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aceventura3 · 12-14-2008, 07:03 AM

Quote:

Originally Posted by filtherton

I heard Venezuela has a surplus this year*, how about that Chavez, Ace?

*actually, I have no idea

I was reading an IBD editorial the other day on this very issue. Here it is:

Quote:

Latin America: With oil, Venezuela's Hugo Chavez fueled a revolution based on Marxism and his own swaggering persona. But with oil prices now plunging, he and his near-dictatorship may also go bust.

What goes up must come down. That's the reality of oil prices, which in the past decade have fluctuated from $9 to $178 a barrel in global markets.

But that reality's been disregarded in Venezuela, where $800 billion in oil earnings in the past decade provided the engine of Hugo Chavez's socialist rule.

Premising his government spending on perpetual rises in oil prices, he's now facing an economy with 40% inflation and not enough foreign reserves to cover exports. It's a classic recipe for trouble.

Wild price fluctuations are a fact of life in the oil industry. They explain why private oil companies aren't as profitable as headlines suggest. Fact is, price highs and lows average out profits to just 9% of revenues over a decade, nothing like the 15% returns seen in other industries, such as drugs.

But even on a price roller coaster, oil companies survive by investing in new production when prices are high, and subsidizing production when they're low. The state of Alaska also does this. Gov. Sarah Palin emphasized to IBD last summer that in managing Alaska's oil bonanza, her priority was "saving for a rainy day."

Petro-states dominated by state-owned oil companies employ no such strategy. In booms, their revenues overwhelm their economies, driving out small, non-oil businesses and leaving oil as the only game in town. They also tempt governments to become dictatorships. Flush with oil cash, rulers can slash taxes for their supporters, who will demand even less transparency and accountability.

But it never lasts, and the hangover when prices fall is always ugly. "I call petroleum the devil's excrement. It brings trouble," as Juan Pablo Perez Alfonso, once Venezuela's oil minister, famously said in 1975. "Look at this lunacy — waste, corruption, consumption, our public services falling apart. And debt, debt we shall have for years."

The sad thing is that Venezuela's Chavez has learned nothing from history. He's ignored every lesson from the past, confident oil would remain high forever, while claiming he'd created a new paradigm. Venezuela's "Bolivarian Revolution," built around one-man rule by Chavez, was "different," he insisted.

After posting a surplus of 12.5% of GDP this year, and spending at least 4.5% of GDP on a stimulus package of soup kitchen offerings, Chavez is now down to his last $87 billion in reserves, having created nothing of permanent value. Next year, S&P estimates a wild swing into deficit by Venezuela, forcing devaluation.

Venezuelan oil prices are now $34 a barrel. Producing 2.3 million barrels a day, down 16% from 2005, and now consuming 795,000 barrels of that, as Caracas investment banker Miguel Octavio estimated on his blog, "The Devil's Excrement," he doesn't even have enough earnings to finance imports. He's given away about 424,000 barrels of oil output, and must make do on sales of about 1 million barrels. With oil down, Chavez has entered the worst phase of the oil cycle.

The cash he used to buy elections in 2004 and 2006 is no more, and his hasty call for a new measure to end term limits — and enable him to be president for life — is pretty much a desperate effort to end any calls for accountability in the wake of the bust.

He's not likely to last in these conditions any more than the other strongmen thrown out in Venezuelan history. The irony is that he sold his revolution on faith in socialism.

In reality, it was an ungodly faith in high oil prices. With oil prices falling, the devil is coming for his due.

IBDeditorials.com: Editorials, Political Cartoons, and Polls from Investor's Business Daily -- Chavez Steps Into 'Devil's Excrement'

P.s. - To the folks who don't like IBD, please spare me the grief about this being an IBD editorial. I have heard it all before. Feel free to check the facts yourself.
-----Added 14/12/2008 at 10 : 07 : 48-----

Quote:

Originally Posted by Tully Mars

I would guess dealing with a budget in any state would take skill and intellect. But I'd say it's safe to say in a state where you have enough income to pay very resident each year it's probably much easier then in a state without such a revenue stream.

Do you think Alaska's natural and other available resources exceeds that of, for example, California? Are you suggesting that managing resources has no role in what many States face today?
-----Added 14/12/2008 at 10 : 10 : 11-----

Quote:

Originally Posted by Derwood

give Vermont the oil revenue from Alaska and i'm positive they'd be in the black

Give me Warren Buffet's money and I would be in the black too. So, what is the point here? I don't get it? Just because Buffet has more money than I do, does that mean that I can't manage my money?

Come on guys, give the lady some credit, gee.

-----Added 14/12/2008 at 10 : 13 : 35-----

Quote:

Originally Posted by highthief

Pretty much. I have no idea about Palin's management of her state's economy, however, in Canada Alberta and Saskatchewan and Newfoundland have been big oil producers these last few years, and guess what? They're in the black. Meanwhile, the traditional economic engine of Canada - Ontario with traditionally strong manufacturing and technology sectors - is suffering this year.

Worldwide, Saudi Arabia, Kuwait, and other petro-dollar nations have been doing well, while places like Germany, the Uk and France have taken a hit.

It's not hard to spot the common denominator.

Ok, again I ask - will your view of Palin change given the decline in the price of oil and Alaska continuing to balance it budget in the future under Palin.

I doubt it. And it is clear to me that some are just "haters" and results and actual job performance don't mean a thing.