Saturday, July 07, 2007

Venezuela battling inflation

I find the economic lesson provided by this article on Venezuela's battle against inflation interesting:
"Venezuela has begun to slow public spending and plans to issue some $2.8 billion in bonds and treasury notes by year-end as it seeks to counter inflation, the country's finance minister said Friday.

Finance Minister Rodrigo Cabezas told Dow Jones Newswires in an interview that the idea is to gradually moderate spending while monitoring the economy's response."
I thought this was a Socialist nation so why are they attempting to apply Keynesian economics?

Of course, the selling of bonds and treasury notes is a classic way to soak up cash from the money supply. That is what the US's Federal Reserve does from time to time. What would be more interesting to me is to look at how much money was printed (created) by their version of the central bank in the past 10 years. That would provide insight into the root cause and might give their government better ideas how to fight inflation.

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