We’ll go Down The Rabbit Hole shortly but first, the news. It’s easy to forget about Venezuela’s migration crisis. There hasn’t been much recently in the news but the exodus just goes on,and on,and on. Here are a few migration related items.

 First up we have CNN, in a surprising story, reporting that the Biden administration is returning some Venezuelans apprehended at the southern border of the US to Colombia if they previously resided there. This caused quite a stir as everyone seems to believe that border sovereignty applies everywhere except the US. You don’t hear much about legal immigration  but it’s worth noting that the US admits more legal immigrants annually than any other country in the world. But back to illegal immigration…here’s the trend as far as Venezuelans are concerned. In December, 2020 there were 96 encounters with Venezuelans at the southern border of the US. In December,2021 there were 13,000.

 Here’s another trend for ya’. The International Rescue Committee reports that since 2014 over 350,000 Venezuelans have migrated to the US.

 In another perpetual migration related piece we have G Zero reporting that it seems the Chileans aren’t exactly thrilled with the number of Venezuelans crossing their border. It was previously reported that some of the border towns in Chile are being over run with Venezuelans escaping the horrors of life under 21st Century Bolivarian Socialism.There were recently over 4,000 people in the streets of one border town protesting after a video surfaced showing Venezuela migrants attacking the police. While the behavior in the video is not the norm the protests show that people are growing weary of the flood of Venezuelan migrants everywhere. That number, in case you forgot, is now over 6 million.

 And we have a couple of Venezuela related pieces coming out of Honduras, where they have just elected their first female president.FYI, Kamala Harris made time to go there to attend the festivities. Remember, she is the “border czar” for the migration crisis at the southern border with the US (who has done nothing). I wonder how the president of Guatemala feels about her making time for this but,after making the photo op in Guatemala in June to get to the “root causes” of migration,he hasn’t heard from her…in 8 months…come on…but I digress…

 Merco Press reports that also in attendance in Honduras was the daughter of Hugo Chavez, putting her well wishes out there. She is the wealthiest woman in Venezuela, worth approximately $4 billion. Funny, nobody ever questions where all her money came from or,for that matter, all of Chavez’s other wealthy relatives none of whom were wealthy before Chavez took power. That money couldn’t rightfully belong to the Venezuelan people could it? Here’s a question or two. With north of $500 billion (some say well north)having more or less just just disappeared from Venezuela’s coffers where did it all go? Or,what happened to all those gold reserves? When Chavez repatriated Venezuela’s gold back to Caracas to supposedly “safeguard” it for the Venezuelan people the gold reserves stood at about $32 billion. Today it’s under $5 billion. Or, how is it that in the economic basket case that is Venezuela under Chavismo Venezuela still ranks number 8 in the world in private jet ownership? Just thinking…

 One other note from Honduras…Sputnik reports Venezuela’s Foreign Minister announced that they have restored diplomatic relations with Honduras…Yaayy!

 And on the Covid-19 (or Omicron…or whatever) front we have Caracas Chronicles reporting that Corona virus cases have spiked to new all time highs in Venezuela but it’s not in the news. Social media watchdog Probox reports that in early January there were 10 major social media trends pertaining to the virus/ pandemic. Today there is only one.

 And how’s this for pandemic coverage by the supposedly independent media organization, Telesur. They report there are a record number of Covid-19 cases in… wait for it…Uruguay! No mention of cases in Venezuela.

 Let’s head Down The Rabbit Hole…shall we…

 Without getting into the specifics at each stage of the Chavez/Maduro years let’s just look at the overall structure of the currency controls. There have been 6 different configurations of currency controls in general and 4 different auction mechanisms. Think about that for a second. If you are considering doing business in a country or visiting a country, in most of the world, you have a pretty good idea what the rules are regarding currency conversion. This is especially important in Venezuela where, until recently, it was illegal to transact business in dollars. (Most analysts credit the recent economic advances in Venezuela to the recent relaxing of rules regarding the use of dollars ie; de facto dollarization) In Venezuela they overhauled their currency, on average, every three years or so under Chavismo.Generally the changes involved some new way for the government or well connected Chavistas to profit from the system. Here’s one example that will blow you away, at least if you’re not Venezuelan (they’re used to the Chavista corruption madness).

 In June,2014 this was the scenario :

                                                                  Official Exchange Rate – 6.3 bolivares/dollar

                                                                  Black Market Rate – 71 bolivares/dollar

 Note : The Black Market Rate fluctuated daily while the Official Government Rate remained unchanged for over a year which is a bit suspect when inflation at the time was about 100% (that was the good old days before inflation went to over a million%)

 The government rationed conversion of bolivares to dollars through a Byzantine regime of authorizations so only the well connected were able to get approval to exchange their bolivares for the six point three rate leaving ordinary citizens and businesses to fend for themselves on the black market.Arbitraging between rates became a Chavista obsession and produced many Chavista millionaires (and some billionaires). Here’s how it worked.

 Take 6.3 bolivares and buy a dollar. Sell that dollar on the black market for 71 bolivares. Take that 71 bolivares and buy $11.27. Sell that $11.27 on the black market for 800 bolivares. Take that 800 bolivares and buy $127. In a few simple steps you have just turned EVERY DOLLAR INVESTED INTO $127 !!!

 The world is awash in bank accounts of Chavista millionaires created doing this and siphoning dollars out of government accounts and into their own. If they didn’t take all their money out of the country they took their bolivares and bought hard assets in Venezuela to preserve their (ill gotten) capital.

 With the fall in oil prices and their depressed state for the next few years the government had to be more judicious with allocating dollars for bolivares. Their version of restraint was no money for non-connected individuals, no money for businesses,no money for importing food or medicine,and forget about money for the electric grid, PDVSA, or pretty much anything else. The one area where they did act somewhat responsibly was in continuing to make their bond payments.This was out of self-preservation as they were still borrowing billions and lenders tend to take a dim view of bond defaults.

 As they wound their way through the changes in controls over the next few years one thing was clear.They were not going to do much that would hurt arbitrage opportunities for Chavistas even though the supply of dollars was much tighter. From the 6.3 rate in 2014 they only adjusted the lower rate up to 10 bolivares per dollar.That increased the distortion from an 11 to 1 arbitrage margin to 2,379 to 1 based on black market rates at the time. The really crazy part is that in 2014 Economic Minister, Rafael Ramirez, gave a speech stating that the exchange rate system was not functioning properly.With the collapse in oil prices causing tight revenues,high inflation (if he only knew what was coming),and shortages of food and medicine, reforms needed to be made or the distortions would cause more problems. A few months passed and the only reform made was a new Economic Minister. Ramirez was reassigned to the United Nations.

 More tomorrow….