Cyreenik Says:
Hugo Chavez made news in May by announcing the nationalization of some major industries (oil, banking) and by shutting down a popular opposition TV station. These events indicate that Venezuela is well on it's way into a major blunder chain. The next steps will be Chavez announcing that "Venezuela is surrounded by enemies, so it must become more self-sufficient." and "Venezuela is riddled with traitors to the cause, so investigations will be started to root out the traitors."
In short, Chavez is at, or just about at, the point, where he can self-generate the series of crises he needs to stay in power as a socialist totalitarian. He is headed for being either another Castro, or another Allende (of 70's Chile). If he wins for the next few years, he becomes a Castro Jr. If he loses, his replacement becomes a Pinochet Jr. Either way, Venezuela as a community loses, and loses big.
The interesting question is, "Why did the Venezuelan community choose Chavez as a ruler?"
According to the Panic Thinking Theory, the Venezuelans chose him because Venezuela is being stressed in a new and strange way, and, the more conventional leaders have done a poor job of responding to this new stress. They've done a poor job, so the community got worried (stressed), and started looking seriously at more unconventional solutions to their problems. Chavez was one of many possibilities as an unconventional solution, but when he came into power, he proved fairly satisfying as a problem solver.
So, the secret to finding out why Chavez is in power now, and able to act more and more like a totalitarian, is to look for what new change was stressing Venezuela in the 1990's (and is still stressing it now). Find that, and solve that problem, and Chavez will fade away. If the Venezuelans don't find that key, the future is a long series of blunders for them, and a huge amount of wasted resource that could otherwise be used to bring them into developed nationhood.
Interestingly, the 1990's was when Chavez imitated Hitler and the Nazi's and tried to start his rulership with a coup. His coup failed. But then, like Hitler, he moved to using conventional politics as his tool for rising to power. Apparently, even with a few year "cooling off period" the conventional leadership could not reduce Venezuela's social stress, and Chavez was elected.
If Venezuela can solve it's "Chavez problem" without a blunder, it's likely to become a developed nation within a decade or two. If it succumbs to the "blunder chain" of totalitarianism, it is likely to become another Cuba for as long as Chavez can stay in power.
The US Auto Industry has changed dramatically in my lifetime. When I was growing up in the 50's and 60's, cars and steel were the centers of American Culture. Oil companies were nice because they fueled cars, and computer companies were nice because they helped defend us from the Ruskies... and made cars cheaper. But what car you owned was a significant part of your definition as an American.
Now, steel is less of interest than farming, and cars... well, lets say cars have come a long way, baby, and it's been towards the margin of American culture.
The latest symbol of this drift is the DaimlerChrysler divorce. The magnitude of this blunder is about seventy billion dollars over ten years. In other words, for a business blunder, it's a lulu.
This comes on the tail of the Delta auto parts bankruptcy and declining profits and sales for all the American auto makers. Clearly something has changed, and it was a big surprise to the whole US auto industry. The result of that change is that the previously manageable liability of pensions is now considered unmanageable. It was getting rid of the $18 billion pension liability that Chrysler had with its workers that made selling Chrysler for essentially zero value look like a big bargain to Daimler. Daimler bought Chrysler in 1998 for $36 billion in stock, and sold it to Cerebus in 2007 for essentially zero. If Chrysler had had normal growth it would have roughly doubled in value over those nine years. It should have sold for $70 billion, not zero, that's why this is a $70 billion dollar blunder.
The closely related question is: "Why did Cerebus take the plunge?" and the answer to that is closely related to our next topic. Lets discuss it there.
Is this blunder chain finished? It probably is for Daimler, and Daimler management and owners are breathing a collective sigh of relief. But, for Cerebus and the Chrysler family, it's only the middle of the long roller coaster ride that has been Chrysler's history.
Personally, I think Chrysler has pulled all the rabbits out of it's hat. Expect more Chrysler news, and it won't be good.
The Wall Street Journal has been reporting for months now that world liquidity has been rising. The result is more money chasing fewer projects. The result of that is more money is flowing into riskier projects, which is lowering the yield for riskier projects.
The story of Cerebus buying Chrysler off of Daimler is a perfect example of this effect. Cerebus could do this because this year they found they could tap billions of dollars in comparatively low interest financing. If they had attempted this purchase two or three years ago, the money would either have not been available (the deal would be considered too risky) or available at much higher interest rates, which would have meant that Cerebus' turnaround of Chrysler would have had to been much more dramatic to be profitable.
But now is a cheap money time. Another symptom of a cheap money time is that a lot of "world's tallest" skyscrapers are being built.
The big question is, "Why is the money cheap?" The related question is, "How long will it stay cheap?" And the third related question is, "When it stops being cheap, who suffers?"
Money can cheapen for different reasons. The usual reason is inflation -- the government issues more money to chase the same quantity of goods. If inflation is behind the this current liquidity surge, the culprit is the Iraq War. The US is spending billions a year that were not in the budget planning of the 2003 timeframe, and I haven't heard either Republicans or Democrats asking, "Who's going to pay for this?" This usually means issuing bonds is paying for it, for now, and that means inflation. The inflation is being masked by the surge in productivity that the Internet and data communications revolution is bringing to US commerce.
A second, less common, reason is that there has been a change in how financially risky things are. If new financial instruments are invented that significantly reduce risk, then there can be a move of investment into those less-risk areas. When viewed from historical perspective, the new investments look insanely risky, but the new financial instruments have changed the equation. A dramatic example from history was the invention of limited stock companies and improved insurance companies in the early 1600's. These financial improvements helped fuel the merchant trading boom that put England and Holland in the history books. They fueled the boom by making overseas trading less risky to individual investors.
If contemporary hedge funds are changing the risk equation, then this move of money into higher risk activities may be a permanent one. If they are not, then it's "bubble time."
Relating to this is the dramatic boom in the value of shares on the Shanghai stock market exchange. China is booming, but is its booming enough to sustain this rise?
The large size and violence of the G8 demonstrations make them strange... which makes them interesting in Blunder Analysis. The G8 meetings should be comparable to, say, the Noble Prize awards in their media coverage and community interest. Instead for more than a decade now they have drawn a whole lot of grassroots interest, and some of that has been violent.
The media has done little to characterize who is at the demonstrations. They report it as a hodgepodge and give some examples, but they don't deal with the issues of the demonstrators well.
All this adds up to these G8 demonstrations being a laboratory for new counterculture ideas. The people at these demonstrations, and the communities watching them, are presenting a lot of half-baked ideas, and looking for which of them will become the next issue that fires public interest. There are a lot of competing ideas, and should the world community feel a new large stress, a handful of the ideas being presented at these G8 demonstrations will emerge as leading ideas of the next decade.
I view these G8 demonstrations as talking about issues that the world would now be confronting if the 9-11 Disaster had not happened. 9-11 produced the War on Terror in America, which is a long and seriously expensive distraction from the ideas that should have emerged as leading ideas from the G8 demonstrations of the early 2000's.
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