The

Madness

Of

Socialism

Venezuela’s Bonds Selling at Massive Discounts for Fear of Default

Now comes word that Maduro has resorted to desperation financing — what the Wall Street Journal calls “unorthodox” — by issuing bonds to one of its state-owned banks, which then turned to Haitong Securities USA, a unit of China’s Haitong Securities, to resell them to vulture bond funds in the United States. According to unnamed managers, they were offered at an 80-percent discount. If they can be sold, which is dubious because of the nature of the unregulated black market in which they are being offered, Maduro would receive $1 billion in hard currency in exchange for a promise to pay it back, by 2036. 

Some are likening the move to that of an individual hocking his TV set in order to buy groceries. In the case of Venezuela, Maduro is hocking the country’s future in order to keep himself power for a little longer. Russ Dallen, a managing partner at Caracas Capital, a brokerage house that tracks the company’s bond offerings, said: “Venezuela is borrowing at loan shark rates, as if they were going out of business and had no intention of paying these bonds back.” 

There’s no “as if” about it. The only way those bonds would be redeemed would be from surpluses the government would generate from a thriving economy. Venezuela’s economic woes, on the other hand, are legendary and getting worse. The New American has been tracking Maduro’s — and his country’s decline, reporting on his success in turning one of South America’s richest countries into a banana republic. The economy has shrunk by one-quarter just since 2013. Inflation has turned the paper currency into, well, paper. Unemployment is soaring, critical supplies of medicine are resulting in deaths not only of those sick with otherwise non-life-threatening illnesses, but newborn babies as well. 

This is the human tragedy of socialism. For Maduro it’s not quite the end. Best estimates are that he is hoarding about $10 billion in gold to pay the army, which is keeping the protesters at bay. When those reserves are gone, so will he be.

 DYI