages 
of critical goods. It’s the US controlled international payments 
exchange system, called SWIFT. This is where US banks arrange the 
exchange and transfer of payments for goods and services by converting 
from one currency to the other and transferring the funds from one bank 
to another across countries.  The US has been preventing Venezuela from 
normally using the SWIFT system. So even if another country is willing 
to buy Venezuela goods, including oil, and exchange Bolivars for its own 
currency, it is prevented from doing so by the US bank-controlled SWIFT 
system.

*Summing Up*

Financial imperialism has been waged against Venezuela for decades, but 
the attack on Venezuela employing financial measures has recently 
intensified as the US neocons and imperialists have accelerated their 
plans to launch a more direct attack by political means, including 
military, to force regime change in Venezuela. At the center of the 
on-going, and now intensifying, financial warfare against the country by 
the US are measures designed to destroy Venezuela’s currency. 
Imperialism is often thought of as military conquest and colonialism. 
That’s 19^th  century British and European imperialism. But the American 
Empire in the 21^st  century does not need colonialism. It has a more 
efficient system for forcing the integration of other economies and for 
extracting value and wealth from the rest of the world.  The US empire 
is increasingly knitted together in the 21^st  century by a deep web of 
financial relationships that afford it multiple levers of economic power 
it can pull if and when it desires. And when those economic and 
financial levers prove insufficient to overthrow  domestic forces and 
governments that remain intent on pursuing a more independent path 
outside the Empire’s economic and political relations, then the 
breakaway State is attacked more directly once the economy is 
sufficiently wrecked. Such is the case of Venezuela today. Financial 
imperialism has paved the way for more direct political and military action.

-- 
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