Chavez: The Inflationator

Chavez, in all his infinite wisdom, has discovered a method of curbing inflation in Venezuela and Latin America in general. The elected Fidelista has decided to strip the bolivar of three zeros, thus converting a 1,000 bolivar note into a 1 bolivar note and so on with the rest of the denominations. As ridiculous as it sounds, this is an attempt by dictator Chavez to end the strong presence of inflation in Venezuela. Economists and bankers disapprove of the plan saying that businesses will most likely increase prices in the process of rounding up their inventories to meet the new bolivar specifications.

Being an Austrian, this is one of the funniest articles I have read. Its incredible that people still believe that central banking and inflation are independent of one another. If Chavez really wanted to end inflation in his country, strengthen its economy and currency, then all he would need to do is abolish the central bank and allow a free market in money. That said, communists and free markets obviously don't go together. Communists, like Chavez, love price-fixing, and interest-rate/inflation targeting is no different. Individuals tend to think that price controls on commodities and goods are harmful but apparently the same doesn't apply the financial sector. We have come along way in the field of economics to still believe in central planning, central banking, and financial-market price-fixing.

We'll see where Chavez and his cronies go. It seems that Venezuela will be the Cuba of the 21st century and the Venezuelan people will have egg on their face.