Venezuela, the Socialist Paradise of Equality, Truth, and Justice, just defaulted on its debt.
S&P Global, the ratings agency for country-level bonds said that Venezuela had been in a 30 day grace period that began in October. That grace period expired yesterday, yet the country did not make a loan payment.
A debt default could exacerbate Venezuela's current problems, namely food & medicine shortages (And at some point, the zoo animals are all going to be eaten).
If enough holders of a particular bond demand full and immediate repayment, it can prompt investors across all Venezuelan bonds to demand the same thing.
Since Venezuela doesn't have the money to pay all its bondholders right now, investors would then be entitled to seize the country's assets -- primarily barrels of oil -- outside its borders. So, all the crude that's currently shipping to Houston or China or whereever could become the property of the bondholders.
The only real liquid (pun not intended) that Venezuela has right now is oil; and if the government can't sell the oil it has produced, then it can't try to right the economy that arrogant, greedy Socialists have been trying to run.
Venezuela and its state-run oil company, PDVSA, owe more than $60 billion just to bondholders. In total, the country owes far more: $196 billion, according to a paper published by the Harvard Law Roundtable and authored by lawyers Mark Walker and Richard Cooper.
Beyond bond payments, Venezuela owes money to China, Russia, oil service providers, U.S. airlines and many other entities. The nation's central bank only has $9.6 billion in reserves because it has slowly drained its bank account over the years to make payments.
The S&P default announcement Monday came after Venezuelan government officials met with bondholders in Caracas. The meeting was reportedly brief and offered no clarity on how the government plans to restructure its debt.
Venezuela is rapidly running out of cash. In 2011, the country had about $30 Billion in cash reserves. In 2017, it's down to less than $10 B.
Venezuela says that the country's problems lay at the feet of the United States. But rational people point out that the Socialists have been in charge of Venezuela since 1999, and the fact that the government tried to "run" the economy to make it "affordable" has simply run it into the ground.
Hugo Chavez started fixing prices for most goods and services from a cup of coffee to the price of gas. He also fixed the exchange rate of the bolivar. So, a farmer that grew guavas couldn't sell his product on the open market when the price was low, because his production costs were way out of line. Importers also couldn't afford to ship in food, knowing they would have to sell at much lower prices than what they paid at the port.
The website dolartoday.com tracks the "unofficial" bolivar exchange rate. At the beginning of 2017, about 3200 Bolivars would buy you $1. Today, that rate has jumped to 55,000 Bolivars to the dollar.
Over the course of the last couple of years, the Maduro government has encouraged people to engage in "urban farming" by growing vegetables in the cities and raising rabbits for food. Other socialists have pointed out the "socialism diet" means that Venezuelanos are now about 20 lbs lighter than they were at the beginning of 2016, ergo they won't have obesity and the diabetes.
Yep. Venezuelans may not die of obesity related illnesses. They'll all just slowly starve to death.