Venezuela What Does It Mean For Global Markets | Steve Hanke and Jimmy Connor
Summary
Venezuela Regime Shift: Extensive discussion on the U.S. operation in Venezuela, highlighting historical precedent, legal framing, and the high complexity of achieving durable regime change.
Rising Inflation: The guest expects inflation to re-accelerate due to lower policy rates, resumed asset purchases, and easier bank regulations boosting money and credit growth.
Monetary Easing: Forecast of a dovish Fed pivot—ending QT, initiating T-bill purchases, and regulatory relief—supporting broader liquidity and risk asset underpinnings.
Venezuelan Bonds: Bonds have been bid up on regime-change hopes; they may get another bid, but ambiguity persists as the ideology and apparatus of the prior regime remain in place.
Energy/Oil Context: Venezuela’s oil output and infrastructure constraints imply limited near-term global supply impact, though broader oil price spikes could amplify inflation risks.
Geopolitical Risk: Potential souring of Latin American relations and uncertain China implications add tail risks but are not presented as immediate investment opportunities.
Market Psychology: “Affordability” and money illusion are emphasized as powerful drivers of voter sentiment and market narratives over the next year.
No Single-Stock Pitch: No specific public company was advocated; the focus was macro themes and sovereign credit dynamics.
Transcript
Steve, thank you very much for joining us today. I want to get your views on what's happening in Venezuela. I know you have done a lot of research in Venezuela and many other South American countries over the years. And the US staged a military campaign in Caracus and arrested President Maduro along with his wife at their residence. And the US used 150 aircraft in 20 different staging areas. Maduro and his wife are now being held at a federal detention center in Brooklyn, New York. and I want to get your views on what this means for the US and US relations with other Latin American countries and also for global stability. >> Okay, Jimmy, u one thing on Venezuela actually I have kept my eye on it really since the mid 1990s. In 1995 and 96 I was president Raphael Caldera's chief economic advisor in Venezuela and and I am the chief adviser to the leader in one in the opposition uh currently in Venezuela. So uh the military operation itself um was an clearly an inside job. I mean there were there were no there was there was no counterattack or resistance of of any kind. So they they paid everybody off that had to be paid off in the security apparatus uh in Venezuela, which doesn't surprise me particularly uh because mo most of those people you can buy and sell any anybody most places actually, not not just Latin America, but particularly in Latin America. So that's part of it, but it it was it was months in preparation. That's clear. And and it was perfectly executed. So that's about all we have to say about that. But but the military operations like this are are very simple things to do and and all primitive in a way. Now the question is what next? that Trump claims that we're the United States is going to run Venezuela. Well, lots of luck, baby. U you know, they got enough trouble governing the United States, let alone Venezuela. So, so, so that's that's kind of delusional thinking, you know, that some somehow you can just it's like turning a switch on a a light on and off, you know, you turn a switch on and do do a military operation as they did, which which usually those, by the way, end up not so smooth. This this one, as far as I can figure out, was perfectly smooth. So at any rate that that's kind of the the the introduction and that is step step one was very complicated took a long time to plan was perfectly executed. Uh but that's that's a that's simple stuff that that's peanuts compared to running or even influencing a country like Venezuela. And you rais a very good point because in the past when the US or anyone else has tried to impose regime change, it never goes well. There's always so many complexities involved. You know, both from a social point of view, an economic point of view, political religion. There's so many elements involved. And we saw this in Afghanistan in 2001, Iraq in 2003, and Libya more recently in 2011. And not one of these countries is better off because of intervention by the West. And so what do you think happens in Venezuela? >> Well, you you you when you look at uh regime change, uh since since World War II, we've u probably had more more or less a hundred or a little over a hundred attempts at regime change and and they rarely lead to any kind of good outcome what whatsoever. And and there are really three ways that they do it, Jimmy. One one is um offensive operations where where it's you're really trying to overthrow a military regime or break up uh the uh establish an established alliance of some sort. So they're they're military. That's the offensive type. And and almost all of those are covert. We we've had a couple of o over military operations since World War II, but most of them are covert. Uh and the second way, it's called preventative operations. And and that's where you're you're trying to prevent the establishment of a military regime or an alliance military alliance, that kind of thing. And and the third one is is the one we're talking about now. The third types that he hegemonic operations and and those are where the hegeimon wants to spread his wings and and and and dominate create basically a vassal state of one sort or another and and in Latin America the relevant thing there is this has been going on for a long time. We had in 1803 1823 I'm sorry uh President Monroe James Monroe established what has been now called the Monroe doctrine and at that time the idea was to keep the European colonist out of Latin America and and then that changed there there was something called the Roosevelt corollary in 1904. four and the Roosevelt corollary uh ramped the Monroe Doctrine way up and it it basically says in short the the US owns Latin America and the US governs Latin America and and Latin America all all the nation states in Latin America are really vassels of the United States and most people don't realize that this this is uh the Roosevelt coralary in 1904. If we just go from 1904 to 1930, not not very long, what what was the US doing? We had in that short period of time 600 times where gunboat diplomacy was used where the where the US sent ships into Latin ports and you know had the guns pointed there and said you you either do what we want you to do or we're going to blast you. So so that happened. We also uh from 1904 to 19 to 1930 the US actually invaded Cuba, Mexico, Guatemala, Honduras, Haiti. We annexed Puerto Rico and and we we we stole a piece of Colombia to create a a a nation state called Panama and and and and established the Panama Canal Authority. So, so there and and the reason that this is important is there there's a question about the legality of what went on in Venezuela and and in American law, it's pretty clear that this is constitutional there. There is it it is legal. Uh if there are any cases that are going to be brought against this, they they'll never go to the Supreme Court. I don't think the Supreme Court would never hear them because it's precedent there. There is no law, but there is precedent and and and cases and the and the precedent as I just indicated obviously even from 1904 to 1930 there was such massive precedent all all of the things that I just listed in that laundry list from 1904 to 1930 after the Roosevelt that's Teddy Roosevelt by the way President Teddy Roosevelt all all of those things existed and uh were deemed legal. So from the American domestic law point of view, all all of the yelling and squeaking and squawking about the unconstitutional action, I would say that that's probably something that could be put in a rubbish bin. It it's just it's it's just doesn't have legs. Now, there's another aspect to the law, and that that's of course international law. And and when you look at that side of the coin, it looks to me like it's illegal. But the point is, the great powers pretty much ignore international law. Even some powers that aren't so great, for example, we I wouldn't I wouldn't argue that Israel, no, no one would term that a great power. and they they clearly completely ignore international law. So that's what's called enemy from the Greek. An enemy is a state of lawlessness. Even even if there is a law with enemy, you you just ignore it. So So it's it's basically irrelevant. So I I would say the two big conclusions I reach is that from a domestic legal point of view, the operation was completely legal. There there's a lot of precedent. From an international point of view, it pretty clearly illegal, but that's kind of irrelevant since we abide by international law when it's convenient and when it's inconvenient, we don't because we're a great power. >> And you mentioned a number of countries that the US has taken over or invaded. And more recently, it was Panama in 1980 or in 1989 when the US went in there and arrested Emanuel Noriega. And then also in 1983, they went in and invaded the country of Granada. Maybe invasion is not the correct word, but they went in there and they were trying to set things right. There was a leftist government ruling that country, >> right? They were regime change operations. They of course give a a patina always there's an excuse you know to some some sort of rationale behind it. The one for Venezuela keeps changing all the time. You know there are all kinds of things coming up. The the latest one today is that you know you've got Hezbollah there in Venezuela connected and you've got Iran but it it changes. Maduro is a a narco trafficker, drug, this that and the other thing, a lot of things. But the the the rationale, by the way, you're you're up there in Toronto today. What what did what did Trump in Trump's first year? He was he was going to take over Canada. He was going to use tariffs to take over Canada. Tariffs, of course, are are like sanctions. are they are a weapon of war in fact and he was he explicitly said that he wanted to use tariffs to take over Canada and and at the same time Greenland came into the picture and now Greenland's come up again within within the last few weeks Greenland is on the radar again the US is going to take over Greenland now Greenland isn't really in the far far from Latin America and Canada's far from Latin America too. But I guess the Monroe doctrine is flexible from a geographic point of view. You you could have a Trump corollary and the Trump correlary to the Monroe doctrine is that anything we want we'll take. That that's basically what's going on. This this is fairly simple stuff. So he's basically sending a message to anyone and everyone the same way Putin did when he invaded Crimea in 2014. >> Well, Crimea, no, that's Crimea is a completely different case. Crimea used to be part of the the Russian Empire. It this is apples and oranges. Putin and Crimea and uh Trump and Venezuela. That's apples and oranges. Venezuela's never been part of the United States. >> And what do you think happens now? Because he's invaded uh Venezuela. Okay. He's removed the president. Who's next? Does he go after Colombia? Does he go after Panama? Does he go after Cuba? >> Well, we we we we don't know about that. Uh um and and so le let's put that on hold. What what comes next is what's going to happen next in Venezuela because the uh vice president who has assumed the presidency to temporarily in in Venezuela all all the the state apparatus is in place and and it looks to me like we have somebody who's assumed the pre office of president. She she's more of an ideologue than MadiRo. Mad MadiRo was was in a in a in an ideological point setting kind of a a nothing ber in in a way. He he he wasn't an ideologue like she is and and like the remaining ones are. Now what what what is the ideology? It's shvisimo. It's the it's the mantra of Huga Cherves and Chiovisimo. And and by the way, what what is Chiovisimo done? uh since 1999. That's when Chaveet, Hugo Chavez took over in 1999 and and passed the reigns when he realized he was dying of cancer passed the reigns to Maduro and and uh what what you have ended up with is of course uh an economic disaster zone. U you've you've had uh I measure the inflation rate there every day. And uh the inflation rate now is the highest in the world, 933%. I just measured it before we started. So uh so they've got a very high inflation, not hyperinflation, it's it's much less than hyperinflation, but it's almost uh you know getting up almost a thousand% per year. In April of 2018, they had a they had a hyperinflation, and that's an inflation where the inflation rate is over 50% per month, and it was 234% in April of 2018. Then they had another episode of hyperinflation in April of 2020 and it was 151% per month. So a and today by the way since the great financial crisis in 2008 the the economy the GDP per capita in Venezuela has shrunk by 63%. So so the the the GDP per capita has collapsed. the inflation has soared with with various episodes of hyperinflation creeping in and and we had Madiraa he stayed in the saddle for 13 years now now why and and it's very easy to explain we had sanctions imposed on Venezuela and sanctions usually create one one thing is a rally around the flag effect so you You get the the the people around the regime rally around the flag. The Venezuelans rally around the flag and any any state in power one by Hook or Krook, he stayed in power for a long time thanks to sanctions and and all we have to do is look at one of the allies of uh the regime in Venezuela. That's Cuba. And Cuba, of course, has been around a a long time since Fidel even lost left the scene. Why? Because you the US imposes sanctions on Cuba. So So sanctions don't work to obtain their desired objective. That's typical. And blockades tend to work and be more effective than sanctions. So, we have a blockade or a partial blockade, not a total one, in Venezuela. So, we'll have to stay tuned on that. See how that works out. And we do know what the record of these covert operations are to induce uh regime change and and the record there isn't very good. So we we we basically have a a a mess on our hands and and we it's very hard to predict what is going to happen and and you mentioned Granada and uh and Panama but those are small potatoes this again not nothing burgers you know I mean Venzo Venezuela is a a big place and complicated with with with lots of political factions. By the way, even the opposition I I think the opposition has six independent parties. It it isn't a there there is a coalition of opposition, but but in fact, it's it's a looseknit coalition that hangs together mainly because they're opposed to the existing regime. and and interestingly enough, Trump uh basically dropped the opposition. >> Oh, I do want to ask you about that. Before we move on, I want to provide a little more context for our viewers. You talked about the inflation rate. What did you say it was year-over-year? >> Yeah, the year-over-year is 923%. So, I guess I shouldn't >> I just measured it today and for the record, I'm I'm the only one that accurately measures the inflation in Venezuela. >> So, I guess I shouldn't be complaining when inflation's running at 8 or 10% in Canada. >> No, I think you should be complaining. I I I'd be I'd be complaining loudly, but but but you know, there there different degrees. >> So, uh I just want to add a little more information. So our viewers have a better understanding of this country. It's a very small country, 28 million people. The GDP is $82 billion. GDP per capita is $3,100. And just to put those numbers into perspective, the state of Maine has a GDP of 90 billion. So the state of Maine has a has a GDP larger than the country of Venezuela, which is quite shocking. >> Yeah. Well, it tell it tells you what they a a long history of economic mismanagement. They and what it can do to you and and and when you put mismanagement on steroids with this shiovisimo, which is a a form of socialism and interventionism, if you will, uh you you you really have just a complete disaster on your hands. And then and then to make things worse, sanctions do have an effect. They they hurt people. You know, sanctions there Lancet, the journal Lancet, prestigious journal, published a study very recently in in which they were able to show empirically that sanctions kill more people than than wars kill combatants. So innocent civilians, more innocent civilians are killed by sanctions every year than combatants are killed that are engaged in war. So basically the the lesson there is anyone who's they put sanctions you know Canada also puts sanctions here there and everywhere. All all those sanctioners have blood on their hands. >> And Steve, why do we see these ongoing ongoing issues in Latin America? I mean like uh there's Honduras, there's Colombia, Venezuela, Argentina, Chile, all these countries have had issues over the years. >> [snorts] >> Well, they they have issues because getting back to this enemy thing, they're they're not they're they're not well-governed. Okay, that's that's that's one thing. Now, what does that mean? It it means are there rules? Is there a rule of law? And if there is are if there are laws, do they follow them or is their enemy? And in a place like Argentina, another place that I know very well, enemy is pervasive. They they have thousands of laws, but they they just don't follow them or they follow them selectively. Needless to say, those in power don't follow. They they do whatever they want to. It's a little bit like the United States doing whatever it wants to in Latin America and not following international law. that that's the that's the name of the game with the great powers. But individually in those in those countries, I would argue enemy is is the the enemy of the of the people because they just they just don't follow the law. So that's that's the big the big problem at at 30,000 ft. And one of the unfortunate things about Venezuela is that it's such a rich country from a resource point of view. It has the largest oil reserves in the world. Uh they're not it's not the best quality oil, very high in sulfur. It's very uh thick, so it takes a lot to process it and to remove all the impurities. But it still produces right now approximately 1 million barrels a day. At its peak, it was closer to 3 million barrels a day. But 80% of its oil exports go to China. And there's also a large number of China nationals in Venezuela. I've read different reports. One said 100,000. Another report said over 200,000. But what are your thoughts on what China does here? And do you think they're very concerned because they get a large amount of oil coming from Venezuela? Oh yeah. Now that might change. >> Yeah. It it isn't 8% to correct you Jimmy at 85. So that so the mo most of the exports are are going to China. Uh >> [snorts] >> I think we we will simply have to wait and see. I I I don't have any prediction really on what what what China will do. The main thing they they want is to be paid back of the money they've loaned the Venezuelans. I I think if they were paid back, they they they'd take a walk and that that would be the end the end of the end of it. But uh the the the main interest they have isn't the receipt of the oil. They they can get oil from lots of other alternatives or there's a lot of oil around. So, uh the the the main the main interest they have really is getting paid back what they're what they're owed. As far as the Venezuelan oil reserves are concerned, the and the state-owned oil company, of course, it's it's completely collapsed under Chiovisimo. I mean, they they don't even maintain. They can't produce even if they wanted to. They they couldn't produce. And it's been steadily going down. As you say, it's it's about 1 million barrels a day. It's that's less than 1% of the of the total world oil production. If if they if they shut down it wouldn't it would it would be again a nothing burger. It it wouldn't have much effect on anything even if they completely shut down. But the interesting part of it is that the at the rate they're exploiting their reserves which are the largest in the world by the way uh the depletion rates only a tenth of a percent and that means that it would take over 400 years for half of the reserves they have to be depleted. Now the economics of that are very interesting because it means if you have to wait over 400 years to get half of the reserves that you have pulled to the surface and marketed and you have any kind of discount rate of any kind, it means that those resources are essentially valueless. So, so the idea that they're a rich nation, no, the way they're exploiting things, they're a poor nation. The reserves aren't worth anything. And, and to put it into context, Exxon, the depletion rate for Exxon is 8% per year. That that means that half of their reserves will be exploited and and marketed, sold, and so forth in less than 10 years. So if you apply any kind of discount rate to that those reserves obviously have a positive value. So, so, so that's that tells you the order of magnitude we're facing or they're facing in Venezuela of getting getting the thing on track and and and and getting getting a depletion rate up to something like Exxons's 8% which is pretty standard with the majors by the way. It it is it's it's more more or less the the medians is is and mean of around 8%. Is going to be huge. The the the effort involved the investment involved in silver would just be massive. And of course the only way you can do that is if you privatize the the the insitu reserves that they have in in Venezuela. So even that process takes a long time. >> And with the US going into into Venezuela, do you think this gives the green light for China going into Taiwan? >> Well, it it would certainly set a precedent, but plus plus remember China and Taiwan, it's a little bit like Russia and Crimea. Crimea was part of the Russian Empire and and of course part of the Soviet Union. Subsequently, China and Ti Taiwan was part it it is part of China. They're having they're engaged in a civil war right now. It's not so hot. So it it's a completely different situation. But because again to to repeat, Venezuela has never been a state of the United States or or even a territory of the United States. Taiwan has been part of mainland China and and the main and the and and and there's very good argument that it still is. and and and along that line of thought, if if that's the case, China and Taiwan are engaged in a civil war. It's it's never stopped. One of the things I'm wondering, Steve, is that even though Maduro has been removed, his his administration is still there. You still have his vice president, the defense minister, the interior minister, all of all of whom have been very a vocal on um on the TV and denouncing what happened. Okay. So, even though there's one the president's gone, you still have all these other people there running the country. I mean, do you really think things are going to change that fast? >> Uh well, no. and and the and and again to repeat myself, the the ones in place now are are more ideologically inclined and and and more uh in the embrace the full embrace of shisimo than than Madiraa which which which tells you a lot about again the difference between a military operation and a and a geopolitical diplomatic operation. They're they're too they're in a different league. The these military things are simpleminded, you know. They're they're for the leather necks to figure out and and and do. But that's pretty straightforward compared to the whole geopolitical as well as internal political situation. And and I don't have the impression that the Americans have any idea what they're doing. I I my in my experience they and and this goes back even to when I was advising President Caldera, the Americans were pretty much clueless. They they had a bunch of third rate people down there. You mentioned the opposition leader, Maria Machado, and Trump was asked her in the presser uh if she would be taking over at some point in the transition and he pretty well dismissed it outright and saying that she has no support or respect within the country. I'm not sure who he was referring to, if it was the military or the people of Venezuela, but what are your thoughts on that? >> Well, number one, his statement is false. She has enormous popularity in uh Venezuela. So, so, so that's that leads me also to my point that that confirms my point that the Americans don't know what in the hell they're doing. They they don't even have the basic information, right? They they the CIA got the information and paid off the right people to get the military and intelligence community and security apparatuses step down and and let them cakewalk in and and get Madiraa. So, okay, that's fine. But but all these other things they're talking about, I I listening to the secretary of state and the president uh as well as other members of officials in the United States, it's pretty clear they have a not a very good grasp of things in Venezuela or or at least publicly they they don't seem to have. if if they know a lot about it, they're not letting us know. and and and and uh I think uh my analysis of of U Maria is that that she's she's so adamant against has been against the military that I think the military told Trump there's no way. So, so I I think the military probably has some cards in Venezuela and and and played them and and and that probably why all of a sudden out out of the blue Trump not only went radio silent on the opposition, he he basically went after him. I mean, he he says that they don't have any popularity or she doesn't have any popularity. That that's not true. She she does have And which gets into the fact that if she if she came back into Venezuela, by the way, the streets would be full uh of positive demonstrations. And and and did we get any demonstrations against the taking of Maduro? No. There there was there was no the population doesn't support the the regime. The population s at least on the street at the street level. >> There's always unintended consequences associated with these actions. What do you see as some of the unintended consequences happening here in the next year as things unfold in Venezuela? Well, you're you're talking about you you want me to predict the the unknown unknowns as Donald Rumsfeld referred to them. I I have no I have no clue. But I I I I anticipate that the current regime that they're dealing with, they're going to have a great deal of trouble with because of this ideological thing. But but I don't know. And and and and if that's the case, we'll see more of these military operations. I I suppose until the United States gets some regime in power that that does what the United States tells it to do. >> It's a fairly simple game. Trump says he's going to run Venezuela. Well, that's that's a little bit delusional because, you know, Venezuela is a big number one a big very complicated country that's been run into the ground and and is going to require, you know, a massive effort to get it get it back up and running right and stabilized and so forth and so on. So, so that I that idea of running it is a little bit delusional. I think what he probably means is that we're we're going to be in a position where we tell whoever we have in power who we're cooperating with what to do and they do it. and and and if that's the if that's the the thinking I I think he will have a great deal of difficulty giving orders to the uh newly appointed u I should say almost self-appointed president of Venezuela >> and how do you think things are going to evolve in terms of relations with other countries in Latin America >> I think generally negative not not not 100%. You you you have had some some o overt support for this uh particularly by Argentina uh President Malay. Uh but I I think uh it will sour relations and do you have any thoughts on how financial markets will react in the coming days to this news? >> Well, the the Venezuelan bonds have been bid up in in anticipation something is going to happen. So, uh, I I suppose they'll get a bid tomorrow. If if if what's happened in the last few weeks is is an indicator, they definitely will be bid tomorrow the the Venezuelan bonds because the bond holders think that if uh Madira is out uh the chances of negotiating some kind of settlement on the debt will uh ensue and and they'll they'll make money. Now the thing is Madira is out but but his regime is not the chisimo is not out. So it's a little bit hard to predict actually may maybe they were betting on the on the Madira out there there would be an immediate regime change that would improve the chances of settling the debt or renegotiating the debt. and and now it's it's a little bit ambiguous because Maduro is out but the regime is not out. >> So we have a lot going on in the world these days. We just had this recent invasion of Venezuela. We still have hostilities in in the Middle East. We still have war going on with Ukraine and Russia. Um do you have any concerns? What or what are your biggest concerns as you look out into 2026? Well, uh, I let let me get back to where you were in Canada with your concern about inflation. I I think uh going domestic, 100% domestic now, not not talking about all these other things all all over the map. uh inflation will end end up I don't think the inflation genie has been put back in the bottle in the United States and and it looks to me like the following things are are kind of in the pipeline that that will loosen monetary policy and and the genie will end up raising its ugly head even further than it is now. And and that is one I I think the open market committee has had so much pressure by the Trump administration and the fact that the labor market's getting a little weaker. Those those two factors will cause Fed funds rate to continue to be ramped down. So that's one thing. quantitative tightening, the shrinkage of the Fed's balance sheet will stop and it's stopped now in in in December. So, so that allows the expansion of the money supply to occur. They've actually switched from quantitative tightening to quantitative easing. They said over the next few months they're going to buy $40 billion of tea bills, the Fed. So, so instead of instead of letting their treasury bonds bills mature and shrink, they're actually going to buy more of them and expand. So, that's the second thing. The third thing in April there'll be a lot of uh unneeded in my view and unwarranted bank capital regulations, supplemental liquidity ratio, uh reserve regulations that will will go by the board and and that will give the commercial banks more firepower to make more loans. And when they make more loans, of course, the money supply expands. the money supply expands eventually inflation expands. So, so I think inflation will be a problem and and it and it will play out in the midterm elections in the United States because which are coming up this year because of this so so-called it will be wrapped into what they call affordability. People are concerned about things that are not affordable. And and why? Because they go to the store and they have sticker shock. Everything in the store is a lot more expensive than it was in the past. Now, some people argue that and the administration's trying to argue that well, yeah, that's that's true. prices, nominal prices, headline prices are up from where they were in 2020 when when the Fed kicked off the huge expansion of the money supply and caused inflation. But incomes have gone up, too. And incomes have gone up for for most people more rapidly than prices have. So, so the real price is is gone actually gone down and and and people shouldn't be worried about affordability. They can afford things because they they make more money and they make more money they've made has gone up more rapidly than the prices on average. The problem with that, there's something called money illusion. And the money illusion says that basically you look at the sticker price and you don't make the adjustment for the in your income. What's happened to that since whatever the base period happens to be that you're running on. So I think money illusion is in the picture. I think this affordability issue has legs and I don't think it's going away because I don't think inflation's going away. So that's that's that's the big I mean it if if if I was Trump and and the party in power, the Republicans, that's what I'd be worried about. Yes, I'm with you 100%. Inflation has not gone away. And um I think the only thing that's saving us right now is the price of oil. It's been under pressure under 60 bucks a barrel. But uh I'll tell you if it takes off, you know, we both know it can get back to 100 bucks like that. Um I'm very concerned about inflation and as you alluded to, they're going to get a new Fed governor in there. They're going to be very dovish. They're going to do anything and everything they can to win this these midterms coming up in November and they're just going to pull out all the stops and they're just going to spend spend spend and get rates down and just keep that economy going, keep the stock market going. God knows where do you think inflation will go when we speak when we speak this time next year. >> We we we really have to have some readings for the money supply. It's it it's it's it's creeping up. It's it's still by the way the road rate of growth is below Hanky's golden growth rate of 6% per year rate consistent with hitting the 2% inflation target. But it has been going up. It's it's almost 5% per year right now. and and the commercial banks which are the biggest contributor to the money supply measured by MDU they're they're actually uh the commercial credit is growing more rapidly than 6%. It's a little over 6%. And I think with the deregulation coming uh as I mentioned in April, I I think very easily the commercial bank uh credit could maybe go up to 10% per year. and and and if they're contributing 80% of the aggregate money supply growth for M2, you you know where that that's going to go north of 6%. So, and and we we did get uh the inflation number, the official rate did come down to 2.7%. It was up to 3% came down to 2.7%. But that was an anomaly because the government was shut down for 43 days and they had they had a big gap in October where they weren't collecting data. They didn't start collecting until about mid November. So So I I I the the current reading is is kind of a should we say a bad read. >> I just doubled the number. year-over-year rate, but they they went a month and a half without collecting data. And and by the way, that that will come back to haunt the picture because next year in October of 2026, there there is there is no October for 2025 data. So what are you going to do then? So, so the the the the the measurement of inflation, the official measurement is is going to be a little distorted and screwed up for, you know, basically a year. >> I just double the number anyway. If the government tells me it's 3%, I just assume it's 6%. [laughter] Because I I know it's a lot more than 3%. >> So So that gets into the money illusion thing and the affordability thing. If if you think that, Jimmy, you're not the only guy in town thinking that. And and and that's the that that's the that's the psychology of the whole thing. And and and and there's no question the affordability thing. H it it does now have legs. It's gotten legs. It it's a it's a real issue in the United States. And I don't think Trump Trump can explain a lot of things away. There's no question about it. He commands the airways. He he he's a whether you like it or not, he gets his message across. But I don't think he will be able to explain this affordability thing away. He he's not he's not going to be like in a professor in a class saying, "No, the price went up by 10%." But, you know, that's not bad because your income went up by 12%. And and you're actually better off than you were when we started this measurement. And and and people are just going to look the other way and said they're looking at the 10%. They're not looking at the 12%. And they're looking at the 10%. And and they're pulling a a Jimmy Connor and saying it's really 20. >> Yeah. And listen, we all know like the price of coffee that's well publicized. It's up 30% year-over-year. The price of beef, depending on what you look at, if you look at ground beef, I believe it's up 15% year-over-year. Like it's never ending. And in terms of the wages, if you work for a large union, yes, your wages have been going up. Okay. Like these airline pilots here in the last year or two years, both in the US and in Canada, they've gotten like 30, 40, 50% wage increases. But if you're just the regular Joe trying to get by, there's no way your wages are being kept up with the rate of inflation. >> Yeah. The the regular Joe is is the regular Joe is the one who makes a lot of noise, but but his the the regular Joe's noise it spread and caught on. You see that's that's the pro that that's the point because the regular Joe he his at the b the bottom end of the income distribution that income of that low income individual has not gone up as fast as inflation. So the example I gave of the kind of median going up faster than inflation, that's not true below the median. And and and and there there are a lot of people below the median. They make a lot of noise. It gets a lot of news. It gets in the press and so forth. And and we we have now remember that we have a new mayor that's just been installed and a new democratic socialist mayor in New York. and and and he's he's m he's made this an issue. He he he's he's a very articulate guy and and he gets his message across like Trump gets his message across and his tr his message has been this affordability thing and and I think it's caught on basically and and I and and I also think it's it's extremely extremely difficult to explain away Well, this has been a great discussion, Steve, and I want to thank you for making the time, especially on such short notice, to talk about such an important global event. And if I want to summarize your your thoughts, it sounds like you're not so concerned about what's happening on a geopolitical point of view. You're more concerned about what's happening domestically within the US, especially from a monetary policy and from an inflation point of view. Well, I let me let me just say I I am worried about the geopolitical thing. I'm worried about that, too. But you said what what most worries you and and and what most worries me is is what the the average American is is more worried about what their balance sheet, their wallet, you know, what's going on with the economy, you know, and and that kind of thing. And and by the way, that's that that gets into the political thing and the affordability thing. Trump's ratings on the economy are very weak. He has he has very poor ratings on the economy. Now, what what if this Venezuela thing turns in into another negative, a geopolitical negative? That is something to factor into the political landscape in the midterm elections. What what if Americans start putting a thumbs down on all the defense department expenditures and and the proactive things? Remember, Trump h has a problem because he advertises himself as a as a president of peace, but but what do we have going on? We didn't talk about it's very clear Ukraine. Okay, the defense department isn't directly involved, but the CIA is it looks to me like the CIA is running the drone operation in the Ukraine. So, so we we have a we we have an engagement there. We're we're clearly involved in Gaza and Syria and the Middle East. Now, now we're in involved clearly in Venezuela. So this this is peace. and and and and and by the way uh one one thing it remains a mystery why why the president of the United States drop from one day to the next the winner of the winner of this this year's Nobel Peace Prize who happens to be the most popular politician in Venezuela when he dropped her and and one conjecture might be well maybe he was sore because he didn't win the prize I guess time will tell. Well, Steve, this has been a great conversation and I want to thank you. If someone would like to follow you online and read more of your thoughts and research, where can they go? they they can go to xsteve_hanky and uh they they'll pick up these regular readings of the inflation in Venezuela as well as as well as other places around the world that that are of of interest from time to time. >> Steve, once again, thank you. >> Thank you, Jimmy. Great to be with you. >> [music] [music]
Venezuela What Does It Mean For Global Markets | Steve Hanke and Jimmy Connor
Summary
Transcript
Steve, thank you very much for joining us today. I want to get your views on what's happening in Venezuela. I know you have done a lot of research in Venezuela and many other South American countries over the years. And the US staged a military campaign in Caracus and arrested President Maduro along with his wife at their residence. And the US used 150 aircraft in 20 different staging areas. Maduro and his wife are now being held at a federal detention center in Brooklyn, New York. and I want to get your views on what this means for the US and US relations with other Latin American countries and also for global stability. >> Okay, Jimmy, u one thing on Venezuela actually I have kept my eye on it really since the mid 1990s. In 1995 and 96 I was president Raphael Caldera's chief economic advisor in Venezuela and and I am the chief adviser to the leader in one in the opposition uh currently in Venezuela. So uh the military operation itself um was an clearly an inside job. I mean there were there were no there was there was no counterattack or resistance of of any kind. So they they paid everybody off that had to be paid off in the security apparatus uh in Venezuela, which doesn't surprise me particularly uh because mo most of those people you can buy and sell any anybody most places actually, not not just Latin America, but particularly in Latin America. So that's part of it, but it it was it was months in preparation. That's clear. And and it was perfectly executed. So that's about all we have to say about that. But but the military operations like this are are very simple things to do and and all primitive in a way. Now the question is what next? that Trump claims that we're the United States is going to run Venezuela. Well, lots of luck, baby. U you know, they got enough trouble governing the United States, let alone Venezuela. So, so, so that's that's kind of delusional thinking, you know, that some somehow you can just it's like turning a switch on a a light on and off, you know, you turn a switch on and do do a military operation as they did, which which usually those, by the way, end up not so smooth. This this one, as far as I can figure out, was perfectly smooth. So at any rate that that's kind of the the the introduction and that is step step one was very complicated took a long time to plan was perfectly executed. Uh but that's that's a that's simple stuff that that's peanuts compared to running or even influencing a country like Venezuela. And you rais a very good point because in the past when the US or anyone else has tried to impose regime change, it never goes well. There's always so many complexities involved. You know, both from a social point of view, an economic point of view, political religion. There's so many elements involved. And we saw this in Afghanistan in 2001, Iraq in 2003, and Libya more recently in 2011. And not one of these countries is better off because of intervention by the West. And so what do you think happens in Venezuela? >> Well, you you you when you look at uh regime change, uh since since World War II, we've u probably had more more or less a hundred or a little over a hundred attempts at regime change and and they rarely lead to any kind of good outcome what whatsoever. And and there are really three ways that they do it, Jimmy. One one is um offensive operations where where it's you're really trying to overthrow a military regime or break up uh the uh establish an established alliance of some sort. So they're they're military. That's the offensive type. And and almost all of those are covert. We we've had a couple of o over military operations since World War II, but most of them are covert. Uh and the second way, it's called preventative operations. And and that's where you're you're trying to prevent the establishment of a military regime or an alliance military alliance, that kind of thing. And and the third one is is the one we're talking about now. The third types that he hegemonic operations and and those are where the hegeimon wants to spread his wings and and and and dominate create basically a vassal state of one sort or another and and in Latin America the relevant thing there is this has been going on for a long time. We had in 1803 1823 I'm sorry uh President Monroe James Monroe established what has been now called the Monroe doctrine and at that time the idea was to keep the European colonist out of Latin America and and then that changed there there was something called the Roosevelt corollary in 1904. four and the Roosevelt corollary uh ramped the Monroe Doctrine way up and it it basically says in short the the US owns Latin America and the US governs Latin America and and Latin America all all the nation states in Latin America are really vassels of the United States and most people don't realize that this this is uh the Roosevelt coralary in 1904. If we just go from 1904 to 1930, not not very long, what what was the US doing? We had in that short period of time 600 times where gunboat diplomacy was used where the where the US sent ships into Latin ports and you know had the guns pointed there and said you you either do what we want you to do or we're going to blast you. So so that happened. We also uh from 1904 to 19 to 1930 the US actually invaded Cuba, Mexico, Guatemala, Honduras, Haiti. We annexed Puerto Rico and and we we we stole a piece of Colombia to create a a a nation state called Panama and and and and established the Panama Canal Authority. So, so there and and the reason that this is important is there there's a question about the legality of what went on in Venezuela and and in American law, it's pretty clear that this is constitutional there. There is it it is legal. Uh if there are any cases that are going to be brought against this, they they'll never go to the Supreme Court. I don't think the Supreme Court would never hear them because it's precedent there. There is no law, but there is precedent and and and cases and the and the precedent as I just indicated obviously even from 1904 to 1930 there was such massive precedent all all of the things that I just listed in that laundry list from 1904 to 1930 after the Roosevelt that's Teddy Roosevelt by the way President Teddy Roosevelt all all of those things existed and uh were deemed legal. So from the American domestic law point of view, all all of the yelling and squeaking and squawking about the unconstitutional action, I would say that that's probably something that could be put in a rubbish bin. It it's just it's it's just doesn't have legs. Now, there's another aspect to the law, and that that's of course international law. And and when you look at that side of the coin, it looks to me like it's illegal. But the point is, the great powers pretty much ignore international law. Even some powers that aren't so great, for example, we I wouldn't I wouldn't argue that Israel, no, no one would term that a great power. and they they clearly completely ignore international law. So that's what's called enemy from the Greek. An enemy is a state of lawlessness. Even even if there is a law with enemy, you you just ignore it. So So it's it's basically irrelevant. So I I would say the two big conclusions I reach is that from a domestic legal point of view, the operation was completely legal. There there's a lot of precedent. From an international point of view, it pretty clearly illegal, but that's kind of irrelevant since we abide by international law when it's convenient and when it's inconvenient, we don't because we're a great power. >> And you mentioned a number of countries that the US has taken over or invaded. And more recently, it was Panama in 1980 or in 1989 when the US went in there and arrested Emanuel Noriega. And then also in 1983, they went in and invaded the country of Granada. Maybe invasion is not the correct word, but they went in there and they were trying to set things right. There was a leftist government ruling that country, >> right? They were regime change operations. They of course give a a patina always there's an excuse you know to some some sort of rationale behind it. The one for Venezuela keeps changing all the time. You know there are all kinds of things coming up. The the latest one today is that you know you've got Hezbollah there in Venezuela connected and you've got Iran but it it changes. Maduro is a a narco trafficker, drug, this that and the other thing, a lot of things. But the the the rationale, by the way, you're you're up there in Toronto today. What what did what did Trump in Trump's first year? He was he was going to take over Canada. He was going to use tariffs to take over Canada. Tariffs, of course, are are like sanctions. are they are a weapon of war in fact and he was he explicitly said that he wanted to use tariffs to take over Canada and and at the same time Greenland came into the picture and now Greenland's come up again within within the last few weeks Greenland is on the radar again the US is going to take over Greenland now Greenland isn't really in the far far from Latin America and Canada's far from Latin America too. But I guess the Monroe doctrine is flexible from a geographic point of view. You you could have a Trump corollary and the Trump correlary to the Monroe doctrine is that anything we want we'll take. That that's basically what's going on. This this is fairly simple stuff. So he's basically sending a message to anyone and everyone the same way Putin did when he invaded Crimea in 2014. >> Well, Crimea, no, that's Crimea is a completely different case. Crimea used to be part of the the Russian Empire. It this is apples and oranges. Putin and Crimea and uh Trump and Venezuela. That's apples and oranges. Venezuela's never been part of the United States. >> And what do you think happens now? Because he's invaded uh Venezuela. Okay. He's removed the president. Who's next? Does he go after Colombia? Does he go after Panama? Does he go after Cuba? >> Well, we we we we don't know about that. Uh um and and so le let's put that on hold. What what comes next is what's going to happen next in Venezuela because the uh vice president who has assumed the presidency to temporarily in in Venezuela all all the the state apparatus is in place and and it looks to me like we have somebody who's assumed the pre office of president. She she's more of an ideologue than MadiRo. Mad MadiRo was was in a in a in an ideological point setting kind of a a nothing ber in in a way. He he he wasn't an ideologue like she is and and like the remaining ones are. Now what what what is the ideology? It's shvisimo. It's the it's the mantra of Huga Cherves and Chiovisimo. And and by the way, what what is Chiovisimo done? uh since 1999. That's when Chaveet, Hugo Chavez took over in 1999 and and passed the reigns when he realized he was dying of cancer passed the reigns to Maduro and and uh what what you have ended up with is of course uh an economic disaster zone. U you've you've had uh I measure the inflation rate there every day. And uh the inflation rate now is the highest in the world, 933%. I just measured it before we started. So uh so they've got a very high inflation, not hyperinflation, it's it's much less than hyperinflation, but it's almost uh you know getting up almost a thousand% per year. In April of 2018, they had a they had a hyperinflation, and that's an inflation where the inflation rate is over 50% per month, and it was 234% in April of 2018. Then they had another episode of hyperinflation in April of 2020 and it was 151% per month. So a and today by the way since the great financial crisis in 2008 the the economy the GDP per capita in Venezuela has shrunk by 63%. So so the the the GDP per capita has collapsed. the inflation has soared with with various episodes of hyperinflation creeping in and and we had Madiraa he stayed in the saddle for 13 years now now why and and it's very easy to explain we had sanctions imposed on Venezuela and sanctions usually create one one thing is a rally around the flag effect so you You get the the the people around the regime rally around the flag. The Venezuelans rally around the flag and any any state in power one by Hook or Krook, he stayed in power for a long time thanks to sanctions and and all we have to do is look at one of the allies of uh the regime in Venezuela. That's Cuba. And Cuba, of course, has been around a a long time since Fidel even lost left the scene. Why? Because you the US imposes sanctions on Cuba. So So sanctions don't work to obtain their desired objective. That's typical. And blockades tend to work and be more effective than sanctions. So, we have a blockade or a partial blockade, not a total one, in Venezuela. So, we'll have to stay tuned on that. See how that works out. And we do know what the record of these covert operations are to induce uh regime change and and the record there isn't very good. So we we we basically have a a a mess on our hands and and we it's very hard to predict what is going to happen and and you mentioned Granada and uh and Panama but those are small potatoes this again not nothing burgers you know I mean Venzo Venezuela is a a big place and complicated with with with lots of political factions. By the way, even the opposition I I think the opposition has six independent parties. It it isn't a there there is a coalition of opposition, but but in fact, it's it's a looseknit coalition that hangs together mainly because they're opposed to the existing regime. and and interestingly enough, Trump uh basically dropped the opposition. >> Oh, I do want to ask you about that. Before we move on, I want to provide a little more context for our viewers. You talked about the inflation rate. What did you say it was year-over-year? >> Yeah, the year-over-year is 923%. So, I guess I shouldn't >> I just measured it today and for the record, I'm I'm the only one that accurately measures the inflation in Venezuela. >> So, I guess I shouldn't be complaining when inflation's running at 8 or 10% in Canada. >> No, I think you should be complaining. I I I'd be I'd be complaining loudly, but but but you know, there there different degrees. >> So, uh I just want to add a little more information. So our viewers have a better understanding of this country. It's a very small country, 28 million people. The GDP is $82 billion. GDP per capita is $3,100. And just to put those numbers into perspective, the state of Maine has a GDP of 90 billion. So the state of Maine has a has a GDP larger than the country of Venezuela, which is quite shocking. >> Yeah. Well, it tell it tells you what they a a long history of economic mismanagement. They and what it can do to you and and and when you put mismanagement on steroids with this shiovisimo, which is a a form of socialism and interventionism, if you will, uh you you you really have just a complete disaster on your hands. And then and then to make things worse, sanctions do have an effect. They they hurt people. You know, sanctions there Lancet, the journal Lancet, prestigious journal, published a study very recently in in which they were able to show empirically that sanctions kill more people than than wars kill combatants. So innocent civilians, more innocent civilians are killed by sanctions every year than combatants are killed that are engaged in war. So basically the the lesson there is anyone who's they put sanctions you know Canada also puts sanctions here there and everywhere. All all those sanctioners have blood on their hands. >> And Steve, why do we see these ongoing ongoing issues in Latin America? I mean like uh there's Honduras, there's Colombia, Venezuela, Argentina, Chile, all these countries have had issues over the years. >> [snorts] >> Well, they they have issues because getting back to this enemy thing, they're they're not they're they're not well-governed. Okay, that's that's that's one thing. Now, what does that mean? It it means are there rules? Is there a rule of law? And if there is are if there are laws, do they follow them or is their enemy? And in a place like Argentina, another place that I know very well, enemy is pervasive. They they have thousands of laws, but they they just don't follow them or they follow them selectively. Needless to say, those in power don't follow. They they do whatever they want to. It's a little bit like the United States doing whatever it wants to in Latin America and not following international law. that that's the that's the name of the game with the great powers. But individually in those in those countries, I would argue enemy is is the the enemy of the of the people because they just they just don't follow the law. So that's that's the big the big problem at at 30,000 ft. And one of the unfortunate things about Venezuela is that it's such a rich country from a resource point of view. It has the largest oil reserves in the world. Uh they're not it's not the best quality oil, very high in sulfur. It's very uh thick, so it takes a lot to process it and to remove all the impurities. But it still produces right now approximately 1 million barrels a day. At its peak, it was closer to 3 million barrels a day. But 80% of its oil exports go to China. And there's also a large number of China nationals in Venezuela. I've read different reports. One said 100,000. Another report said over 200,000. But what are your thoughts on what China does here? And do you think they're very concerned because they get a large amount of oil coming from Venezuela? Oh yeah. Now that might change. >> Yeah. It it isn't 8% to correct you Jimmy at 85. So that so the mo most of the exports are are going to China. Uh >> [snorts] >> I think we we will simply have to wait and see. I I I don't have any prediction really on what what what China will do. The main thing they they want is to be paid back of the money they've loaned the Venezuelans. I I think if they were paid back, they they they'd take a walk and that that would be the end the end of the end of it. But uh the the the main interest they have isn't the receipt of the oil. They they can get oil from lots of other alternatives or there's a lot of oil around. So, uh the the the main the main interest they have really is getting paid back what they're what they're owed. As far as the Venezuelan oil reserves are concerned, the and the state-owned oil company, of course, it's it's completely collapsed under Chiovisimo. I mean, they they don't even maintain. They can't produce even if they wanted to. They they couldn't produce. And it's been steadily going down. As you say, it's it's about 1 million barrels a day. It's that's less than 1% of the of the total world oil production. If if they if they shut down it wouldn't it would it would be again a nothing burger. It it wouldn't have much effect on anything even if they completely shut down. But the interesting part of it is that the at the rate they're exploiting their reserves which are the largest in the world by the way uh the depletion rates only a tenth of a percent and that means that it would take over 400 years for half of the reserves they have to be depleted. Now the economics of that are very interesting because it means if you have to wait over 400 years to get half of the reserves that you have pulled to the surface and marketed and you have any kind of discount rate of any kind, it means that those resources are essentially valueless. So, so the idea that they're a rich nation, no, the way they're exploiting things, they're a poor nation. The reserves aren't worth anything. And, and to put it into context, Exxon, the depletion rate for Exxon is 8% per year. That that means that half of their reserves will be exploited and and marketed, sold, and so forth in less than 10 years. So if you apply any kind of discount rate to that those reserves obviously have a positive value. So, so, so that's that tells you the order of magnitude we're facing or they're facing in Venezuela of getting getting the thing on track and and and and getting getting a depletion rate up to something like Exxons's 8% which is pretty standard with the majors by the way. It it is it's it's more more or less the the medians is is and mean of around 8%. Is going to be huge. The the the effort involved the investment involved in silver would just be massive. And of course the only way you can do that is if you privatize the the the insitu reserves that they have in in Venezuela. So even that process takes a long time. >> And with the US going into into Venezuela, do you think this gives the green light for China going into Taiwan? >> Well, it it would certainly set a precedent, but plus plus remember China and Taiwan, it's a little bit like Russia and Crimea. Crimea was part of the Russian Empire and and of course part of the Soviet Union. Subsequently, China and Ti Taiwan was part it it is part of China. They're having they're engaged in a civil war right now. It's not so hot. So it it's a completely different situation. But because again to to repeat, Venezuela has never been a state of the United States or or even a territory of the United States. Taiwan has been part of mainland China and and the main and the and and and there's very good argument that it still is. and and and along that line of thought, if if that's the case, China and Taiwan are engaged in a civil war. It's it's never stopped. One of the things I'm wondering, Steve, is that even though Maduro has been removed, his his administration is still there. You still have his vice president, the defense minister, the interior minister, all of all of whom have been very a vocal on um on the TV and denouncing what happened. Okay. So, even though there's one the president's gone, you still have all these other people there running the country. I mean, do you really think things are going to change that fast? >> Uh well, no. and and the and and again to repeat myself, the the ones in place now are are more ideologically inclined and and and more uh in the embrace the full embrace of shisimo than than Madiraa which which which tells you a lot about again the difference between a military operation and a and a geopolitical diplomatic operation. They're they're too they're in a different league. The these military things are simpleminded, you know. They're they're for the leather necks to figure out and and and do. But that's pretty straightforward compared to the whole geopolitical as well as internal political situation. And and I don't have the impression that the Americans have any idea what they're doing. I I my in my experience they and and this goes back even to when I was advising President Caldera, the Americans were pretty much clueless. They they had a bunch of third rate people down there. You mentioned the opposition leader, Maria Machado, and Trump was asked her in the presser uh if she would be taking over at some point in the transition and he pretty well dismissed it outright and saying that she has no support or respect within the country. I'm not sure who he was referring to, if it was the military or the people of Venezuela, but what are your thoughts on that? >> Well, number one, his statement is false. She has enormous popularity in uh Venezuela. So, so, so that's that leads me also to my point that that confirms my point that the Americans don't know what in the hell they're doing. They they don't even have the basic information, right? They they the CIA got the information and paid off the right people to get the military and intelligence community and security apparatuses step down and and let them cakewalk in and and get Madiraa. So, okay, that's fine. But but all these other things they're talking about, I I listening to the secretary of state and the president uh as well as other members of officials in the United States, it's pretty clear they have a not a very good grasp of things in Venezuela or or at least publicly they they don't seem to have. if if they know a lot about it, they're not letting us know. and and and and uh I think uh my analysis of of U Maria is that that she's she's so adamant against has been against the military that I think the military told Trump there's no way. So, so I I think the military probably has some cards in Venezuela and and and played them and and and that probably why all of a sudden out out of the blue Trump not only went radio silent on the opposition, he he basically went after him. I mean, he he says that they don't have any popularity or she doesn't have any popularity. That that's not true. She she does have And which gets into the fact that if she if she came back into Venezuela, by the way, the streets would be full uh of positive demonstrations. And and and did we get any demonstrations against the taking of Maduro? No. There there was there was no the population doesn't support the the regime. The population s at least on the street at the street level. >> There's always unintended consequences associated with these actions. What do you see as some of the unintended consequences happening here in the next year as things unfold in Venezuela? Well, you're you're talking about you you want me to predict the the unknown unknowns as Donald Rumsfeld referred to them. I I have no I have no clue. But I I I I anticipate that the current regime that they're dealing with, they're going to have a great deal of trouble with because of this ideological thing. But but I don't know. And and and and if that's the case, we'll see more of these military operations. I I suppose until the United States gets some regime in power that that does what the United States tells it to do. >> It's a fairly simple game. Trump says he's going to run Venezuela. Well, that's that's a little bit delusional because, you know, Venezuela is a big number one a big very complicated country that's been run into the ground and and is going to require, you know, a massive effort to get it get it back up and running right and stabilized and so forth and so on. So, so that I that idea of running it is a little bit delusional. I think what he probably means is that we're we're going to be in a position where we tell whoever we have in power who we're cooperating with what to do and they do it. and and and if that's the if that's the the thinking I I think he will have a great deal of difficulty giving orders to the uh newly appointed u I should say almost self-appointed president of Venezuela >> and how do you think things are going to evolve in terms of relations with other countries in Latin America >> I think generally negative not not not 100%. You you you have had some some o overt support for this uh particularly by Argentina uh President Malay. Uh but I I think uh it will sour relations and do you have any thoughts on how financial markets will react in the coming days to this news? >> Well, the the Venezuelan bonds have been bid up in in anticipation something is going to happen. So, uh, I I suppose they'll get a bid tomorrow. If if if what's happened in the last few weeks is is an indicator, they definitely will be bid tomorrow the the Venezuelan bonds because the bond holders think that if uh Madira is out uh the chances of negotiating some kind of settlement on the debt will uh ensue and and they'll they'll make money. Now the thing is Madira is out but but his regime is not the chisimo is not out. So it's a little bit hard to predict actually may maybe they were betting on the on the Madira out there there would be an immediate regime change that would improve the chances of settling the debt or renegotiating the debt. and and now it's it's a little bit ambiguous because Maduro is out but the regime is not out. >> So we have a lot going on in the world these days. We just had this recent invasion of Venezuela. We still have hostilities in in the Middle East. We still have war going on with Ukraine and Russia. Um do you have any concerns? What or what are your biggest concerns as you look out into 2026? Well, uh, I let let me get back to where you were in Canada with your concern about inflation. I I think uh going domestic, 100% domestic now, not not talking about all these other things all all over the map. uh inflation will end end up I don't think the inflation genie has been put back in the bottle in the United States and and it looks to me like the following things are are kind of in the pipeline that that will loosen monetary policy and and the genie will end up raising its ugly head even further than it is now. And and that is one I I think the open market committee has had so much pressure by the Trump administration and the fact that the labor market's getting a little weaker. Those those two factors will cause Fed funds rate to continue to be ramped down. So that's one thing. quantitative tightening, the shrinkage of the Fed's balance sheet will stop and it's stopped now in in in December. So, so that allows the expansion of the money supply to occur. They've actually switched from quantitative tightening to quantitative easing. They said over the next few months they're going to buy $40 billion of tea bills, the Fed. So, so instead of instead of letting their treasury bonds bills mature and shrink, they're actually going to buy more of them and expand. So, that's the second thing. The third thing in April there'll be a lot of uh unneeded in my view and unwarranted bank capital regulations, supplemental liquidity ratio, uh reserve regulations that will will go by the board and and that will give the commercial banks more firepower to make more loans. And when they make more loans, of course, the money supply expands. the money supply expands eventually inflation expands. So, so I think inflation will be a problem and and it and it will play out in the midterm elections in the United States because which are coming up this year because of this so so-called it will be wrapped into what they call affordability. People are concerned about things that are not affordable. And and why? Because they go to the store and they have sticker shock. Everything in the store is a lot more expensive than it was in the past. Now, some people argue that and the administration's trying to argue that well, yeah, that's that's true. prices, nominal prices, headline prices are up from where they were in 2020 when when the Fed kicked off the huge expansion of the money supply and caused inflation. But incomes have gone up, too. And incomes have gone up for for most people more rapidly than prices have. So, so the real price is is gone actually gone down and and and people shouldn't be worried about affordability. They can afford things because they they make more money and they make more money they've made has gone up more rapidly than the prices on average. The problem with that, there's something called money illusion. And the money illusion says that basically you look at the sticker price and you don't make the adjustment for the in your income. What's happened to that since whatever the base period happens to be that you're running on. So I think money illusion is in the picture. I think this affordability issue has legs and I don't think it's going away because I don't think inflation's going away. So that's that's that's the big I mean it if if if I was Trump and and the party in power, the Republicans, that's what I'd be worried about. Yes, I'm with you 100%. Inflation has not gone away. And um I think the only thing that's saving us right now is the price of oil. It's been under pressure under 60 bucks a barrel. But uh I'll tell you if it takes off, you know, we both know it can get back to 100 bucks like that. Um I'm very concerned about inflation and as you alluded to, they're going to get a new Fed governor in there. They're going to be very dovish. They're going to do anything and everything they can to win this these midterms coming up in November and they're just going to pull out all the stops and they're just going to spend spend spend and get rates down and just keep that economy going, keep the stock market going. God knows where do you think inflation will go when we speak when we speak this time next year. >> We we we really have to have some readings for the money supply. It's it it's it's it's creeping up. It's it's still by the way the road rate of growth is below Hanky's golden growth rate of 6% per year rate consistent with hitting the 2% inflation target. But it has been going up. It's it's almost 5% per year right now. and and the commercial banks which are the biggest contributor to the money supply measured by MDU they're they're actually uh the commercial credit is growing more rapidly than 6%. It's a little over 6%. And I think with the deregulation coming uh as I mentioned in April, I I think very easily the commercial bank uh credit could maybe go up to 10% per year. and and and if they're contributing 80% of the aggregate money supply growth for M2, you you know where that that's going to go north of 6%. So, and and we we did get uh the inflation number, the official rate did come down to 2.7%. It was up to 3% came down to 2.7%. But that was an anomaly because the government was shut down for 43 days and they had they had a big gap in October where they weren't collecting data. They didn't start collecting until about mid November. So So I I I the the current reading is is kind of a should we say a bad read. >> I just doubled the number. year-over-year rate, but they they went a month and a half without collecting data. And and by the way, that that will come back to haunt the picture because next year in October of 2026, there there is there is no October for 2025 data. So what are you going to do then? So, so the the the the the measurement of inflation, the official measurement is is going to be a little distorted and screwed up for, you know, basically a year. >> I just double the number anyway. If the government tells me it's 3%, I just assume it's 6%. [laughter] Because I I know it's a lot more than 3%. >> So So that gets into the money illusion thing and the affordability thing. If if you think that, Jimmy, you're not the only guy in town thinking that. And and and that's the that that's the that's the psychology of the whole thing. And and and and there's no question the affordability thing. H it it does now have legs. It's gotten legs. It it's a it's a real issue in the United States. And I don't think Trump Trump can explain a lot of things away. There's no question about it. He commands the airways. He he he's a whether you like it or not, he gets his message across. But I don't think he will be able to explain this affordability thing away. He he's not he's not going to be like in a professor in a class saying, "No, the price went up by 10%." But, you know, that's not bad because your income went up by 12%. And and you're actually better off than you were when we started this measurement. And and and people are just going to look the other way and said they're looking at the 10%. They're not looking at the 12%. And they're looking at the 10%. And and they're pulling a a Jimmy Connor and saying it's really 20. >> Yeah. And listen, we all know like the price of coffee that's well publicized. It's up 30% year-over-year. The price of beef, depending on what you look at, if you look at ground beef, I believe it's up 15% year-over-year. Like it's never ending. And in terms of the wages, if you work for a large union, yes, your wages have been going up. Okay. Like these airline pilots here in the last year or two years, both in the US and in Canada, they've gotten like 30, 40, 50% wage increases. But if you're just the regular Joe trying to get by, there's no way your wages are being kept up with the rate of inflation. >> Yeah. The the regular Joe is is the regular Joe is the one who makes a lot of noise, but but his the the regular Joe's noise it spread and caught on. You see that's that's the pro that that's the point because the regular Joe he his at the b the bottom end of the income distribution that income of that low income individual has not gone up as fast as inflation. So the example I gave of the kind of median going up faster than inflation, that's not true below the median. And and and and there there are a lot of people below the median. They make a lot of noise. It gets a lot of news. It gets in the press and so forth. And and we we have now remember that we have a new mayor that's just been installed and a new democratic socialist mayor in New York. and and and he's he's m he's made this an issue. He he he's he's a very articulate guy and and he gets his message across like Trump gets his message across and his tr his message has been this affordability thing and and I think it's caught on basically and and I and and I also think it's it's extremely extremely difficult to explain away Well, this has been a great discussion, Steve, and I want to thank you for making the time, especially on such short notice, to talk about such an important global event. And if I want to summarize your your thoughts, it sounds like you're not so concerned about what's happening on a geopolitical point of view. You're more concerned about what's happening domestically within the US, especially from a monetary policy and from an inflation point of view. Well, I let me let me just say I I am worried about the geopolitical thing. I'm worried about that, too. But you said what what most worries you and and and what most worries me is is what the the average American is is more worried about what their balance sheet, their wallet, you know, what's going on with the economy, you know, and and that kind of thing. And and by the way, that's that that gets into the political thing and the affordability thing. Trump's ratings on the economy are very weak. He has he has very poor ratings on the economy. Now, what what if this Venezuela thing turns in into another negative, a geopolitical negative? That is something to factor into the political landscape in the midterm elections. What what if Americans start putting a thumbs down on all the defense department expenditures and and the proactive things? Remember, Trump h has a problem because he advertises himself as a as a president of peace, but but what do we have going on? We didn't talk about it's very clear Ukraine. Okay, the defense department isn't directly involved, but the CIA is it looks to me like the CIA is running the drone operation in the Ukraine. So, so we we have a we we have an engagement there. We're we're clearly involved in Gaza and Syria and the Middle East. Now, now we're in involved clearly in Venezuela. So this this is peace. and and and and and by the way uh one one thing it remains a mystery why why the president of the United States drop from one day to the next the winner of the winner of this this year's Nobel Peace Prize who happens to be the most popular politician in Venezuela when he dropped her and and one conjecture might be well maybe he was sore because he didn't win the prize I guess time will tell. Well, Steve, this has been a great conversation and I want to thank you. If someone would like to follow you online and read more of your thoughts and research, where can they go? they they can go to xsteve_hanky and uh they they'll pick up these regular readings of the inflation in Venezuela as well as as well as other places around the world that that are of of interest from time to time. >> Steve, once again, thank you. >> Thank you, Jimmy. Great to be with you. >> [music] [music]