President Hugo Chavez threatened once again today to expropriate Venezuela’s privately owned banks if they do not start immediately to cooperate with the country’s development by financing the regime’s social works.

“Either give credit or give me the bank. I will pay you later, I will see how I pay you,” the president said during a live transmission via state-owned VTV broadcast from the Tuy IV aqueduct project.

Chavez told Environment Minister Alejandro Hitcher that he should accelerate the Tuy IV project by securing a credit from state-owned banco de Venezuela to finance the purchase of more construction machinery.

But immediately Chavez reversed course and told Hitcher to secure the loan from a private bank. “If the banks won’t give you a loan, tell me and I’ll take charge,” he added.

Yesterday, Chavez threatened to “infiltrate” the Internet to “capture” the “speculators” that he claims are responsible for weakening the parallel market bolivar to BsF 8.20 per dollar for buyers as of 12 May, the day that the legal “permuta” (swap) market shut down.

Chavez also deployed security forces last night including, reportedly, national intelligence service (Sebin) agents on raids against what regime officials described as “illegal” currency brokers. At least one person was arrested. The security sweep was looking for the bloggers who publish the parallel market’s price online, which technically is illegal and punishable with jail time.

Hugo “It’s Not My Fault” Chavez apparently believes that a handful of bloggers are responsible for the currency’s plunge in the parallel market. LOOOOL!!

The “permuta” market stopped operations on 12 May because the National Assembly was rushing to approve reforms to the Ley de Ilicitos Cambiarios on 13 May.

Normally it takes 48 hours to settle currency trades in the “permuta” market, which means that any trades made on Wednesday 12 May would not have been settled until Friday 14 May, one day after legislators were expected to reform the law. Any trades settled on 14 May would have been illegal.

What happens now? Monday is a bank holiday in Venezuela. But the coming week should be interesting.

The reforms approved by the assembly technically have put the grey market (i.e. brokers who were getting their forex from Pdvsa or directly from the Central Bank) out of business, unless they’re friends of Central Bank President Nelson Merentes.

The reforms approved on 13 May also say that the Central Bank now will manage a swap market trading between a floor of BsF 5 and a ceiling of BsF 7 per dollar. Good luck with that.

Holding the BsF within this band will require the Central Bank to sell beaucoup dollars that it does not have because the regime has been looting the country’s foreign exchange reserves since it took control of the bank.

But the fight within the regime continues between Merentes and Planning, Economy & Finance Minister Jorge Giordani.

Merentes argues that any legitimately constituted brokerage firm with a minimum paid-in capital of BsF 15 million (almost $ 3.5 million at the BsF 4.30/$ official FX rate) should be authorized to operate in the “permuta” market.

But Giordani is urging Chavez to take a radical approach that includes shutting down the “permuta” market completely, zero banks and brokers, and centralizing all forex trading in the regime. Is Giordani crazy? “Yes,” says one of the very few real bankers in Venezuela, without an instant’s hesitation.

The reforms approved last week weres less stringent than many feared, so it appears that Merentes won the first round. But the bout between Merentes and Giordani may just be warming up, and given the president’s propensity for always taking the more radical approach whenever he can get away with it, there is substantial cause for concern.

Chavez said just hours ago that in his “humble opinion” Venezuela doesn’t need any private financial brokerage firms because they’re all owned by rich people who manipulate the currency speculatively and cheat the poor.

The president also pledged that in a few days more he would produce the “mathematical proof” that Venezuela doesn’t need any financial brokerages at all.

But no matter how Chavez distorts the numbers, they won’t add up. The problem is that there aren’t enough dollars in the market at present to satisfy normal demand on a daily basis.

It takes between $60 million and $80 million per day to sustain the economy’s basic, normal needs, says former Central Bank chief economist Jose Guerra. That’s $300 million to $400 million per week, or $15.6 billion to $20.8 billion per year.

In a healthy economy with a robust private sector, a well-managed oil industry and other strategic industries (steel, aluminum, etc.) operating efficiently, there would be more than enough hard currency flowing into Venezuela to do away completely with the official multi-tier exchange rate system, dissolve Cadivi and thereby make the “permuta” market unnecessary.

But this is Bolivarian Venezuela, where everything that the regime intervenes collapses within a year of being seized, whether it’s a state-owned or privately owned asset. Pdvsa’s crude production and refining capacity have collapsed. The basic industries in Guayana look more every day like the rusting pile of scrap called Planta Centro near Puerto Cabello. Over 50% of the private manufacturing sector has disappeared in the past decade. The expropriation of millions of hectares has destroyed the country’s capacity to feed itself. At least 1 million Venezuelans with the means, talents and skills needed to prosper and grow elsewhere have left the country.

What’s left? Only the much-diminished Bolivarian petro-state that depends on oil export revenues from abroad and tax revenues from within, but oil exports have collapsed and Seniat’s tax revenues are dropping steadily because the regime has destroyed the private tax-paying bases of the economy. However, the regime also is running out of hard currency, even though oil prices have risen considerably since their lows in 2008-2009.

Since nothing bad that happens to Venezuela is ever the fault of Hugo’s Robolution, it means that the innocent must be punished: brokerage firms, the banks, the Venezuelan people…