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Trading Any Market

A Walk Down the Dark Road of Bad Government

Politics / Social Issues Mar 24, 2017 - 03:29 PM GMT

By: David_Galland


Dear Parader,

One of the most fascinating traits of the human herd is its willingness to be led off a cliff by political miscreants.

In modern history, we have two perfect examples to illustrate the point: Zimbabwe and Venezuela.

Accompanying me this morning is a song I first heard in the excellent movie, Hell or High Water starring Jeff Bridges and Chris Pine. If you haven’t seen it, I couldn’t recommend it more highly. The song is Dollar Bill Blues by Townes Van Zandt, and I have tacked some other songs of a somewhat similar genre onto it.

And so, with the music playing and a special thanks to Stephen McBride for sharing the research and writing chores for this edition, it’s time to settle in and enjoy the Parade.

Revisiting Rhodesia

From 1923 to 1965, the area known today as Zimbabwe was a self-governing British Crown colony recognized as The Colony of Southern Rhodesia. In 1965, then-Prime Minister Ian Smith led the predominantly white government to declare independence from the United Kingdom and form the state of Rhodesia.

That same year, the Rhodesian Bush War broke out. The war pitted three main forces against one another: there were Smith’s Rhodesian Front government forces, the military wing of the Zimbabwe African National Union (ZANU), and the military wing of the Zimbabwe African People’s Union (ZAPU).

It was a bitter war. Though I have since lost track of them, some years back I befriended a group of young white farmers whose families had lived in the country for generations and heard tales of neighbors murdered in their houses, and how my friends slept with machine guns at hand.

The war ended in a stalemate in 1978 with a total of 30,000 casualties. Under the Internal Settlement Agreement, the country became Zimbabwe-Rhodesia. That led to the Lancaster House Agreement one year later in which the country became Zimbabwe.

In February of 1980, the newly formed country held its first election, which the ZANU party led by Robert Mugabe won in a landslide.

Murderous Mugabe

Robert Mugabe was born to a Bantu family in Southern Rhodesia in 1924. Having worked for a number of years as a teacher, it angered him that his country was a minority-ruled British colony. In response, he joined African nationalist protests calling for an independent black-led state.

In 1963, he was convicted of sedition and imprisoned for 11 years. Upon his release in 1974, he fled to Mozambique and from there established his leadership of ZANU, overseeing their role in the Bush War. He stayed in exile until 1979, when he participated in the Lancaster House Agreement. He won the country’s first elections in 1980 and, today 93 years old, has been its de-facto dictator ever since.

Zimbabwe’s economy enjoyed an initial honeymoon period after Mugabe came to power due to the lifting of economic sanctions, but then went into a downward spiral. Between 1960 and 1970, real GDP growth was 6.1% per annum. From 1971 to 1980, it was 3.1%.

In 1980, the country had the 10th highest gross national income in Africa. Today, it languishes in the bottom 10 countries. Manufacturing grew at 11% per annum between 1965 and 1975, but contracted by 51% from 1997 to 2009.

Since 1991, real GDP growth per annum has averaged -2.1%, and between 1990 and 2008, real per capita income measured in USD dropped by a jarring 50%. In the same period, the poverty rate increased from 42% to 70%. Today, unemployment is a staggering 90%.

Starting in 2001, the country began to experience hyperinflation—breaking a modern record with a mindboggling 230,000,000% inflation in 2007. Prices doubled every 25 hours, and in 2009, the Zimbabwean dollar was effectively abandoned.

Yet throughout it all, Mugabe managed to maintain his grip on the power, invariably by blaming the economic devastation on the shrinking cadre of white farmers who hung on despite the hardships and physical risk.

Land expropriation from whites began as early as 1994, but Mugabe upped the efforts in 2000 when his government fast-tracked “land reform,” using legislation and pure thuggery to transfer productive farming assets owned by whites into the hands of unskilled Mugabe supporters.

As a consequence, the former bread basket of Africa has seen farm output collapse by 58% since 2000. Today, most farms grow tobacco instead of food crops.

The country now requires billions of US dollars in food aid—much of which naturally ends up in the pockets of Mugabe and his cronies. While Mugabe dresses in Savile Row suits and resides in a $12 million mansion, 80% of the population now live on less than $2 per day. The dictator’s estimated net worth is $10 million, but it is likely much higher.

Along with being directly responsible for destroying the previously vibrant economy, Mugabe’s reign has sown the seeds for significant social problems.

Since 1990, life expectancy in Zimbabwe has dropped from age 60 to 46, and maternal mortality rates are up 170%. Today, around 25% of the youth population has AIDS. In 1999, Mugabe’s government introduced nonsensical measures to deal with this problem, including an “AIDS-levy.” However, like most things in Zimbabwe, the program failed and the money allocated for it was stolen. 

Along with turning the “jewel of Africa” into a desolate hellhole, Mugabe has committed terrible atrocities against his own people. In 1983, he sent the North-Korean trained fifth brigade to the ZAPU stronghold of Matabeleland and slaughtered an estimated 25,000 civilians over the course of four years.

The genocide is referred to as the Gukurahundi, “the early rain which washes away the chaff before the spring rains.”

There have been many other incidents like this. Amnesty International estimates that around 70,000 incidents of torture and abuse take place every year in Zimbabwe. Land grabs have removed the majority of white farmers from their homes. Faced with a “fight or flight” situation, 90% of whites have fled Zimbabwe since 1975.

Today, Zimbabwe suffers from mass food shortages while Mugabe just threw a $1.1 million 93rd birthday bash complete with two cooked elephants for himself.

In 2016, Finance Minister Patrick Chinamasa said, “Right now we literally have nothing.”

Yet, despite the directly observable and personally felt pain and hardship caused by Mugabe and his incompetent criminal co-conspirators, the populace continues to suffer quietly. Rather than, say, picking up spears, rocks, and broken bottles, and ending the regime the way it deserves to be ended.

Next up, Venezuela.

A Revolution Is Born

A short three-hour hop across the Gulf of Mexico lies a tropical paradise, blessed with beautiful beaches, gorgeous vistas, and lovely people. Venezuela should be a vibrant tourism hub with one of the highest standards of living in the Americas.

Especially because it also sports a very rich geological endowment of precious metals, including some of the world’s richest gold deposits as well as the largest proven oil reserves in the world.

In the 1970s, when the price of oil was rising, Venezuelan economy and wages enjoyed an uptick. During that decade, the government spent a large amount of the windfall earned from oil on social programs, creating a standard of living that was the envy of neighboring countries.

This all reversed in the 1980s when oil prices collapsed. Economic growth turned negative, and by 1989, inflation had reached a peak of 89%. With the crumbling economy as the backdrop, a young military leader named Hugo Chavez led a failed coup attempt in 1992 and was subsequently imprisoned.

Hugo Chavez was born in 1954 in a working-class family in the rural town of Barinas. In his adolescence, he became dissatisfied with the country’s political system, in part based on the power-sharing Puntofijo Pact, which essentially formalized a sharing of political spoils between the nation’s main political parties.

Chavez became a career military officer and in the 1980s founded the Revolutionary Bolivarian Movement-200 with the objective of overthrowing the government. Following the failed 1992 coup, Chavez served a two-year prison sentence before being rather generously pardoned in 1994 by then-President Rafael Caldera.

Over the next three years, Chavez toured around Latin America in search for foreign support for the Bolivarian Movement, eventually meeting and becoming fast friends with Fidel Castro.

In 1997, Chavez and his supporters founded the Fifth Republic Movement. One year later, Chavez led the party to election victory on a platform of giving power back to the people. As soon as he took office in February 1999, Chavez began imposing his will on the country.

Consolidating Power

Because of the correlation between Venezuela’s economy and the price of oil, when oil prices climbed from the time Chavez took power in 1999, government revenues increased dramatically. This allowed the government to pour money into social programs called “Bolivarian missions.”

At the time of Chavez’s ascent to power, he enjoyed an 80% approval rating, which persisted through his first year. He used his popularity to draft a new constitution that allowed him to take control of all three branches of the government. The new constitution expanded term limits and largely removed checks and balances, handing dictatorial powers to the executive.

In April 2002, Chavez was ousted in a coup, but then, bizarrely, was reinstated as president two days later by Pedro Carmona, the interim president.

After returning to power, Chavez said he wanted to enact “21st century socialism”—and that’s exactly what he did. He nationalized thousands of private firms, the most famous of which was the oil giant PDVSA.

In Chavez’ hostile takeover of PDVSA, he fired 19,000 striking employees and appointed political loyalists to the board instead—none of whom had any experience. Not surprisingly, since 2000, PDVSA’s production has dropped by 50%, and the company has been unable to develop the vast reserves of the Orinoco Belt.

Bolivarian Bust

The social-spending increases and resulting deficits were masked by rising oil prices, but when oil prices collapsed in 2008, the years of deficit spending and price controls caught up with the government.

Today, an estimated 81% Venezuelans live in extreme poverty. Due to the price controls, food imports have plummeted (down 50% in 2016 alone), and the population is starving. The average citizen lost 19 pounds of weight last year—they call it the “Chavez diet.” All this while Chavez’s family fortune is estimated to be around $550 million.

The capital, Caracas, has the highest murder rate in the world, and kidnappings have increased 20-fold since 2000. Because of the upside-down government subsidies, oil is now cheaper than water, and the healthcare system has ground to a halt due to lack of medical supplies.

Chavez largely got away with his follies thanks to his charisma and rising oil prices. The revolutionary died of cancer in 2013, yet even so the populace accepted his handpicked successor, former bus driver and longtime disciple Nicolás Maduro, to continue leading the country into hell.

Unfortunately, as Margret Thatcher once said, “The problem with socialism is that you eventually run out of other people's money.”

Maduro has been doubling down on Chavez’s policies, taking a very bad situation and turning it decidedly ugly. He’s been burning through reserves to keep up payments, but now the government has $15 billion in obligations to meet before the end of the year and only $11 billion in reserves. The country could default on its debt this year.

So Venezuela, which gained $1 trillion from selling oil since 2000, is now broke and its people are starving.

While not as brutal as the Mugabe regime in Zimbabwe, the Chavez/Maduro regime has destroyed property rights and brought the country to its knees. When Chavez took power, there were 13,000 corporations operating in the country. Today, there are less than 4,000. Inflation hit 800% last year, with prices doubling every 16 days.

It’s easy to draw a parallel between Zimbabwe and Venezuela. No matter how much potential or natural resources a country has, once it falls into the wrong hands, it can be completely destroyed.

There’s also another lesson to be learned: No matter how bad things get, the human herd will allow itself to be bullied into complacency.

Any Hope?

Given the long history of humans accepting even devastatingly poor political stewardship, I think the answer is that once a sufficiently sociopathic despot manages to grab the reins of power, there is little hope the broader population can do anything to wrest them back.

That’s because the despots invariably create networks of informants whose bread and butter depends on them ratting out neighbors who openly express their discontent. The government then uses its army of parasitical thugs to publicly punish the troublemakers.

This is not a new playbook, but one that stretches back to the very beginning of human history.

The only real hope is to ensure that the thugs don’t gain power in the first place.

Ironically, if Trump really were the man those on the political left paint him to be, they would be right to fight back as hard as they are against his administration.

However, history tells us that the dictators are far more likely to come from the left—in the form of populists who promise the masses something for nothing, a level playing field, which, of course, is invariably created by squashing the entrepreneurial class.

I don’t think Trump has dictatorial aspirations. While I don’t much care for his affinity for military officers as members of his administration, generally speaking these are law-and-order folks with a deep commitment to the principles of the US Constitution.

What worries me is after Trump, we could see a political blowback driven by the large, angry, and generally misguided Millennials that could lead even the Land of the Free down the dark path of despotism.

Enjoy your life, but be forever vigilant.

Here Come The Clowns

Planet of the Social Justice Warriors

The progressive mindset knows no bounds. Whether it’s decrying Kimono Wednesday at the Museum of Fine Arts in Boston as “cultural appropriation” and “racist imperialism”…

…bashing the cast of the movie Suffragettes for wearing T-shirts that read, “I’d rather be a rebel than a slave” (a clear sign of co-opting the black experience of slavery)…

…or physically attacking a conservative lecturer and his escort, as we’ve recently seen at Middlebury College, VT…

…Social Justice Warriors, or SJWs, are always on the war path.

Thankfully, the SJWs are undermining themselves via their own stupidity. Proof of this can be seen in the many SJW memes and SJW cartoons that are circulating on the Internet today. For your enjoyment, here’s a list of “Common SJW Phrases Translated into English.”

And with that, I will sign off for the week, and probably next week as well. In the morning, we are wheels up for a trip south to Patagonia, and over the Andes into Chile. There, I plan on gorging myself on their world-famous seafood.

Until next time, happy trails!

David Galland
Managing Editor, The Passing Parade

Garret/Galland Research provides private investors and financial service professionals with original research on compelling investments uncovered by our team. Sign up for one or both of our free weekly e-letters. The Passing Parade offers fast-paced, entertaining, and always interesting observations on the global economy, markets, and more. Sign up now… it’s free!

© 2017 David Galland - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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